The latest monthly report from the Bureau of Labor Statistics showed massive gains in March—the strongest in seven months—indicating that economic growth is gaining speed. Economist Austan Goolsbee explains why he’s optimistic, what kind of numbers we need to keep seeing to realize a full recovery, and how the report proves that even though some think high unemployment insurance payments will disincentivize people from returning to work, a lack of jobs is actually what’s driving unemployment rates.
Austan Goolsbee is the Robert P. Gwinn Professor of Economics at the University of Chicago Booth School of Business. He previously served as the Chairman of the Council of Economic Advisers and a member of President Obama’s Cabinet.
Twitter: @Austan_Goolsbee
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Strong job growth in March as vaccine distribution expands and the American Rescue Plan ramps up: https://www.epi.org/blog/strong-job-growth-in-march-as-vaccine-distribution-expands-and-the-american-rescue-plan-ramps-up/
The soft underbelly to a looming economic boom: Millions will miss out: https://www.washingtonpost.com/business/2021/03/30/fed-inflation-bad-economy-low-wage/
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Speaker 1:
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Nick Hanauer:
There’s a lot of misinformation in the press about the relationship between unemployment benefits and unemployment insurance and jobs.
Austan Goolsbee:
This thing about unemployment insurance was nonsense.
Nick Hanauer:
If we don’t essentially incentivize working people with fear and pain and poverty, the lazy sons of bitches just stay home and watch TV.
Austan Goolsbee:
That’s just wrong.
Nick Hanauer:
Yeah.
Speaker 8:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
So every month the US government releases it’s monthly jobs report. And because we’re geeks, you and I pay close attention. And this month was off the charts. 916,000 net jobs were added in March. A clear indication that the economy is getting back on track.
Nick Hanauer:
The good news is the stats, right?
David Goldstein:
Right. The official unemployment rate, which we all know is bullshit, but apples to apples, is down to 6%, with 6.2% in February. Overall, the US has now gained back 13.7 million jobs. That’s 62% of the 22 million lost during the pandemic, which is… Those are really like unbelievable numbers, even having lived through it.
Nick Hanauer:
Yeah.
David Goldstein:
And even the February job growth was… January and February were revised up, so things were even better than we had thought they were at the time. But to put that in context, there’s still a long way to go before we’re back to pre pandemic levels.
Nick Hanauer:
That’s right. We’d need to do this 13 more months in a row just to get back to where we were before the pandemic, to say nothing of restoring the jobs that the economy would have created had the pandemic not hit over the last year. And I think it’s really important to remember that while the overall number, theoretically, is 6%, in lots of sectors it’s 25%. Right?
David Goldstein:
Right. And of course, it’s America. So it’s very unequal. The nonwhite unemployment rate remains significantly higher than white unemployment. The leisure and hospitality industry is still 20% below pre pandemic levels.
Nick Hanauer:
Right.
David Goldstein:
And of course, low wage workers, workers in the bottom 25% of earners, faced an unemployment rate of around 22% in February compared with the overall rate of 6.2%. And there’s still 18.2 million Americans currently receiving some form of unemployment aid, either the traditional or the aid that was created for the self-employed and for gig workers. So great monthly numbers, but it’s just one month out of many. And we’ve got a long way to get things back to where they were.
Nick Hanauer:
Today on the podcast, we get to talk to our old friend, Austan Goolsbee, who is the past chair of the council of economic advisors under President Obama. There’s a lot of misinformation in the press about the relationship between unemployment benefits and unemployment insurance and jobs. What’s driving him crazy is the, sort of, this chorus coming from… It’s always the same people arguing that these generous unemployment insurance will… It’s, literally, basically disincentivized people to go back to work. That it’s a mistake to have unemployment insurance, basically, because if we don’t essentially incentivize working people with fear and pain and poverty, the lazy sons of bitches will just stay home and watch TV.
David Goldstein:
Right?
Austan Goolsbee:
Yeah.
Nick Hanauer:
So anyway, and the thing that Austan will highlight is that these people have been saying this for the last year and it hasn’t been true over the last year. It’s not true now. And it probably won’t be true for a very, very long time.
David Goldstein:
Yeah.
Nick Hanauer:
So with that, let’s get into our conversation With Austan.
Thank you so much for being here and chatting about, obviously, the jobs numbers. And I think, obviously, the numbers recently have been relatively good.
Austan Goolsbee:
Yeah. Well, look. This month was a huge, positive number. Really big. Almost a million jobs a month. It’s worth remembering how many millions down we are. So we got to have a lot of great months like this. But I kind of think the, as we always talk about, as we’ve talked about on this program-
Nick Hanauer:
Yeah.
Austan Goolsbee:
… the people who have a certain worldview, they don’t care what the data say. If the data disprove their worldview, they don’t view it as disproving their world view. They just keep repeating it. And these job numbers are absolutely in that space. Okay? So if you look at this, we add a million jobs a month. What’s the biggest sector? Eye popping numbers, leisure and hospitality.
Nick Hanauer:
Right.
Austan Goolsbee:
Okay, look. Lower wage jobs are the ones that are coming back the fastest. Those are exactly the jobs that there is a group of people who have been for almost a year saying we’re giving too much relief to people. Unemployment insurance is so high that no one will go back to work. And it’s just not true. You just look at the data. It’s just not true. Those are the people going back to work in record numbers, but it’s not changing their statement at all. They just keep saying, “Oh, well, it’s about to happen. They’re about to not come back to work.” And there’s… How do you dispute that?
David Goldstein:
How is this possible, Austan? Because I’ve read my Econ 101 and so therefore I know that unemployment is voluntary, right? People choose to be unemployed.
Austan Goolsbee:
Right? That’s… Look, that’s… And I’m not saying… Maybe the more sophisticated, more subtle argument made by some is that by the end of the summer, and the economy with the vaccines might be back to something like normal. And then the normal concerns about if generous unemployment leads people to stay out of the workforce longer, that those concerns might come back. Okay, fine. That’s by the end of the summer. They’ve been saying it for a year. They’ve been saying that this was happening literally since we passed the CARES Act a year ago and convinced, “Oh, absolutely. No one will go back to work if they are low enough income, because they will be paid more to not work than to work.”
And multiple researchers went and showed that if you look at the generosity of unemployment, it’s not correlated with where jobs came back or didn’t come back. And if you look in the aggregate, we’re seeing huge returns. The constraint has been availability of jobs. We reached record levels of the ratio of people looking for a job to how many jobs there were available. So in a moment like that, when the constraint is that there are not jobs, this thing about unemployment insurance was nonsense. And it was clear it was nonsense. And everyone should have understood it to be nonsense. And now, they’re making the same argument and saying, “Oh, but we’re talking about in the months to come,” thereby admitting that it was nonsense a year ago when they were making the argument.
Nick Hanauer:
Right. So can you explain what neo-classical sort of models and assumptions these folks are relying on to make these claims?
Austan Goolsbee:
Okay. The basic model is kind of easy to understand. And that is that people will have what they call the reservation wage. That they say, “Unless I can get a wage above this wage, I don’t even want to go to work.” And if you give people extremely generous unemployment insurance, the philosophy would be, “If I could be paid the same thing for not working, I’d rather not have a job. I’d rather just take the pay and not go to work.” And so in this model, if you want to think of it as a model, it goes, if they give you a 10 weeks of unemployment insurance, then you’ll take your 10 weeks and then you’ll go look for a job. If they give you 50 weeks, you’ll take 50 weeks and then you’ll go look for a job. And the more generous it is, the less willing you are to go out and look for a job. Okay? That’s the basic model.
And, one, there is a psychological critique of that economic model, which says people seem to get a lot more value from a job, from having a job, than just their weekly pay. To say nothing about there’s also health insurance. There’s also a bunch of other things that go with the job. But even just psychologically, having a job does a lot for people’s self valuing that being unemployed and getting a payment doesn’t give. Okay. So that’s one critique. But the second is even if you believe that at a moment of full employment, that that model is accurate, this is so emphatically not a moment of full employment. On what planet are you? If you’re like, “I’m going to take a lesson from a moment when the unemployment rate is three and a half percent, I’m going to take lessons from how people behave when unemployment is three and a half percent, and I’m going to apply it to people’s behavior when the accurately comparably measured unemployment rate is 10%,” and that’s just wrong.
And it was known to be wrong when they were making the argument. That’s the thing that irks me. In April of 2020, when they started saying, “Oh, this is a terrible mistake. And nobody’s going to take a job because unemployment is too generous.” There was a media pushback that people said there’s four or five unemployed people for every job that is available. In an environment like that, the constraint is not that people will not work. They constraint is there’s no jobs for people. So let’s get the vaccine, let’s get control of the virus so we can get the jobs to come back. And now a year later, we’re extending unemployment again. Why? Because it’s still hard to get a job. Of the 20 plus million people that lost their jobs, there’s still almost 10 million of them who are not back to work.
Nick Hanauer:
That’s right. So we need another 13 months of the same job numbers just to catch us back up to where we were.
Austan Goolsbee:
Just to catch us where we were. And before you’re tempted to say, “Ah, see. If there’s 10 million people still out of work, that must be from the unemployment insurance.” Just go look at the numbers. That’s my thing. Just look at the numbers. Occupations where the unemployment insurance ought to be viewed as more generous, they’re booming. They’re hiring. Millions of people are coming back to work in those sectors. If you look across states, you don’t see that it had much to do with that. And in various months, the majority of people who are going back to work by that maximizations theory, they’re making less money going back to work then they would be eligible for on unemployment. So why are they doing it?
Nick Hanauer:
Right.
Austan Goolsbee:
Are they crazy?
Nick Hanauer:
No.
Austan Goolsbee:
If you believe that model, you basically cannot explain what’s happening because it just doesn’t compute. But this is a similar conversation that we have all the time on minimum wage, on tax cuts for the rich, on a bunch of those things where you’re like, “Okay, what you’ve espoused is a theory. But we can test the theory. And how does it change your view if the data do not agree with that theory?” But the answer is not… Well, then they modify the theory. The answer is just, “Nope.” Just restate it again. Here’s what’s going to happen.
Nick Hanauer:
Exactly. Eventually we’ll be right. So what I find both puzzling and frustrating is that the very same people who argue that having unemployment insurance will be bad for the incentives for folks to work are also the ones who argue against raising the minimum wage because, surely-
Austan Goolsbee:
And say that we can’t raise corporate taxes.
Nick Hanauer:
That’s right.
Austan Goolsbee:
And they make that same argument.
Nick Hanauer:
Yes.
Austan Goolsbee:
They’re like, “If you raise taxes on corporations, then they will raise the price of everything on consumers and it will destroy jobs.” And if you say, “Well, didn’t we just cut taxes for corporations by 2 trillion dollars?” What is the evidence that led them to cut prices? What is the evidence that that has accelerated the hiring rate? None.
Nick Hanauer:
None. Zero.
Austan Goolsbee:
It did the opposite.
Nick Hanauer:
Right.
David Goldstein:
But Austan, looking forward, what should we be looking for in future job reports?
Austan Goolsbee:
Look big, and they better be really big. Okay. So I’m thrilled we had about a million jobs this month. It’s probably the third biggest jobs, raw number, that we’ve ever had. But the thing is, the hole is so big. As Nick said, we need 10, 12, 13 months of that in a row. And then we will be back to where we started. Forget about all of the jobs that we should have been adding each month over the last year. Just to get back to where we began, we’ve got to do that for a year. So I think… But I’m actually optimistic. I think we’re getting control of the virus. There are a lot of people getting the vaccine and we may have another surge here, which will upset my statement here a bit. But I said from the first day, that the number one rule of virus economics is you want to help the economy? You got to get control of the spread of the virus.
And if we do that, I think we will get a million jobs a month, month after month after month. And we might even get… Who knows? 2 million jobs in a month. The normal rules of a business cycle do not apply. They clearly did not apply in the downturn from COVID. And they don’t have to apply in the comeback from COVID. So let’s get off to the races. And the way you do that is not trying to derive your lessons from periods of full employment about people’s behavior, because that’s not how they’re behaving.
Nick Hanauer:
Right. Yeah, absolutely.
David Goldstein:
It’s a bizarre moment. Weekly jobless, new jobless claims, are still high by historic standards, not by 2020 standards. How is it-?
Austan Goolsbee:
Yeah. Like, unbelievable. The highest week of all times we went for, I don’t know how many months, maybe a year, with every single week being higher than the biggest week of all times.
David Goldstein:
Multiple times.
Austan Goolsbee:
Multiple times. And now the only thing that’s happened is that number is no longer the largest of all times, but it’s still-
David Goldstein:
Really big.
Austan Goolsbee:
… It would still be like the fifth largest of all times. But the triumph was we got the new unemployment claims down below the all time record before COVID.
David Goldstein:
Has there ever been a time where you’ve seen new jobless claims this high at the same time we’re adding this many jobs?
Austan Goolsbee:
No. No. No. No. No.
David Goldstein:
It’s counterintuitive.
Austan Goolsbee:
Not that either. Yes. It seems counterintuitive, but it just kind of goes to the stuff that we’ve talked about before of there’s such a difference in your job market experience, in your lived experience in America, in the economy, who you are, and what your income was, and what you did for living, and how much education you add. So if you are a person whose job can be done on a computer and you work in the knowledge economy, the job market’s better than it was before COVID ever arrived. The unemployment rate is lower for them than it was before COVID. And the stock market wealth of those people has soared. They never had a recession.
And if you go down the income distribution to the reg jobs of working people that have to be done in a regular location, and you start thinking of custodians, and waiters, and retail clerks, and people who are in a spot, their job market is still awful. And that’s kind of this weird churn that you identified. You still got, you know, you’ll have a flare up in some metro area. So a bunch of businesses closed down, and then a bunch of people are laid off. And in the meantime, at the high end of the market, they’re booming like nuts. They’re like, “We need to hire people. We want the highest brow workers we can find.” And that bifurcation, we knew it existed before. That was a pathology before about inequality. And this thing just made it worse. And everybody knows it made it worse. Just look out the window. You can tell.
Nick Hanauer:
Yeah, for sure. For sure.
David Goldstein:
I know we need to let you go. Is there anything else you want to add?
Austan Goolsbee:
Just keep… Your guys’ mantra has always been the same one as mine. Just go look at the data. You know? Just look at the facts. We can test these theories, and it doesn’t have to be… Look, I’m fine with us reevaluating this topic of relief payments. Do they do lead people to not want to work? That’s an important topic. And, fine. We should revisit it in the summertime when we’re back more to normal, and see if it has started having an effect. But at least admit that you were wrong for the past year when you’ve been saying that that was dominating the economy when it absolutely was not dominating the economy.
Nick Hanauer:
That’s right. That’s right. And I think, look, the theme of this podcast has been that the neo-liberal View got us off track. But it’s also just manifestly true that, at some level, unemployment would discourage actual job-seeking. Right? There is some level at which-
Austan Goolsbee:
Of the dropping out of the labor force kind?
Nick Hanauer:
Yeah.
Austan Goolsbee:
[crosstalk 00:21:06] of their worldview.
Nick Hanauer:
No. No. Of people actually dropping out of the work force.
Austan Goolsbee:
Look, that’s the-
Nick Hanauer:
There is some level.
Austan Goolsbee:
… That’s the thing about seeing the unemployment rate is down to 6%, which is high. It’s definitely a lot higher than three and a half. But there are people who look at that and they’re like, “Well, 6% isn’t so bad.” But the thing to recognize which the Secretary of the Treasury, Janet Yellen and the Fed Chair Powell have both remarked on is that’s masking how many millions of people dropped out of the labor force because there are not jobs. So comparably measured, the unemployment rate compared to the three and a half percent is more like eight and a half.
Nick Hanauer:
That’s right. That’s right.
Austan Goolsbee:
Which is still really awful.
Nick Hanauer:
That’s right. And it is also true that at some level, like if cap gains tax were taxed at 95%, indeed that would, to a certain extent, limit the number of people that wanted to go out and start a business.
Austan Goolsbee:
Right. No. That’s what I’m saying. When I debated Art Laffer… I’ve debated Art. He’s a friendly guy, and actually, we’re friendly with each other. We’ve debated the Laffer Curve. And he’s not wrong. If the tax rate were a hundred percent, there are a lot of people who would not work. Okay. But that has very limited relevance when the tax rate is at historic lows.
Nick Hanauer:
That’s right.
Austan Goolsbee:
When we cut taxes for high income people down to rates that we haven’t seen in decades, that’s really not relevant.
Nick Hanauer:
It isn’t.
Austan Goolsbee:
Raising the corporate tax rate back to 28%… But at like… Oh, of course. That’s not a hundred percent.
Nick Hanauer:
No.
Austan Goolsbee:
We’re not on that side of the Laffer Curve. It’s just not true.
Nick Hanauer:
Yeah. It’s ridiculous. All right. Well listen, Austan, thank you so much-
Austan Goolsbee:
It’s great to be here with you.
Nick Hanauer:
[crosstalk 00:23:00] Talk soon.
David Goldstein:
So, yeah. It’s great news. We’ve got a long way to go. And turns out when you provide generous unemployment benefits, it doesn’t keep people from working.
Nick Hanauer:
Yeah.
David Goldstein:
If you have any questions you can ask us on Instagram at Pitchfork Economics or on Twitter at Pitchfork Econ.
Speaker 8:
Pitchfork Economics is produced by Civic Ventures. If you liked the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works. And peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.