Labor and Employment

    With a pair of new laws in 2008 and 2010, Congress fundamentally changed the student loan market, making the U.S. government the sole supplier of Federal student loans, rather than just the ultimate guarantor.  In itself, this does not affect the government’s net debt, because it acquires assets—student loans—which carry a market value.  This new direct lending does, however, add to the gross debt held by the public.  The $1.4 trillion in direct federal student loans that will be outstanding by 2020 will amount to roughly 7.7% of gross debt.  This is 6.3 percentage points higher than it would have been had the scheme not been nationalized.  To the extent that one worries about debt from the perspective of a “fiscal crisis,” in which government borrowing costs soar without warning, gross debt is more important than net debt, as student loans are not assets that can be readily sold to reduce borrowing requirements. Liberty Street Economics: Grading Student Loans Slate: Student-Loan Debt, School by School Orszag: Winds of Change Blow Away College Degree Video: Addressing the U.S. Deficit Problem

China’s economy slowed from a growth rate of 10.3% in 2010 to 9.5% in 2011 (and a 2000s peak of 14.2% in 2007), prompting fears that China could trigger a global slowdown.  Yet at 10% of world output, 2.5 times what it was in 2001, the Chinese economy is now so large that it will continue to make a significantly rising contribution to global growth even if its own growth rate continues to fall off moderately. Haass: China's Greatest Threat Is Internal Mallaby: Conflict and Confusion: China's Currency Policy Foreign Affairs: The Inevitable Superpower Working Papers: The Future of the International Monetary System and the Role of the Renminbi

U.S. annualized real GDP growth of 1.2% through Q3 2011 was driven by personal consumption, accounting for 91% of it.  Yet only 44% of personal consumption growth was driven by higher incomes.  The other 56% was accounted for by unsustainable items: a decline in savings (36%) and the payroll tax cut (20%).  The latter will expire in two months time unless Congress acts to extend it again. Orszag: State Lawmakers Can't Find Common Ground Either Foreign Affairs: The Democratic Malaise Analysis Brief: Can Washington Fix Its Debt and Deficits? Video: World Economic Update

I’ve written extensively on this blog about some of the ridiculous new arguments being peddled by opponents of the Keystone XL oil pipeline. I hadn’t seen as much in the way of new and implausible assertions from pipeline proponents – until now. Here’s what I found in my email yesterday courtesy of the U.S. Chamber of Commerce: “The project [that environmentalists] oppose is construction of the Keystone XL Pipeline, which would carry crude oil from Canada to refineries primarily along the Gulf Coast and immediately create 20,000 jobs along the pipeline route. Furthermore, economic impact studies show that 250,000 permanent jobs will be created over the long term.” The “economic impact study” in question appears to be a widely cited report by The Perryman Group. (A second widely cited report, by the Canadian Energy Research Institute (CERI), gives a figure of 270,000 jobs but is not directly germane to Keystone XL – it projects impacts from a series of pipelines that might be built between now and 2030.) The Perryman report has been criticized for the claim of 20,000 jobs along the pipeline route. I’ve seen less criticism of the far more impressive 250,000 number (though this is one exception). That’s a shame, since while the number is being invoked prominently, the analysis upon which it’s based is dead wrong. Critiquing the Perryman study is a bit tricky since its methodology is opaque. When I run into this sort of problem, I make sure that I can reproduce the reported results, before I go on to audit them. The Perryman report describes its methodology thusly: “The Keystone XL Project would lead to positive outcomes for US energy markets by providing access to a stable source of incremental petroleum supply, reduced risk and, thus, price. Furthermore, operations of the Keystone XL pipeline will provide a significant ongoing economic stimulus including the creation of hundreds of thousands of jobs due to the stable oil supplies it will make available.In order to model these effects, The Perryman Group initially examined the likely effects of such a shift by calculating the magnitude of the increase in availability (based on an 80% capacity factor for purposes of conservatism) relative to anticipated domestic consumption in the 2010-2012 timeframe. The price effect was then derived using elasticity coefficients for the US market. Because this supplemental supply represents a permanent change in the market, a long-term response parameter was adopted. This measure was obtained from academic research and independently verified for reasonableness.” The Keystone XL pipeline would add 700,000 barrels per day of transborder pipeline capacity. With an 80 percent capacity factor this becomes 560,000 barrels per day. The Perryman report asserts that U.S. consumption is 18.7 million barrels per day (though in one place it says that the number is 20.7). Perryman assumes a baseline oil price of $66.52 per barrel, and the academic research referenced puts U.S. oil demand elasticity at -0.453. Mix this all together and you get a projected price decline of $4.40. Multiply this by 18.7 million barrels per day and, presto, you get an annual impact of $30 billion, pretty much the same number that Perryman uses to ultimately generate 250,000 jobs. There are, however, several things wrong with this calculation. For starters, it assumes that Canadian production will rise by the volume transported by Keystone XL if and only if the pipeline is built; in reality, over time, alternative pipelines are likely to be built, blunting that impact. On a more technical but more fundamental front, U.S. consumption and demand elasticity are the wrong numbers to use in determining the price impact of new supply. The United States is part of a global market, so Perryman should be using global, not U.S., figures. The relevant numbers are about 90 million barrels per day of global demand and a global demand elasticity of somewhere around -0.4. This leads to a projected price impact of about one dollar. But that’s still too high: in response to lower prices created by more Canadian production, both OPEC and non-OPEC (ex-Canada) production should drop. Let’s say that this removes half the impact of new Canadian production on world supply. The price impact of the new Canadian oil supply is now fifty cents a barrel – barely 10 percent of what Perryman projects. Given the Perryman methodology, this should cut the jobs impact by a similar factor, to somewhere around 25,000 rather than the 250,000 originally projected. It’s also worth noting that somewhere between 25 and 50 percent of the material supplied by Keystone will be diluent rather than Canadian oil, which should decrease the impact even further, to somewhere between 12,000 and 19,000 jobs. One might also contend, of course, that the demand elasticity is higher or that the supply elasticity is lower than I assume; more on that in a moment. First, let’s take a look at several other problems with the Perryman analysis. Perryman asserts that savings by U.S. consumers on oil end up getting injected into the U.S. economy. Over the long term, though, that should be partly offset by losses to U.S. oil producers, who must also absorb the lower prices. U.S. liquids production is equal to about half of U.S. consumption; this means that we need to eliminate another 50 percent of Perryman’s projected jobs. We’re now down to somewhere around 7,000 or 8,000 of them. Of course, the money that the United States sends abroad for oil doesn’t vanish – some of it comes back to buy U.S. goods and services. That phenomenon should erode the jobs impact of Keystone even further. The last big problem with the Perryman analysis is its conversion of the oil savings figure into macroeconomic impacts. This one is more difficult to pin down, since the model isn’t available, but the final figures that Perryman reports are mighty suspicious. For starters, he projects that lower oil prices will boost U.S. oil and gas production profits by more than six billion dollars. This makes no sense: lower oil prices should hurt, not help, oil producers. He also reports that total spending in the U.S. economy rises by $100 billion as a result of lower oil prices even though total GDP rises by only $29 billion. The net impact of that would need to be a $71 billion increase in the U.S. current account deficit (whatever you spend money on that you don’t produce is something that you have to import). How lower oil prices can increase the current account deficit is beyond me. It suggests that something in the model is awry. I mentioned earlier that one might challenge my elasticity figures. Let’s say, very pessimistically, that global demand elasticity is -0.2, and that non-Canada supply elasticity is zero. We still get a jobs impact of only 40,000, and that’s setting aside the impact of fixing the broader macroeconomic model. Once again, the 250,000 figure is far too high. Let me be clear: I’m not claiming that Keystone XL will create 7,000 or 8,000 or 40,000 jobs. I find the entire approach of the Perryman study suspicious. What I’m saying is that even if you buy its overall methodology, fixing the basic numbers leads you to much lower jobs estimates. In reality, the actual jobs impacts might be lower or higher than the numbers I’ve shown here. What’s for certain is that the 250,000 figure isn’t supported by the analysis presented. And I ought to reiterate another basic point. I don’t see any reason to block the Keystone XL pipeline, so long as local concerns in Nebraska are fairly addressed, something that shouldn’t pose a high hurdle. The Keystone XL debate is a distraction from things that really matter to the future of U.S. energy and climate policy. So long as the debate is front and center, though, correct facts would be nice.

My earlier post regarding Rick Perry’s energy plan appears to have attracted some attention. I want to follow up on one important point. First a recap of what I wrote: “The numbers that Perry and Romney are offering for job creation in the energy sector are unrealistic. They assume that they will be reversing deeply anti-industry Obama policies that don’t actually exist, ignore real constraints at the state level, and don’t properly account for market dynamics. Six hundred thousand is a pretty hard upper limit for the number of jobs that a new policy might create by 2030, of which fewer than two hundred thousand might actually be in oil and gas.” I focused my previous critique on a study by the consultants Wood Mackenzie for API on which the Perry and Romney plans appeared to be based. Ben Domenech has pointed out that Perry doesn’t actually rely on the WoodMac study for his 1.2 million job number; instead, Perry totals up numbers from several other pieces of work. In particular, I had observed that WoodMac got 160,000 of its jobs from California and New York, and noted that future development in those states would likely be hard to influence through federal policy. That led me to dock a bunch of Perry’s promised jobs. Domenech points out, though, that New York and California don’t get mentioned in Perry’s plan. What’s going on here? Perry does cite the WoodMac study as the source for his aggregate 1.2 million job estimate – see the sole reference in the graph on page fifteen of his plan (which is reproduced prominently on his website). But this citation is incorrect. The numbers in his chart don’t actually come from the WoodMac study -- he assumes slightly different policies from the ones that WoodMac does. Perry should not be leaning on the WoodMac study for intellectual support. That leaves us with a question: how does Perry get to 1.2 million jobs without including New York or California?The answer may surprise you: he assumes that Obama will shut down oil and gas production in Pennsylvania, Utah, Colorado, North Dakota, Montana, New Mexico, and Wyoming. He also assumes that Obama will kill the Eagle Ford shale in Texas for good measure. Why do I say this? Perry claims that his policies will create 250,000 jobs in the Marcellus shale, 500,000 in the Western states, and 68,000 in the Eagle Ford. The Marcellus number comes from this study; the Western states number from this one;  and the Eagle Ford numbers from here. All of these numbers are projections of total jobs. These are not new jobs. They are not even projections of jobs relative to some hypothetical policy where Obama makes oil and gas production more expensive and fails to open up new lands. They are jobs relative to a hypothetical case where Barack Obama destroys the domestic oil and gas industry. This case is totally implausible. To get a sense of the scale of the exaggeration, let’s go back to the WoodMac numbers. They project that reversing Obama’s anti-fracking policy (which, as I noted in the previous post, doesn’t actually exist) could add 19,000 jobs to the Pennsylvania total, a far cry from the 250,000 that Perry claims he’ll create. They project that reversing the same non-existentent policy in UT, CO, ND, MT, NM, and WY would  create 124,000 jobs, while opening up additional lands in those states – one place where the Perry/Obama contrast is real – would create another 128,000 jobs, far short of the 500,000 that Perry invokes. The Eagle Ford is trickier to sort out, since WoodMac only gives state-level estimates, but the numbers are much less significant as well. I don’t mean to pick on Rick Perry. Mitt Romney has embraced similar numbers. And I’ve been writing for a long time that President Obama’s green jobs promises are pretty problematic too. (One other point: just because the jobs numbers don’t work doesn’t mean that the policy ideas are bad; indeed I like some of them.) But that doesn’t change the bottom line: the numbers that Rick Perry has promised for energy job creation simply don’t hold up. Indeed, the more you drill down, the less realistic they look.

Perry waves as he addresses a summit in Washington (Jonathan Ernst/Courtesy Reuters). The centerpiece of Rick Perry’s economic plan, released this morning, is a pledge to create 1.2 million energy jobs. Mitt Romney has already promised to create nearly 1.5 million energy jobs. Why do we keep hearing numbers in this ballpark? And are they plausible? A quick preview since this is a long post: I see about 620,000 jobs max, of which about 180,000 are actually in the energy sector. The real world numbers are almost certainly quite a bit lower. Now back to the analysis. The figures appear to come largely from a study prepared by the consultants Wood Mackenzie and published last month by the American Petroleum Institute (API). (Perry explicitly footnotes it in his plan.) That study found that “U.S. policies which encourage the development of new and existing resourses could, by 2030… support an additional 1.4 million jobs”.  About 1.2 million of those are based on expansion of U.S. production by 6.0 million barrels per day of oil and 22.4 billion cubic feet of gas per day by 2030, along with approval of the Keystone XL pipeline. (The rest come from future U.S.-Canada pipelines). The study projects interim impacts of 700,000 new jobs by 2015 and 1.1 million by 2020. WoodMac assumes five policy changes in order to generate this expansion, all of which are echoed in Perry’s and Romney’s plans: Open the Eastern Gulf of Mexico, parts of the Rocky Mountains, the Atlantic and Pacific Outer Continental Shelves, the Alaska National Wildlife Refuge, the Alaska National Petroleum Reserve, and Alaska offshore to drilling. There is certainly a sharp contrast here with the Obama administration. Whether a new president could make all of these things happen is another question – in many cases, the nearby states would be strongly opposed. Gulf of Mexico permitting is returned to its previous pace. It isn’t clear, though, that this is actually a new policy – given the resources by Congress and a bit of time, the Obama administration might well do the same. Lifting of the drilling moratorium in New York State. Neither Perry nor Romney, of course, has any power over this, so it’s inappropriate to include it in estimates of federal policy. Forgo federal regulation of shale gas and tight oil development, including, in particular, tighter regulation of fracturing and water disposal. The assumption here is that federal rules would be stricter than state ones; WoodMac assumes that they would add 30 cents per thousand cubic feet to the cost of producing gas. It’s not clear that that’s true – states like clean water too. Approve the Keystone XL pipeline and other future U.S.-Canada pipelines. This may or may not be a policy shift from the Obama administration – we’ll have to wait and see what happens with Keystone XL first. There are, in essence, two problems here: the estimates assume that the Obama administration will be harsh toward oil and gas, and that a new president could roll over the states and Congress to be much more permissive. To the extent that those beliefs aren’t true, the jobs estimates will be too high. [UPDATE: I’ve tweaked the next two paragraphs to reflect a more careful state-by-state and policy-by-policy analysis of the numbers in WoodMac’s appendix than I had in the initial post, and adjusted the bottom line numbers accordingly. The basic contours remain the same.] Let’s put some numbers on this. Many of the projected jobs come from opening up new areas to production. As I noted above, though, many of the barriers to doing that may be at the state level and in Congress. How much might accounting for that blunt the jobs projections? Let’s assume that California blocks development, and that half of the Atlantic development (ex-Florida) is held up by states. I’m not sure how to handle Florida itself, which has a ban on drilling in state waters (there’s also a statutory bar on Eastern Gulf of Mexico development); let’s say, I think very generously, that half of the projected drilling materializes. Let’s also say that the assumptions about future Obama administration slowdowns on Gulf of Mexico permitting are probably overstated, but still assume that a new president would speed things up somewhat, as a result increasing production from Texas and Louisiana by half as much as WoodMac estimates. All in, we’ve cut the jobs projections by about 330,000. (Alternatively, if you want, you can think of this as loosely as letting production go ahead in much of California but having Florida drilling -- the statutory bars to Eastern Gulf of Mexico development that make opening that up really hard -- remaining out of bounds.) Now lets look at the onshore numbers. About 40,000 jobs come from New York State, but as I noted earlier, that’s not a matter of federal policy, so scratch them all. WoodMac reports that onshore regulatory barriers cost another 300,000 jobs. I observed above, though, that the study probably exaggerates the likely stringency of Obama administration regulation relative to state policy, so it’s fair to slice this in half (actually, it’s generous not to set them closer to zero). So far, then, we’ve cut 520,000 of the projected jobs. The final 270,000 projected jobs, or about 20 percent, come from new U.S.-Canada pipelines. This number is grossly overstated. According to WoodMac, “these jobs are primarily a result of U.S. services and the production of capital and intermediate goods exported to Canada for the development of the oil sands”. But blocking U.S.-Canada pipelines isn’t going to stop Canadian production from growing: it would slow things down, but ultimately, other export routes would likely materialize so long as oil prices were high enough. Those U.S. jobs wouldn’t disappear. To be generous, though, let’s say that delays and uncertainty associated with building other pipelines would kill 20 percent of the U.S. jobs, and that there’s a 25 percent chance that the Obama administration will kill all pipelines; credit 14,000 jobs to a new pro-pipeline policy, 256,000 fewer than WoodMac projects. Let’s take stock. We started with 1.4 million new jobs; we’ve identified about 780,000 of those that either will exist regardless of what a new president does, or whose fate depends strongly on states’ decisions. That leaves us with a more realistic estimate of about 620,000 jobs. But we’re not done yet. WoodMac estimates that for every direct job that the oil and gas industry generates, 2.5 jobs are created elsewhere, either in suppliers or in the broader economy as oil and gas workers spend the money they make. That 620,000 job estimate, then, corresponds to 180,000 jobs in the oil and gas industry itself. Some of those would come at the expense of jobs elsewhere in the economy -- indeed, in the longer term, many of them would. The same thing goes for the induced and indirect ones. The other caveat to the WoodMac estimates is that they assume high and steadily rising oil and gas prices. Oil prices start at $80 per barrel in 2012 and rise to $160 (in constant dollars) by 2030. WoodMac assumes that adding 6 million barrels per day of extra U.S. production won’t blunt that increase, but I don’t buy that – we’re talking about a lot of oil. In reality, if production were to start increasing the way WoodMac claims it can, the price impact would likely deter some of the other development it projects. Of course, lower prices would also help the rest of the economy, but that isn’t part of the WoodMac projections or of Romney’s and Perry’s jobs claims. Natural gas prices, meanwhile, start at $6 per thousand cubic feet in 2012 in the WoodMac model (for what it’s worth, spot prices are barely half that today), and rise to $12 by 2030; once again, policy changes don’t affect that. That’s a pretty high price projection, particularly for a scenario where you’re expecting a huge boost in natural gas supplies. Alas, as with the oil case, lower prices mean that many of the projected energy sector jobs won’t materialized. Which brings us to the bottom line. The numbers that Perry and Romney are offering for job creation in the energy sector are unrealistic. They assume that they will be reversing deeply anti-industry Obama policies that don’t actually exist (which is not to say that the Obama policies have no flaws), ignore real constraints at the state level, and don’t properly account for market dynamics. Six hundred thousand is a pretty hard upper limit for the number of jobs that a new policy might create by 2030, of which fewer than two hundred thousand might actually be in oil and gas. Taking into account market dynamics would lower those numbers further, quite likely much further; more generous assumptions about Obama administration energy policy would too. That’s still nothing to sneeze at – but it’s not 1.2 million jobs either.

Joel Kotkin has a provocative essay in Forbes that claims to show how booming extractive industries, led by oil and gas, have been cranking out massive numbers of high paying jobs over the past five years (hat tip: Walter Mead). He reports that employment in “mining, quarrying, and oil and gas extraction” has increased by 545,386 jobs from 2006 to 2011, and that average annual earnings in that sector is $101,486. He also flags spillovers to manufacturing, both of inputs (e.g. steel for well construction) and of products that require lots of cheap energy to make.   There’s no doubt that “brown energy” has been a rare bright spot on the employment landscape. Alas, Kotkin’s numbers appear to be way off. Moreover, even if they were right, his conclusion that “America’s Future Job Growth Lies In Traditional Energy Industries” doesn’t hold up.   Let’s start by taking a look at the total jobs numbers. Kotkin uses data from EMSI that corrects for the fact that standard Department of Labor employment figures don’t include non-payroll employees. This involves, among other things, including every person who files a 1099 for income derived from the industry. Work a couple days in a month for an oil company? Collect royalties in exchange for leasing your land? You’re an employee. For that reason, EMSI warns that “EMSI ‘noncovered’ data (i.e., data on 1099 workers plus more traditional state data, etc.) for oil and gas jobs should be treated with caution”.   That caution appears to be appropriate. Take a look at the BLS Current Population Survey statistics, which are based on household surveys and thus include contract work. They report 886,000 jobs in the sector as of August 2011, of which about 80,000 aren’t on payrolls. This total figure is up from 731,000 in 2010 and 687,000 in 2006, for a still impressive but somewhat less eye-popping gain of about 199,000 jobs.   How about annual earnings? This one is trickier to sort out, in part because it’s not clear how Kotkin derives his number, and in part because some of the data out there are inconsistent. BLS data for payroll employees show average annual wages of about $66,000, better than the economy as a whole but not $101,000 either. (That number is based on 45 hours a week of work at an average hourly wage of $28.) Squaring that with the $101,000 figure is difficult. Wage and non-wage employees might receive different compensastion, non-wage compensation to executives might be significant, and royalty income is clearly not included in the smaller number. It’s hard to see, though, how these could close a 31 billion dollar gap.   Kotkin contrasts the brown jobs "boom" with the green jobs picture. “How about those ‘green jobs’ so widely touted as the way to recover the lost blue-collar positions from the recession”, he asks? “Since 2006, the critical waste management and remediation sector – a critical portion of the ‘green’ economy – actually lost over 480,000 jobs, 4% of its total employment.” That’s nonsense. The figure Kotkin cites is actually for “Administrative and Support and Waste Management and Remediation”. When you narrow the lens to “waste management and remediation”, you actually find an increase of about 27,000 jobs. Not that waste management is the future of the economy or anything, but still, accuracy is nice.   There’s a stronger story to be told on the manufacturing side of the picture. The fact that a new steel mill is opening in Youngstown, Ohio (thanks to Reihan Salam for flagging this yesterday), is indeed striking. On the one hand, it’s hard to see how these sorts of projects add up to much on a national scale, if only because things like steelmaking have become enormously labor efficient (the new mill will employ 400); on the other hand, the geography of job creation has real social consequences, so it’s good to see positive trends in otherwise depressed parts of the country. It’s also important to observe that this isn’t just a “brown jobs” phenomenon: shuttered steel plants are being revived to produce things like wind turbines. Indeed, given the massive amounts of steel required for wind energy (that’s part of why it’s so expensive), I wouldn’t be surprised if it was a bigger customer for these inputs. Perhaps more important is the potential for cheap gas as a fuel source for a manufacturing renaissance in depressed parts of the country. Figures on this are tough to come by, but a lot of smart people seem to think that there’s something there; this is an area where some new analysis would be great.   Ultimately, though, a sense of scale is essential. This blog shared some back of the envelope numbers a couple weeks ago that suggested that a massive extractives boom might at best add about 0.2% directly to national GDP growth, barring very big increases in the price of oil and other mined commodities. That’s not the sort of thing that makes a decisive difference to employment. Potentially more important is the possible impact on oil prices (in tandem with steadily more aggressive fuel economy standards), though again, it’s difficult to paint a picture where U.S. actions yield overwhelming change. Bright spots are always welcome where people are struggling, but it’s dangerous to extrapolate them to a point that yields false hope.

The always insightful Jim Hamilton has an interesting post at Econbrowser in which he asserts that “a vision of what American economic growth over the next decade could look like might also help us address our immediate economic problems", and thus suggests that “taking maximal advantage of our natural resources” ought to be “a top priority for U.S. policy”. Harking back to U.S. history, he observes that “our abundant natural resources have always been an important advantage for America, and are still an important advantage today”, but bemoans the fact that U.S. regulation has led oil rigs to leave the Gulf and rare earth elements to be produced in China rather than in the United States, among other deleterious consequences.   I’m all for getting U.S. resource policy right, but some perspective is in order. U.S. mining activities collectively account for a mere 1.9 percent of U.S. value added (up from 0.9% in 1999). Doubling that contribution once again over the coming decade – a huge undertaking unless oil prices go through the roof – would add only 0.2% to annual GDP growth. Drilling down on a sector that Hamilton highlights, take a look at REEs. Current global production of 140,000 Mt per year is worth about ten billion dollars (gross) at current prices. Even if the United States took over all production, this would be a trivial fraction of domestic output.   What about a broader definition of natural resources? Hamilton writes that “the U.S. today is the world’s leading producer of items such as lumber, corn and poultry, number 2 in coal, oranges, soybeans, and gypsum, and third in cotton and lead”. So let’s add agriculture, forestry, fishing, and hunting – 1.1% of value added in 2010. Once again, double that over the coming decade. You get an extra 0.1% of annual growth.   This is not a vision for American economic growth, and there is a simple reason why: the United States might be a leader in all sorts of natural resource sectors, but natural resource extraction simply isn’t a big part of the economy.   Does this mean that U.S. natural resource policy is inconsequential to U.S. growth? Not necessarily. Natural resource production may only be a small part of the economy, but natural resource use  is important much more broadly. Rare earths, for example, matter as inputs for high-tech products, while oil and gas are critical inputs for a host of activities. The caveat here, of course, is that the United States doesn’t determine the availability of these inputs alone – that’s the job of global commodities markets. If, for example, rare earths are a problem, it’s because China is limiting exports, not because the United States isn’t a big producer per se. Conversely, there’s only so much economic advantage the United States can gain by boosting commodities production, unless it itself limits exports of those products.   Ultimately, commodities still matter to the U.S. economy, but not nearly as much – nor in the same way – that Hamilton suggests. The search for a way out of the economic doldrums continues.

After a dismal new U.S. labor report, job growth is set to dominate debate in Washington, with anxious global investors watching. Economist Gary Burtless says the best policy formula involves investing in infrastructure and easing taxes for businesses.

I’ve always been skeptical of the oft-heard claim that “green jobs” are “good jobs” – that is, that green jobs somehow pay better than other ones. A recent Brookings Institution study, though, takes a rather thorough look at the “clean economy”, and concludes quite emphatically that green jobs do in fact pay better than the typical U.S. job. That invites an obvious question: Why? A decent part of the answer, perhaps unsurprisingly, lies in the sorts of educations that clean energy jobs appear to demand. The Brookings study finds that 93.1% of clean economy jobs are “high skill” or “moderate skill”, in contrast with only 71.7% in the overall economy. Everything else being equal, industries that require more education and skills will pay better. There are big limits, though, to the economy-wide impact that different skills/education demands can have on wages. If jobs for people with, say, college educations pay better, and clean economy jobs tend to require college educations, then clean economy jobs will tend to pay better. But unless more people start attending college, the total number of Americans earning those higher wages won’t actually rise. The same is true for moderately skilled workers. Of course, over the longer term, the availability of more jobs that demand more skills will create greater incentives for people to seek more education. But the presence of more green jobs won’t transform high school dropouts into PhDs, or into technical college graduates for that matter. In any case, the skills/education profile of fossil fuel jobs is even stronger than that of green ones. That’s why another statistic is all the more striking: ClimateProgress reports that low-credentialed workers (high-school degree or less) with green jobs do surprisingly well. According to their numbers, 41.5% of people with fossil fuel jobs, and 47.9% of those with green jobs,  have low credentials and get paid an average of $12 per hour. Somewhat surprisingly, though, 28.7% of green workers with low credential make a (stronger) average wage of $15 per hour, in contrast with only 13.2% of fossil fuel employees. The Brookings study also reports that clean economy jobs for “those without post-secondary degrees… provide higher wages than typical ‘low-skill’ jobs”. What gives? First, a caution: the Brookings study and the one reported by ClimateProgress use different definitions for green jobs. Moreover, they use different methodologies for determining average wages. That said, another set of figures from the Brookings study provides a clue. The Brookings authors report that most clean economy jobs aren’t the stereotypical ones in wind energy or home insulation retrofits. The biggest clean economy sectors are waste management and treatment, mass transit, and conservation (working mainly for the U.S. government), which together account for nearly 40% of clean economy jobs. (Wind, if you’re interested, accounts for about 1% today.) What do these have in common? They’re public sector jobs – and they then to be heavily unionized. (Let me make sure I’m being clear: this interpretation is mine, not the Brookings authors, who don’t flag the union vs. non-union issue.) My guess is that this is a big part of the explanation for why clean economy jobs appear to pay better to people with similar levels of education. To be fair, I doubt that this is the whole story. In particular, downward wage pressures are much higher lower in tradeable sectors than in non-tradeable ones, so the balance of jobs types in a growing clean economy should have broader consequences for U.S. wages. That said, the Brookings study shows that clean economy jobs are actually more export-intensive than the economy as a whole, which suggests that this effect might run the other (i.e. negative) way. But back to the unionization issue. There’s nothing wrong with the fact that clean economy workers might benefit from greater unionization rates (though I’d want to see more careful research before converting my hypothesis into a fact.) But it does call into question the degree to which one can extrapolate from current figures to project future wage gains from growth in green jobs. People installing solar panels or performing home retrofits – the poster children for the green jobs, good jobs mantra – probably aren’t going to be unionized, nor are others involved in providing energy services (though regulated utilities tend to be fairly union-heavy). It may be unlikely, then, that they’ll have any special advantage over others with similar educations. In the end, if the number of green jobs grows, it will be good because it will be a sign that the economy is becoming cleaner. Unless the United States gets its educational and labor systems in order, though, it’s unlikely to address the stagnant incomes of middle class Americans that have so many people rightly worried.

Following my friend and colleague Shannon O’Neil’s lead, I’m going to start posting a quasi-weekly collection of links to interesting things that I’ve been reading. I encourage readers to add their own in the comments. Today’s roundup will be my last post until late next week – I’m off to the west coast for the holiday weekend. UBS analysts pick apart last weekend’s New York Times shale gas story. The graphs of rig count versus production are particularly interesting and illuminating. A neat new paper in the American Economic Review uses a clever trick to infer the cost to automakers of complying with fuel economy standards. Bottom line: it’s awfully cheap. (For those without subscriber access, you can find a working paper version here.) I’ve been trying to get a better handle on how oil trade affects the U.S. current account balance. A key variable seems to be the special status of the U.S. dollar. To understand the source, and possible fate, of the dollar’s role, I’ve been reading Barry Eichengreen’s Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Mike Spence has a great essay on the relationship between globalization and unemployment in the new issue of Foreign Affairs. If you think you don’t need to read it because you’re focused on energy or climate policy, you’re wrong.

The shape of U.S. labor market declines and recoveries—as measured by the current level of employment relative to the prior peak—has changed dramatically over the past two decades. From the 1940s through the 1970s, they exhibited a V-shape of sharp declines and rapid recoveries, as seen in the chart above. By the 1990s they took on a U-shape, signifying longer, persistent unemployment. “During times like the 1950s and 1960s, a rising level of educational attainment kept up with this rising demand for skill,” MIT economist David Autor writes, “but since the late 1970s and early 1980s, the rise in U.S. education levels has not kept up with the rising demand for skilled workers.” The labor demand differential is particularly stark today: unemployment among the college-educated stands at 4.5%, compared with 14.7% for those without high school degrees.  Unemployment compensation, the main tool in the U.S. arsenal to address joblessness, was created back in 1935 to buffer relatively short stints of unemployment, but the need today continuously to extend benefits is a sign that policy has got to address the skills mismatch far more effectively. CGS Chart Book: Economic Recovery CGS Chart Book: Economic Downturn Working Paper: The Evolving Structure of the American Economy and the Employment Challenge Spence and Hlatshwayo: Jobs and Structure in the Global Economy