TED Talk: The Power of the $10 Trillion per Year Informal Economy, World's 2nd Largest Economy

TED Talk -- Robert Neuwirth spent four years among the chaotic stalls of street markets, talking to pushcart hawkers and gray marketers, to study the remarkable "System D," the world's unlicensed economic network. Responsible for some 1.8 billion jobs, it's an economy of underappreciated power and scope.

Conclusion: "This economy is a tremendous force for global development and we need to think about it that way."

There's One Place with Jobs, Jobs, and More Jobs

The jobs report today was pretty grim even though the jobless rate fell to 8.1%.  But there's at least one place where the job market is booming like never before, where the state jobless rate is only 3%, where there are ten counties with jobless rates below 2% and where one county with a jaw-dropping 0.7% unemployment rate: North Dakota.

Here's a news report on America's hottest job market, and here's a video version of that report.  

HT: Bakken Blog News

Labor Market Weakness Can Be Traced to the Biggest Loss of Government Jobs Since WWII

I don't think this issue has received much (any?) attention:

Most of the weakness in the U.S. labor market, the stubbornly high unemployment rate, and the slow rate of overall job creation can be traced to the ongoing decreases in government jobs, see chart above.  

The top chart above shows that since January 2010, more than 4.5 million jobs have been created in the private sector and the employment level today is 4.3% higher than at the beginning of 2010.  Over the same period, government sector jobs have fallen by 2.6%, or by 579,000 jobs.   

In fact, the contraction of government jobs starting in 2009 (almost 700,000 through August) is the largest contraction in public sector jobs since the 1945-1947 period following WWII when government jobs contracted by 770,000 jobs, and almost twice the 392,000 government jobs lost in 1981-1982 (see bottom chart above).

From January 2009 to August 2012, there has been a loss of 533,000 local government jobs, a loss of 149,000 state government jobs and a gain of 27,000 federal jobs, for a total net decrease of 655,000 total  government jobs.    

Update: While the overall level of job creation has been slow, it’s being dragged down by the significant job losses in the public sector, especially for local government jobs. Private sector jobs have been increasing at 91,000 per month since the recession ended in June 2009. Government jobs have contracting by 18,000 per month on average over that period, which is bringing down the overall monthly job increases to only 74,000 on average. By comparison, 30,000 private jobs were added per month in the comparable period following the 2001 recession, which along with government job increases of 11,000 per month, brought the total monthly increase in employment to 41,000. During the current recovery, the private sector alone is creating more than twice as many jobs per month as were created by both the private and public sector in the recovery of 2002-2004. 

The periods following all of the last three recessions have accurately been described as “jobless recoveries.” But we should recognize that this recovery is different, because unlike the previous two jobless recoveries, we now have ongoing losses in public sector jobs. Without the losses in government jobs at the state and local levels dragging down job growth, the overall U.S. labor market would be doing much better right now. 

Perhaps the significant downsizing of government at the state and local level is a positive development for the future growth of the U.S. economy, and one benefit of the Great Recession. But we should also pay some attention to the fact that one of the reasons for the disappointing monthly employment reports is the persistent weakness in the public sector employment, which is offsetting the relatively healthy increases in private sector hiring.

Free-fall: Adjusted for Inflation, Print Newspaper Advertising Will be Lower This Year Than in 1950

The blue line in the chart above displays total annual print newspaper advertising revenue (for the categories national, retail and classified) based on actual annual data from 1950 to 2011, and estimated annual revenue for 2012 using quarterly data through the second quarter of this year, from the Newspaper Association of America (NAA).  The advertising revenues have been adjusted for inflation using the CPI, and appear in the chart as millions of constant 2012 dollars.  Estimated print advertising revenues of $19.0 billion in 2012 will be the lowest annual  amount spent on print newspaper advertising since the NAA started tracking ad revenue in 1950.   

The decline in print newspaper advertising to a 62-year low is amazing by itself, but the sharp decline in recent years is pretty stunning.  This year's ad revenues of $19 billion will be less than half of the $46 billion spent just five years ago in 2007, and a little more than one-third of the $56.5 billion spent in 2004.

Here's another perspective: It took 50 years to go from about $20 billion in annual newspaper print ad revenue in 1950 (adjusted for inflation) to $63.5 billion in 2000, and then only 12 years to go from $63.5 billion back to less than $20 billion in 2012.

Even when online advertising is added to the print ads (see red line in chart), the combined total spending for print and online advertising this year will still only be about $22.4 billion, less than  the $22.47 billion spent on print advertising in 1953.

Economic Lesson: It's another one of those huge Schumpeterian gales of creative destruction.  

More Evidence of Recovery: Home Builders Don't Have Enough Workers to Meet New Demand

CNBC's Diana Olick reports that:

After losing 70 percent of their business in the housing crash, the nation's home builders are breaking ground again. New orders for homes are rebounding strongly, and housing starts have shown sustained growth over the past year. The demand is there; unfortunately, in some areas, the workers to build these homes are not.

Many former construction workers moved on to facilities maintenance work or remodeling, or whatever jobs they could find. Replacing them is difficult because today's market demands highly skilled workers, and there is simply no available base. In the past, builders would hire workers and train them on the job. 

"They don’t have the luxury of that now," says John Courson, CEO of the Home Builders Institute, an industry training group. "They want workers that are available to them, that come out trained with a skill, and ready to hit the ground working. They don’t want the expense of on the job training.” 

The shortage is across the spectrum, but especially in need are framers, concrete workers, plumbers, roofers and painters. The shortage is also felt most in areas where housing is coming back strongest, and permitting is easiest, like Texas and much of the West. The situation is not nearly as dire in the Northeast, where home building volume is smaller, and it can take years to get a project off zoned and ready to build. Still, as construction across the nation pulls itself off life support, the bitter irony persists. After years of nobody knocking on the door, suddenly this industry is struggling to meet demand. 

Update: In today's Monster Employment report, they are reporting a 6% overall increase in online job postings for August compared to a year ago, while online listings for construction jobs increased by 9% versus last year. 

Welcome Univ. of Michigan-Flint MBA Students

To the MBA students at the Flint campus of The University of Michigan who are enrolled in MGT 551 (Business Economics) for the Fall term 2012:

WELCOME TO CARPE DIEM!

Professor Perry

Danish Government May Scrap Its "Fat Tax"

Global Tax News is reporting today that:

Only one year after its implementation, the Danish government is planning to scrap the “fat tax.” The reason why: reports show that it simply doesn't work.

Denmark is now likely to abolish the tax levied on saturated fats, as empirical evidence shows that its negative effects outweigh the benefits for the Danish Treasury. In particular, reports point to job losses in the food processing industry and Danes crossing the German border to buy cheaper products.

The proposals to scrap the fat tax have been included in the 2013 draft budget, which is currently under consideration by Parliament.  Under current law, Denmark is applying a tax of DKK16 ($2.40) per kg of saturated fat on food items. This tax was introduced back in autumn 2011 to combat obesity and raise tax revenues.

MP: Taxes are always distortionary, for one reason: People can change their behavior to avoid them, as this case demonstrates. 

Update: In the comments section, Scott Drum poses an excellent question: 

"Why is that liberals constantly embrace the idea that taxing something of which they don't approve (fat, soft drinks, gasoline) will result in less of that thing being produced/consumed, but insist that increasing taxes on investment or income won't have any affect on those activities?"