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Wednesday, November 22, 2006

Tight US Labour Market in the US in 2007?

This caught my eye this morning:

US labour market to remain tight in 2007

The US labour market will remain tight next year, the White House predicted Tuesday, raising hopes that ordinary Americans will start to feel more of the benefits of the country's economic expansion.

Issuing its twice-yearly economic forecasts, White House economic advisors said unemployment would average about 4.6 per cent in 2007, only a slight bit higher than the present 4.4 per cent.

Jobs growth would average about 129,000 a month – fewer than anticipated in June, but enough to keep unemployment low due to the falling number of people joining the labour market.


Now obviously a lot of things can be going on here (not least of them politics), but why the sudden drop in new labour market entrants (only an estimated 129,000 a month)? Obviously an increase in labour market exits was to be expected as the boomers start retiring, but entrants? My intuition is that at some point the Latinos will start getting into birth postponement in a big way as they - and especially those who will have been born in the US, who will soon be coming onstream - start to go for more education, following the European American and Asian American pattern. Significantly Puerto Ricans already have 1.7tfr, and they are of course born in the US (officially speaking). So the others - with tfr of 2.8 - may well go down this road soon. Which would mean, of course, a temporary birth-dearth (this phenomenon is just not understood by hardly anyone in the US) and the Latinos moving towards lowest-low fertility, at least for a time. Remember European and Asian Americans are - on average - at EU levels of fertility (like say France or the UK) at around 1.7/1.8. So the US could very rapidly find itself with European fertility, in say 10 to 15 years. Oh deary me, whatever will the Economist blogger, and Tyler Cowan say. Clearly the responsibility will not lie with a large welfare state. It never did. Take a look at those countries with the lowest low fertility, Singapore, Croatia, Latvia, Lithuania, Spain etc etc, they are not exactly countries renowned for they high welfare levels.

Anyway, definitely something to watch. What we seem to have here are the blind leading the blind.

7 comments:

Mark Amerman said...

Edward,

Yes, but Croatia, Latvia, and Lithuania were all recently communist
and thus definitely welfare states. Is your thinking that since
they are now capitalist and their fertility rates are not improving
that this is an argument against the thesis that free markets boost
fertility?

Now I have doubts about Tyler's proposition that free markets promote
fertility. Like you I'm fairly certain that U.S. fertility levels,
absent immigrants, are not that far from european. On the other hand
I fail to see how Croatia, Latvia, and Lithuania argue against his
thesis. Comparisons of fertility levels in these countries today
against those of one decade ago are going to be confounded by the
reality that young, potentially child-bearing couples are disproportionately
likely to emmigrate.

Spain and Singapore are more interesting. Frankly I'm inclined to
throw out Singapore as an example since the natural 'city' that it
is the center of is much larger than the boundary we see on the map.
From an economic perspective Singapore goes a considerable distance
into Malaysia and if we are going to look at the fertility impact of
the economic unit then we need to look at that whole area and not
just the artificial constrained core of it.

This leaves Spain. Now why are fertility rates in Spain so low?
And why did they fall so dramatically?

Edward Hugh said...

Hi Mark,

Nice to see you are still reading me.

This is a complex picture and I have no easy explanations. All I would say is that simple linear correlates of the kind that are being made with welfare systems, labour market participation rates simply don't work in any straightforward fashion.

Obviously simply talking 'welfare' also hides a multitudue of differences. Obviously you can use welfare to support young people having children, or you can use it to support the elderly. That seems to be the battle that is being fought out before our eyes.

And obviously diverting resources in too large a quantity away from the young towards the elderly creates a kind of circular trap - the so-called fertility trap.

Basically the situation is that ex-US and Israel everyone who starts the transition ends up with below replacement fertility (and normally significantly below replacement fertility). Obviously at the other end of the scale those like Bolivia or Rwanda may well be caught in versions of the high fertility trap.

"Now why are fertility rates in Spain so low? And why did they fall so dramatically?"

Well presumeably for the same sort of reason that fertility fell dramatically in all the other Southern EU states - Portugal, Italy, Greece - the trouble is giving country specific explanations for this group (which one could have a stab at) doesn't get you round the problem of giving a general explanation which would let us understand the fertility decline in overall.

Still a hard problem I think.

Edward Hugh said...

Oh, and this:

"Yes, but Croatia, Latvia, and Lithuania were all recently communist
and thus definitely welfare states. Is your thinking that since
they are now capitalist and their fertility rates are not improving
that this is an argument against the thesis that free markets boost
fertility?"

There are two points hear, and on the second one very definitely yes. These societies had relatively high fertility under the communist welfare system and then dropped dramatically after the system unwound.

On the other hand something much more important has happened in the ex communist group (including Vietnam etc, Cuba.., even maybe Keral in India) and this is that they had their demographic divident before they became open economies and started to grow.

My argument isn't that open-ness doesn't matter, but that this is a beast that walks on two legs, you need both of them.

So these societeis are now trying to grow just as they are hitting the demographic penalty - ie having to carry the high elderly dependency ratios of a high median age society - while they are still comparatively poor.

As can be seen in the case of Hungary this can be a very explosive mixture. See my Puskas post on Bonobo and see ALL my recent posts on Demography Matters to get a clearer idea of what I am arguing.

These societies are now in a very unstable situation, and I personally wouldn't take my eyes of Hungary for a moment if you want to understand what is going to happen next (indeed you could read my Hungary blog: see sidebar).

Mark Amerman said...

Four hypotheses (or maybe five) for why fertility should drop in the
twentieth century occur to me more or less immediately.

1) Prior to this last century, children were insurance against old
age. Those aging adults who did not have children would be more or
less constant examples of the risks of not doing this.

2) Prior to this last century, children were a significant economic
resource. Successful farmers with many children would be or
less constant evidence of the benefits of having children.

For neither of these cases is it necessary that everybody make the
economic calculation are even view things in these terms at all. It's
just that the real world situation would push towards a culture that
values children. On the other hand, once a nation has taken the
responsibility for taking of older adults and once child labor has
been either made illegal or become irrelevant because young children
can't help in a specialized economy, then the logic reverses. Having
children means making due with less.

3) The human sexual instinct can be pretty overwhelming and hence
logic and convenience aside people tend to have babies. The social
acceptance and ready availability of simple methods to abort conceptions
changes the equation. It's not that pre-twentieth century couples
were unable to control their reproduction. It's just it's so easy
now.

4) People need purpose. If a society offers no constructive roles
to women other than having children -- then they are highly motivated
to have children. The more opportunities available to women, the
more they are giving up by having children. And the same is true for
men.

These four examples seem so plausible that I have trouble imagining
them not being true.

Since all these factors are close to universal across the anglosphere,
europe, and japan, any differences that remain must be due to other
factors.

For example there seems to be a correlation with religious belief,
women who are actively religious seem much likely to have children
than those don't.

There seems to be a correlation with political belief. Right-wing
women are significantly more likely to have children than those who
aren't.

In neither of these cases is it obvious why this should be the case,
it just seems a consisten pattern.

It would seem rational that social aid for mothers, such as free
child care and other policies that favor mothers would also promote
fertility. I am less than clear though on the evidence that this has
had a big impact.

Mark Amerman said...

Sweden seems a good empical test of what laws favoring mothers
can do.


See http://www.mises.org/story/1406


Quoting the author, Allan Carlson:

"The Myrdals fleshed out this program in their best selling 1934 book,
Crisis in the Population Question, a brilliantly argued volume which
substantially transformed Sweden. While Swedish conservatives continued
to fret over sexual immorality, the Myrdals pointed directly at the
contradictions created by an incomplete welfare state. Prior government
actions such as mandatory school attendance, the ban on child labor,
and state old age pensions, they admitted, had stripped away the value
of children to parents. But the costs of children remained at home. In
consequence, children had now become the chief cause of poverty. Given
the incentives set up by the state, the very persons who contributed
the most to the nation's survival by having children were dragged down
into poverty, shoddy housing, poor nutrition, and limited recreational
opportunities. A voluntary choice between poverty with children or a
higher living standard without them was what young couples now faced.
Young adults were forced to support the retired and the needy through
the state's welfare system, and also the children to which they gave life.
Under this multiple burden, they had chosen to reduce their number of
children as the only factor over which they had control."


If we are to believe Carlson's account, and I see no reason not to,
the real motivation for Sweden's "universal state allowances for children's
clothing, a universal health insurance plan, a universal entitlement to
day care, state-operated summer camps for children, free school breakfasts
and lunches, state-funded family housing, birth bonuses to cover the
indirect costs of having babies, marriage loans, the expansion of state
maternity and midwife services," etc., was to encourage people to have babies.

So already in the 30s Sweden had this problem and were struggling with
it mightily. I'm sure this the only example we have of seventy years
of trying to deal with the problem. Despite all the effort Sweden has
never since then risen over or even near replacement fertility.

Although Sweden today has a higher fertility than most of europe, they
also have a significant immigrant population. Without knowing the fertility
rate of ethnic swedes we can't put a number on how effective the fertility
promotion effort has been. Since the swedish government refuses to
collect that information it hints that the situation is probably not good.

Edward Hugh said...

Hi again Mark. And thanks for the comments. You are obviously going into this in some detail. Go over to the Demography Matters blog and you will find I just posted on what you say about Sweden. Tomorrow I will post on the other part.

See you.

Mark Amerman said...

Hello Edward,

Thinking further, I realized I needed to elaborate on something above.
Namely:

"Right-wing women are significantly more likely to have children than
those who aren't."

The problem with that statement is what does "right-wing" mean? In
the U.S. this last the century, the Republican Party has more or
less consistently been labeled "right-wing" although at the same time
the details of what that group has advocated has varied significantly.
When we look at other groups elsewhere that have been labeled
"right-wing" the differences become quite enormous. I don't believe
that terms like "right-wing" really have a coherent and consistent
foundation.

Instead what is being referred to is the tendency for societies
to polarize into two antagonistic camps. In a world where only 'side'
can win, which is almost always the case in politics, this is a natural
dynamic. (Nor does it mean that everyone within camp adheres to
the same political ideas. Instead each camp will tend to be multipolar
within its 'wing.')

So I highly doubt that there is any truth to the observation I made
above in general. Instead I was referring to the specific "right-wing" of
one ethnic group in the United States right now, where there is a remarkable
and even astonishing correlation between fertility and political belief.

For the 2000 elections, one could take the residence of a white person,
draw a circle around that individual 20 miles wide, ask how many white
children lived in that circle, divide that number by the total number
of people living in the circle, multiply that ratio by a constant
and end up within two digits of precision with the percentage of
voters that would vote republican!

And the same equation could be used all across the United States.

So what I should have said is that there is a very strong correlation
between political belief and local fertility in the United States at
this time. And have wondered if the same might be true elsewhere.