Tag Archive for 'Weekly Hours'

Working hours in the OECD

Via Economix, here’s an OECD study of working hours by citizens of it’s member countries.  Here’s the relevant graph:

Much of it is as you’d expect from cultural stereotypes — Western Europe working the least, Japan and Mexico working the most — but I was a little surprised that Australia isn’t above average.  What’s striking — to me, at least — is that hours worked per day doesn’t seem to be a particularly good predictor of income per capita.  In fact, it’s interesting enough that I pulled the GDP per capita data from the OECD to do up a scatter plot:

There’s not much of a relationship at all (R-squared of 0.1) and to the extent that there is one, it’s negative — working more per day is associated with a lower income per capita.  Without Mexico (on the bottom-right), the R-squared drops to 0.04.

Time spent working per day doesn’t correlate significantly with growth rates in (real) GDP per capita, either (I’ve plotted it for 2006 to capture the state of the world before the financial crisis):

At least here the relationship, if you want to pretend there is one, is positive.

Variation in US unemployment

The NY Times brings us a another wonderful graphic.  As of September 2009, white women aged 25 to 34 with a college degree had an unemployment rate of just 3.6%, while black men aged 18 to 24 without a highschool diploma had an unemployment rate of 48.5%.  Change that last group to white men aged 18 to 24 without a highschool diploma and it falls to 25.6%.

In which I respectfully disagree with Paul Krugman

Paul Krugman [Ideas, Princeton, Unofficial archive] has recently started using the phrase “jobless recovery” to describe what appears to be the start of the economic recovery in the United States [10 Feb, 21 Aug, 22 Aug, 24 Aug].  The phrase is not new.  It was first used to describe the recovery following the 1990/1991 recession and then used extensively in describing the recovery from the 2001 recession.  In it’s simplest form, it is a description of an economic recovery that is not accompanied by strong jobs growth.  Following the 2001 recession, in particular, people kept losing jobs long after the economy as a whole had reached bottom and even when employment did bottom out, it was very slow to come back up again.  Professor Krugman (correctly) points out that this is a feature of both post-1990 recessions, while prior to that recessions and their subsequent recoveries were much more “V-shaped”.  He worries that it will also describe the recovery from the current recession.

While Professor Krugman’s characterisations of recent recessions are broadly correct, I am still inclined to disagree with him in predicting what will occur in the current recovery.  This is despite Brad DeLong’s excellent advice:

  1. Remember that Paul Krugman is right.
  2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.

This will be quite a long post, so settle in.  It’s quite graph-heavy, though, so it shouldn’t be too hard to read. 🙂

Professor Krugman used his 24 August post on his blog to illustrate his point.  I’m going to quote most of it in full, if for no other reason than because his diagrams are awesome:

First, here’s the standard business cycle picture:


Real GDP wobbles up and down, but has an overall upward trend. “Potential output” is what the economy would produce at “full employment”, which is the maximum level consistent with stable inflation. Potential output trends steadily up. The “output gap” — the difference between actual GDP and potential — is what mainly determines the unemployment rate.

Basically, a recession is a period of falling GDP, an expansion a period of rising GDP (yes, there’s some flex in the rules, but that’s more or less what it amounts to.) But what does that say about jobs?

Traditionally, recessions were V-shaped, like this:


So the end of the recession was also the point at which the output gap started falling rapidly, and therefore the point at which the unemployment rate began declining. Here’s the 1981-2 recession and aftermath:


Since 1990, however, growth coming out of a slump has tended to be slow at first, insufficient to prevent a widening output gap and rising unemployment. Here’s a schematic picture:


And here’s the aftermath of the 2001 recession:


Notice that this is NOT just saying that unemployment is a lagging indicator. In 2001-2003 the job market continued to get worse for a year and a half after GDP turned up. The bad times could easily last longer this time.

Before I begin, I have a minor quibble about Prof. Krugman’s definition of “potential output.”  I think of potential output as what would occur with full employment and no structural frictions, while I would call full employment with structural frictions the “natural level of output.”  To me, potential output is a theoretical concept that will never be realised while natural output is the central bank’s target for actual GDP.  See this excellent post by Menzie Chinn.  This doesn’t really matter for my purposes, though.

In everything that follows, I use total hours worked per capita as my variable since that most closely represents the employment situation witnessed by the average household.  I only have data for the last seven US recessions (going back to 1964).  You can get the spreadsheet with all of my data here: US_Employment [Excel].  For all images below, you can click on them to get a bigger version.

The first real point I want to make is that it is entirely normal for employment to start falling before the official start and to continue falling after the official end of recessions.  Although Prof. Krugman is correct to point out that it continued for longer following the 1990/91 and 2001 recessions, in five of the last six recessions (not counting the current one) employment continued to fall after the NBER-determined trough.  As you can see in the following, it is also the case that six times out of seven, employment started falling before the NBER-determined peak, too.

Hours per capita fell before and after recessions

Prof. Krugman is also correct to point out that the recovery in employment following the 1990/91 and 2001 recessions was quite slow, but it is important to appreciate that this followed a remarkably slow decline during the downturn.  The following graph centres each recession around it’s actual trough in hours worked per capita and shows changes relative to those troughs:

Hours per capita relative to and centred around trough

The recoveries following the 1990/91 and 2001 recessions were indeed the slowest of the last six, but they were also the slowest coming down in the first place.  Notice that in comparison, the current downturn has been particularly rapid.

We can go further:  the speed with which hours per capita fell during the downturn is an excellent predictor of how rapidly they rise during the recovery.  Here is a scatter plot that takes points in time chosen symmetrically about each trough (e.g. 3 months before and 3 months after) to compare how far hours per capita fell over that time coming down and how far it had climbed on the way back up:


Notice that for five of the last six recoveries, there is quite a tight line describing the speed of recovery as a direct linear function of the speed of the initial decline.  The recovery following the 1981/82 recession was unusually rapid relative to the speed of it’s initial decline.  Remember (go back up and look) that Prof. Krugman used the 1981/82 recession and subsequent recovery to illustrate the classic “V-shaped” recession.  It turns out to have been an unfortunate choice since that recovery was abnormally rapid even for pre-1990 downturns.

Excluding the 1981/82 recession on the basis that it’s recovery seems to have been driven by a separate process, we get quite a good fit for a simple linear regression:


Now, I’m the first to admit that this is a very rough-and-ready analysis.  In particular, I’ve not allowed for any autoregressive component to employment growth during the recovery.  Nevertheless, it is quite strongly suggestive.

Given the speed of the decline that we have seen in the current recession, this points us towards quite a rapid recovery in hours worked per capita (although note that the above suggests that all recoveries are slower than the preceding declines – if they were equal, the fitted line would be at 45% (the coefficient would be one)).

On the symmetry of employment contraction and recovery in US recessions

A couple of days ago I gave some graphs depicting movements in weekly hours worked per capita during US recessions since 1964.  Towards the end, I gave this graph:

Comparing US recessions in hours worked per capita, centred around their troughs

I thought it might be worthwhile to look at this idea further.  Here is the equivalent graph where movements in hours worked per capita are made relative to their actual troughs rather than their actual peaks:

Comparing US recessions in hours worked per capita, centred around and relative to their troughs

At a first glance, recoveries do appear to be somewhat symmetric to their corresponding contractions, although they do also appear to be a bit slower coming back up to falling down in the first place.

I then identified data pairs that are symmetric in time around each trough (e.g. 3 months before and after the trough) and put them in a scatter-plot:

Scatter plot of falls-to-come in weekly hours per capita against subsequent gains in recovery

Points along the 45-degree line here would represent recoveries that were perfectly symmetric with their preceding contraction.  Notice that for five of the six recessions shown, recoveries are in a fairly tight line below the 45-degree line.  By comparison, the recovery following the ’81-’82 recession was especially rapid – it came back up faster than it fell down.

Excluding the ’81-’82 recession on the basis that it’s recovery seems to have been driven by a separate process, a simple linear regression gives a remarkably good fit:


This is a very rough-and-ready analysis.  In particular, I’ve not allowed for any autoregressive component to employment growth during the recovery.  Nevertheless, it is suggestive.

There are more serious efforts in looking at this for the economy as a whole (rather than just hours worked).  James Hamilton is not convinced that it will occur this time.  The oddly rapid recovery in hours worked per capita following the ’81-’82 recession should give us reason to agree with Professor Hamilton, not disagree: it shows that the typical recovery is not guaranteed.  Look back at the scatter-plot of all the recessions.  Notice that the recovery following the ’69-’70 recession was actually quite slow.  It’s fitted line is y = 0.252 x.

For me, the big thing that makes me lean towards Professor Hamilton’s fears of a slower-than-typical recovery is the possibility of zombie banks, or as John Hempton argues, zombie borrowers.  Zombie borrowers should worry us because, if they exist, they are keeping hold of the capital that could (and should) be better placed elsewhere in the economy, which means that those more deserving would-be borrowers are not able to expand and employ more people.

As Hempton argues in the second of his posts, on this basis it is a Good Thing ™ that two of the three US car manufacturers have been forced into a bankruptcy-induced contraction.  Note that Ford only really managed to avoid the same fate by borrowing a huge amount just before the credit markets froze.  It probably needs (from the point of view of the economy as a whole) to follow the same process, whether inside or outside the courts.

But the car manufacturers are by no means the only candidates for the “zombie borrower” epithet.  The really big borrower behind all of the mess in the financial sector is the one at the bottom of all the “toxic” CDOs:  the underwater American households.

Comparison of US recessions in hours worked per capita

Following on from my graphs from January and February‘s data releases, here are some updated graphs based on May’s data release from the BLS [click on each graph to get a bigger version].

First the year-over-year % change in number of production workers, hours worked per member of the workforce and hours worked per capita:

Year-over-year changes in employment and hours worked

A casual inspection of this graph suggests that the current recession is, for employment, about the same as or a little better than the 1973-75 recession, but that is an incorrect interpretation.  This graph effectively shows rates of change, so it’s not just the depth below zero that matters but the time beneath it as well.  As we will shortly see, the current recession is actually quite a bit worse than the ’73-75 recession and the 2001 recession was a lot worse than it looks.

First, though, it’s instructive to zoom-in to the last year or two on the graph:

Year-over-year change in employment and hours worked (zoomed in)

The red line indicates the year-over-year change in employment.  It’s clearly badly negative.  The green line is the change in hours worked per member of the workforce.  This is worse than that for employment because not only are people losing their jobs, but those who keep their jobs are, on average, having their hours cut.  The blue line is the change in hours worked per capita.  This is the worst of the three because in addition to people losing their jobs and those with jobs having their hours cut, some of those without jobs have given up looking.  Notice that the blue and green lines were pretty close together at first.  This suggests that in the first half of the current recession, people who lost their jobs were staying in the workforce in the hope of finding work, while it was only in the second half that some of the unemployed started to lose hope and give up looking.

In comparing recessions, I prefer to use the hours-worked-per-capita metric because it captures much more of the employment picture than just employment figures or total hours worked.  Here is a comparison between recessions dating back to 1964, centred around their NBER-determined peak in economic activity:

Comparing hours worked per capita in US recessions relative to NBER-determined peaks in economic activity

Notice that hours worked per capita tend to have been falling for some time before the NBER-determined peak in economic activity.  This is because employment is not the be all and end all of the economy and the dating committee has to take those other elements into account as well.

Now we rebase that comparison so each recession is relative to it’s actual peak in hours worked per capita:

Comparing US recessions relative to actual peaks in hours worked per capita

This gives us a true measure of the depth of each recession with respect to employment.  We can see that the ’71-75 and 2001 recessions reached about the same depth and that the current recession has now gone lower than either of them.  Since it is reasonable to assume that the USA will continue to lose jobs (or at least hours worked) in the next couple of months, we can safely call the current recession the worst of this group of seven.

Finally, I thought it worthwhile to compare the falls relative to actual peaks, but centred around each recession’s trough in hours worked per capita (for comparison purposes, I have assumed that the current recession’s trough was in May ’09):

Comparing US recessions in hours worked per capita, centred around their troughs

This graph gives some hope to those imagining a quick recovery.  While the recoveries do tend to be a little slower than the recessions, there does appear to be some symmetry around the troughs.