Friday, November 21, 2014

Is Utah at Full Employment?

Carrie Mayne, Chief Economist

This is the million-dollar question. With an unemployment rate below four percent, it is a logical question to pose, but not an easy one to answer. Full employment isn’t a specific number but rather an economic concept. When an economy has reached full employment, the only type of unemployment that remains is that which occurs as people move from one job to the next, i.e. frictional unemployment. Under those conditions, no excess supply of labor exists. There are essentially no job seekers experiencing ongoing unemployment due to unsuccessful job searches.
 
Given the evidence available to us, I would conclude that we are very close to being at full employment, and here are my reasons why:
Click to enlarge graph
  1. A large and growing share of unemployment is likely frictional. Two years ago, only 33 percent of the unemployed found a job within 6 weeks. Today, more than 45 percent find jobs within that window of time.
  2. Long-term unemployment is declining. The share of long-term unemployment to the total unemployed has decreased over the last two years from 31 percent to 21.The decreasing presence of long-term unemployment signifies a decline in the excess supply of labor.
  3. Labor force participation is leveling off or declining. After a precipitous, recession-driven decline from a pre-recession average of 72.1 percent to a low of 67.5 percent in November 2011, participation began to finally show signs of recovery. The upward trend continued until March of this year when we again started to see a decline that has continued through summer to now.  Unless this decline is annulled by data revisions in early 2015, we can interpret this downward trend as yet another sign that the labor market may be approaching a saturation point. 
  4. Job growth has leveled off.  Job counts from the employment census (which takes us through the second quarter of 2014) show that job growth has slowed down slightly in 2014. While growth in 2013 was 3.3 percent, current and projected numbers imply 2014 will register close to 3.0 percent. Employers can only add new jobs if there are new workers available to fill those jobs, so the slow down may be due to a lack of labor supply. 
Essentially, Utah’s economy is showing all the signs of full employment. Except for one. An important one. Wages.

Click to enlarge graph
Typically in a tight labor market when worker availability diminishes, wages increase in response to that scarcity. Utah has experienced this phenomenon as recently as the pre-recession boom. Yet today, when all other signs indicate Utah is operating at full employment, wage growth is remarkably low. Why is this? Wages do tend to lag employment growth, so it could be that the wage response is yet to come on the horizon. An additional explanation may be that workers have yet to realize that market power has shifted in their favor and acted accordingly by requesting pay increases or searching for better-paying positions.

But for the weakness in wage growth, all signs indicate that Utah is indeed approaching full employment. The significance of this milestone for the average Utahn is that the time is right to ask for that raise, apply for that promotion, or search for that next big career move.  

Tuesday, November 18, 2014

Sometimes even Economic Graphics are Cool

Mark Knold, Supervising Economist

Believe it or not, an economist can recognize a cool thing when they see it. (Alright, maybe if it is only tied to economics.) This link will take you to what I believe is a cool graphic. It centers on 372 metropolitan areas around the country and represents the change in their job numbers (growth or contraction) during the time period 1999 to the present. It’s an interactive graphic where you press the play button and then watch the landscape morph as you come out of the go-go 90s, into the dot.com recession, the housing boom thereafter, into the Great Recession, and end at the recent recovery. Metro areas are represented by bubbles, and those bubbles will grow or shrink in relation to the amount of job gain or loss, with job gains in blue and job losses in red. Some highlights to look for are the persistent issues surrounding Detroit, the impact of Hurricane Katrina upon the New Orleans area around 2006, and also the pervasive impact the Great Recession had across the entire nation. Pretty impressive. Enjoy.

Monday, November 17, 2014

Gasoline Taxes per State

Mark Knold, Supervising Economist

All who purchase gasoline are probably noticing—and enjoying—the recent decline in gasoline prices. Pundits who follow the industry tell us these low prices should continue to hold through 2015, and a plentiful supply of oil is what they expect for years to come. The recent technological revolution in how oil is extracted has breathed life back into America’s oil production, as older oil fields such as in Texas and even Utah’s Uintah Basin are back to producing like they did 30 years ago. The relatively new shale formation oil production has been unleashed, most prominently in the North Dakota region. All of this, in addition to Saudi Arabia’s recent announcement that it will keep the taps flowing, makes for a world awash with oil. Therefore, oil prices are expected to remain low and so should gasoline prices.

But oil isn’t the only cost in a gallon of gas. There are refining costs and shipping costs. And then there are taxes—federal, state, and even local in some states (but not Utah). Not often does the tax cost enter our minds as we fill our tanks. After all, the tax rates are virtually constant, and it is the variability of the oil prices, refining costs, or seasonal demands that change the price at the pump. But the tax costs are there.

Gasoline taxes are a user fee. They help finance the construction and maintenance of roads and bridges, and the user of those products pay a major portion of that cost. Roads and bridges are social goods (we all need them), and from an economic standpoint it makes sense that these social goods are paid for with a social payment—a tax. The federal government has its part in this taxation at 18.4 cents a gallon from cost-to-coast. Therefore, any variability in gasoline taxes from state-to-state comes from variable state tax rates.

Do higher gasoline tax rates hurt states? Probably only very little, and even then only along its borders where it is practical to go into another state to fill up. When my car needs gas, I don’t drive the 80 miles to Wyoming to fill it. The taxes are a cost you will absorb wherever you are, whether at home or while traveling.

None of this writing is to debate the need for, or the level of, a gasoline tax. It is only to remind us that there is a gasoline tax, and to pass along to those who are curious like myself, as to what all states charge in the way of a gasoline tax and how Utah compares in the mix. I found this short blog on the subject with maps informative, and thought you might also enjoy looking it over.

Wednesday, October 22, 2014

My Response to Carrie's Blog

Mark Knold, Supervising Economist

In a previous blog post dated September 19, our Chief Economist Carrie Mayne drew attention to Utah’s declining labor market dynamics. By saying dynamics we mean “movement within,” and movement within is people moving into and out of jobs. We also call this labor market “churn.” Carrie observed that there is not as much churning within the labor market as was seen 15 years ago. This is visualized in the first graph below. Carrie’s challenge to her fellow economist’s: why? I’ll give that challenge a shot.

Higher churn levels generally signal a strong economy. People feel confident enough about the overall economy and its long-term prospects to let go of their current job and look toward something better. Making the leap to a new job means you trade tenure at your old job for a better overall advancement in your new job. But, you are exposed to being the low man on the totem pole if the economy turns soft and business releases workers. If workers feel confident about the economy’s staying power, then more people are willing to take this risk and make this jump. It’s a psychological decision.

People are continuously looking to do this, as movement up the career ladder (and with it movement up the pay ladder) is a natural motivation among working adults. A strong economy creates jobs, and as more jobs are created, more opportunities develop for people to advance into better jobs—and thus more churning. Conversely, a slowing economy creates fewer job-movement opportunities resulting in less churning.

Click to enlarge
On the graph to the left, we see the natural declines in job churning during the recession periods. We also see a rebound in the strong economic period between the recessions. But the overall flow of this job churning is a series of steps downward and thus Carrie's questions—why?

The data available to create the above graph only begins in 1999. We don’t have a window prior to that to evaluate. I mention this because the high point on the graph is 1999. What we don’t know is if that was the long-term normal, or an anomaly.

If you remember the go-go 1990s, it was a long period of above-average employment growth in Utah. As I mentioned above, strong economies produce the most job churning. We don’t know if we are coming down from some historical high—but I strongly suspect we are.