Fifteen for Fifteen

Adam Scott’s collapse today over the last four holes at the British Open allowed Ernie Els to win his fourth major championship.  Els’ win means that fifteen different golfers have won the past fifteen major championships, tying the record set from 1994 to 1998.  This remarkable string of different winners in each of the major championships over the past four years reflects the parity among top professional golfers.

Els victory indicates how changes in conditioning and equipment have extended the period over which top players can remain competitive in major championships.  Tom Watson nearly won the British Open three years ago (he tied for first and lost in a playoff), 34 years after his first major championship.  Els has won major championships over an eighteen year span.  In the past ninety years only Jack Nicklaus and Gary Player have won major championships over a longer time span. 

 

The Most Dominant Basketball Team in Olympic History

As the US men’s basketball team heads to London for the 2012 Summer Olympics, many have speculated about how this year’s team would match up with the 1992 Dream Team.  There is no doubt that the 1992 team, with Michael Jordan, Magic Johnson, and Larry Bird was the most talented team in Olympic history.  Every player on the 1992 team, other than Christian Laettner, is a member of the Basketball Hall of Fame. 

The Dream Team was not the most dominant team in Olympic basketball history.  The 1956 team, with Bill Russell and K.C. Jones (from the University of San Francisco) scored 773 points in eight games while allowing only 365 points.  For each one point scored by their opponent, the US team scored 2.12 points, a record for Olympic games in which basketball was played indoors (since 1948).  The 1992 Dream Team faced tougher competition and scored 1.6 points per point allowed, sixth best in modern Olympic basketball history.  The most under-achieving US team in Olympic history is the 2004 team that won the Bronze medal but lost three games.  The 2004 team only scored 1.05 points per point allowed.

The 1956 summer games were played in Melbourne in November and December.  Bill Russell, the team’s captain and biggest star, delayed the beginning of his pro career with the Boston Celtics to play in the Olympics.  Russell was one of the world’s top high jumpers and probably could have competed on the U.S. track team.  He went on to win 11 NBA titles in his 13 year professional career and is considered the greatest defensive player in basketball history.

Public Sector Administration: A Safe Job If You Can Get It

Liberal economists and politicians lament the fact that public sector employment has contracted over the past two years while the economic recovery has sputtered.  The following chart compares the change in private sector and government employment from May 2008 to May 2011, and from May 2008 to May 2012.  Private sector employment fell by 5% between 2008 and 2011 but rebounded enough in the past year to stand 3.3% below its May 2008 level.  Public sector employment fell by much less between 2008 and 2011 but has dropped more in the past year and now stands about 2.3% below its May 2008 level.

Despite the budgetary problems faced by state and local governments, layoffs of teachers, police, and firefighters are generally not politically popular.  Advocates of more government spending often equate fiscal restraint with layoffs of educators and first responders.  But the 2.3% decline in government employment between 2008 and 2012 includes a wide variety of public sector jobs.

Have cutbacks in state and local government spending caused substantial declines in the employment of teachers, police and firefighters?  The Bureau of Labor Statistics Occupational Employment Statistics (OES) program provides annual employment counts and measures of the pay distribution by detailed occupation for nearly all nonfarm workers, public or private, who aren’t self employed.  The OES data are reported for May of each year and the most recent data are for 2011.  The OES can be used to measure the change in employment from 2008 to 2011 in key jobs, such as educators and first responders, that are primarily found in the public sector.  (For example, about 90% of elementary and secondary school students attend public schools and about 75% of college students attend public institutions so changes in the employment of educators from 2008 to 2011 are likely to be dominated by government budget cuts.)  Unfortunately the OES data can’t be separated by government and private sector, so the data are less informative for identifying government reductions in jobs that are primarily found in the private sector (e.g. clerical workers).

The following chart indicates that the employment of elementary and secondary school teachers fell slightly while the employment of post-secondary teachers grew by over 5% from 2008 to 2011.  The employment of school administrators grew by 1.7% for elementary and secondary schools and by 16.6% for colleges and universities.

The OES data can also be used to measure the change in employment of police, firefighters, and their supervisors.  The following chart shows that between 2008 and 2011 the employment of police and firefighters increased by less than 2% while the employment of their supervisors grew more than six times faster or by more than 9%.

Government spending advocates criticize fiscal restraint by asserting that teachers, police, and firefighters will lose their jobs if government spending decreases (as a fraction of GDP).  The OES data indicates that while employment in the private sector fell by more than 5% from 2008 to 2011, employment in some government administrative positions grew briskly.  From 2008 to 2011 the employment of police, firefighters and elementary and secondary school administrators increased slightly and teacher employment fell by only 0.4%, but the employment of police and fire supervisors increased by over 9% and the employment of administrators in higher education grew by more than 16%.

The public’s appetite for fiscal restraint is likely to depend on their understanding of which public service jobs are being trimmed and which are growing.  It is unlikely that voters support substantial increases in the employment of university administrators, with an average annual salary of over $97,000, and police supervisors, with an average annual salary of over $82,000, while the number of classroom teachers declined and the number of patrolmen barely increased.  But this is exactly what happened between 2008 and 2011.

The Unemployment Rate is 8.216%

The BLS announced today that 80,000 jobs were created in the U.S. in June, compared to 77,000 in May and 68,000 in April.  Despite the small apparent increase in payroll employment gains from April to June, there is no meaningful difference in the number of jobs created between April, May and June; their difference is well within the statistical margin of error.  Payroll employment gains are reported to a level of accuracy far beyond our ability to count all employees in the U.S. in real-time.  The difference between an employment gain of 80,000 and a consensus forecast of 125,000 is still far below the margin of error for estimated job growth.  While sophisticated labor market observers recognize this fact, the casual consumer of economic news should be more concerned about longer term labor market trends than a single month’s report.

The BLS reports the number of jobs created to the nearest 1,000, even though the standard error of each monthly estimate is approximately 60,000 jobs.  This means that the margin of error for each month’s payroll employment gain is about 100,000.  For non-statisticians, labor economists are only 90% certain that job growth in June was within an interval from a loss of 20,000 jobs to a gain of 180,000 jobs.

The unemployment rate is reported to the nearest one tenth of a percentage point, while the standard error of the unemployment rate estimate is about .12 percentage points.  In other words the BLS reports the unemployment rate to the nearest 0.1 while the margin of error is approximately 0.2.

If the BLS were to report payroll employment similarly to the unemployment rate, payroll employment would be reported to the nearest 50,000 jobs not the nearest 1,000.  If the BLS reported payroll employment rounded to the nearest 50,000 jobs, those without a statistics background would recognize how noisy monthly employment estimates can be.

Put somewhat differently, if the BLS instead reported the unemployment rate to the same level of inaccuracy as payroll employment, it would report the unemployment rate to the nearest two one-thousandths of one percent.  If that were the case the BLS would have reported that the unemployment rate ticked up from 8.206% in May to 8.216% in June.

The labor market recovery is very weak because over three months, where the margin of error is much smaller, employment gains totaled 225,000 jobs.  If the labor market were healthy, the economy would create more than 225,000 jobs per month not per quarter year.  During the recovery in 1983-1984, there were 15 straight months where job growth exceeded 225,000 per month.  We are on a long slow road back to full employment.

Welch Consulting Employment Index for June 2012

The Welch Consulting Employment Index is 93.8 for June 2012.  The index is down sharply over the past three months, it was 94.9 in March, and fell slightly below its value in June 2009.  The index is up 1.5% from June 2011 (seasonally adjusted).  An index value of 93.8 means that full-time equivalent employment (from the BLS household survey) is 6.2% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is up about 1.8% from its trough in July 2011.  

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been weaker for women than men over the past three years.  Of course, men lost more jobs than women during the first year of the recession and therefore had more ground to make up in the past three years.  The index for men is 91.6 for June 2012, up 1.9% over the past twelve months, and up 1.1% in the past three years.  The index for women is 96.7 for June 2012, up 0.9% over the past twelve months, but down 0.5% over the past three years.  Finally, since President Obama took office in January 2009, the employment indices are down 2.3% for men and down 4.1% for women.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

Outlook for June Jobs Report

If tomorrow’s jobs report for June looks like the June 2011 report, we will see payroll job growth of 132,000.  If the labor market report matches the average growth in the decade prior to the 2008-2009 recession payroll employment would increase by 193,000.  Even this more rapid growth would correspond to an annual employment growth rate of 1.75%, barely enough jobs to keep pace with population growth and the rising participation rates of women and older workers.

Labor market observers should pay attention to the growth in full-time employment between May and June (from the household survey) for adults age 20-24, many of whom are just finishing school.  From 1998 to 2007 the full-time employment of workers in this age group increased by 9%, on average, between May and June.  Over the past four years, as new graduates have struggled to find jobs, full-time employment grew by an average of only 6.3% between May and June for adults age 20-24.

Obamacare, The Nanny State, and Personal Responsibility

Now that the Supreme Court has upheld Obamacare, and individuals are mandated to purchase their own health insurance, it’s time to roll back policies designed to protect citizens from themselves.  If individuals engage in activities that eventually cause them to use the healthcare system more, it is harder than ever to make that case that this is the business of any other taxpayer.  Nanny state policies can no longer be rationalized by the hackneyed argument that without such policies we all pay the higher health care costs of our fellow citizens who make unwise choices.  If nearly everyone has their own health insurance, we won’t.  Health insurers are free to charge higher premiums for persons making unhealthy decisions, but it should no longer the business of other citizens/taxpayers.

Chief Justice John Roberts’ decision to call the penalty for failure to purchase health insurance a “tax” has received much attention but it is probably not controversial to most economists.  Economists are taught to view fees, penalties or taxes in the same way.  Pigouvian taxes are penalties assessed for economic activities that cause negative externalities such as pollution.  Non-economists may be offended that businesses can buy their way out of certain regulations (through paying a penalty or tax) but economists view this approach as more efficient than strict prohibitions.

Economists are also taught that trade-able quotas are the same as a tax (as long as the quotas are auctioned off rather than given away).  The Obama administration’s controversial cap and trade policy for emissions was similar to a tax/penalty.  An important difference between the individual mandate in Obamacare and cap-and-trade is that once a person pays the penalty/tax to avoid the health insurance mandate, the “permit” allowing a person to remain uninsured can’t be traded to other taxpayers.  A polluting company that buys a trade-able pollution permit can sell that permit to others.

The Obamacare tax is fairly unique in that it is assessed on inactivity rather than activity.  State “click-it or ticket” laws that fine drivers for failure to wear a seatbelt also penalize citizens for inactivity.  Although there is no Federal mandatory seatbelt law, the Federal government provides grants to states for stepping up their enforcement of state seatbelt laws.

The economic rationale for mandatory seatbelt laws is especially dubious if drivers have health and auto insurance.  Mandated seatbelt laws are different from speeding laws which are intended to mitigate the negative externality cause by speeding (the increased chance of injury for other drivers and passengers).  If anything, the tax for failure to wear a seatbelt could cause drivers to take fewer precautions while driving because their own risk of injury is diminished.

A silver lining in the Supreme Court decision on Obamacare is that politicians who typically argue for collective solutions to problems are advocating personal responsibility in the health insurance market.  If only these politicians would extend the personal responsibility argument to other choices that impose no negative externalities on others, like the purchase of a 44 ounce sweetened beverage or the decision to forego a seat belt.

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