Job creation news made headlines a few weeks back touting that the United States had recovered all of the jobs that were lost during the great recession. In Arizona, however, we are still way behind our pre-recession levels. Over the next two weeks, we are going to try to tie jobs, the Phoenix office market, and Phoenix population growth all together to make sense of our market.
For this week, let’s look at the Phoenix office market and my favorite topic–job growth:
–Job creation remains anemic. In Arizona, we are still a long way away from getting back to our pre-recession levels.
–The office market has bifurcated into two markets—Sales and Leasing. Large investor demand for class A properties has caused the market to compress cap rates, and created demand for the construction of new buildings. The leasing market, on the other hand, remains extremely challenging with all segments still over 20% vacant. A 20% vacancy is not a market where sustained lease rate increases will continue.
–Absorption for Q1 2014 was very good, creating some justified hope that the market recovery will begin to accelerate.
–I am a realist and I want to see vacancies in the teens (in any class of building A, B or C) before I tell my landlord clients we are on the path to recovery.
I remain very optimistic over the long term. Seven years into an office market with plus 20% vacancy is daunting. I am hopeful we can keep the year rolling and finally get back into the high teens at the end of this year or at worst case, in 2015.
To see a larger image, click here.
To see a larger image, click here.
View the entire slideshow at:http://azstats.gov/pubs/labor/prslides.pdf
The Unemployment Puzzle: Where Have All the Workers Gone?
The U.S. unemployment rate is down, but rising numbers of Americans have dropped out of the labor force entirely
By: GLENN HUBBARD
April 4, 2014
The problem is not just a cyclical downturn. We need to tackle deep structural issues in the U.S. economy. Bloomberg News
A big puzzle looms over the U.S. economy: Friday’s jobs report tells us that the unemployment rate has fallen to 6.7% from a peak of 10% at the height of the Great Recession. But at the same time, only 63.2% of Americans 16 or older are participating in the labor force, which, while up a bit in March, is down substantially since 2000. As recently as the late 1990s, the U.S. was a nation in which employment, job creation and labor force participation went hand in hand. That is no longer the case.
What’s going on? Think of the labor market as a spring bash you’ve been throwing with great success for many years. You’ve sent out the invitations again, but this time the response is much less enthusiastic than at the same point in previous years.
One possibility is that you just need to beat the bushes more, using reminders of past fun as “stimulus” to get people’s attention. Another possibility is that interest has shifted away from your big party to other activities.
Economists are sorting out which of these scenarios best explains the slack numbers on labor-force participation—and offers the best hope of reversing them. Is the problem cyclical, so that, if we push for faster growth, workers will come back, as they have in the past with upturns in the business cycle? Or do deeper structural problems in the economy have to be fixed before we can expect any real progress? To the extent that problems are related to retirement or work disincentives that are either hard to change or created by policy, familiar monetary or fiscal policies may have little effect—a point getting too little attention in Washington.
The unemployment rate, the figure that dominates reporting on the economy, is the fraction of the labor force (those working or seeking work) that is unemployed. This rate has declined slowly since the end of the Great Recession. What hasn’t recovered over that same period is the labor force participation rate, which today stands roughly where it did in 1977.
Labor force participation rates increased from the mid-1960s through the 1990s, driven by more women entering the workforce, baby boomers entering prime working years in the 1970s and 1980s, and increasing pay for skilled laborers. But over the past decade, these trends have leveled off. At the same time, the participation rate has fallen, particularly in the aftermath of the recession.
In one view, this decline is just a temporary, cyclical result of the Great Recession. If so, we should expect workers to come back as the economy continues to expand. Some research supports this view. A 2013 study by economists at the Federal Reserve Bank of San Francisco found that states with bigger declines in employment saw bigger declines in labor-force participation. It also found a positive relationship between these variables in past recessions and recoveries.
But structural changes are plainly at work too, based in part on slower-moving demographic factors. A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of baby boomers.
Baby boomers can’t be the whole story, though, since the participation rate has declined for younger workers too. This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance. Globalization and technological change have also reduced employment and wage growth for low-skilled workers—which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.
Figuring out which explanation best fits today’s labor market is important because the different narratives point to different possible solutions. To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense. Does this mean that the Obama administration’s “targeted, timely and temporary” stimulus package was the right approach? Actually, no. Increasingly, it appears to have been a poor match for the severity of the downturn and the magnitude of the required boost.
After the Great Recession’s sharp decline in investment and employment, U.S. business probably needed a more curative jolt to restore confidence. A sustained infrastructure program, rather than a temporary one for “shovel-ready” projects, would have provided more reassurance of longer-term demand. And far-reaching tax reform could have provided both a near-term fillip from front-loaded business tax cuts and a credible prospect for future growth.
What we don’t know is whether the Obama’s administration’s activist policies failed to draw more Americans back to work because they were poorly executed or because they didn’t do enough to raise aggregate demand. A better designed activist fiscal policy would have made more headway in encouraging growth, but deeper factors behind the downward shift in labor force participation still remain.
The Federal Reserve also has used monetary policy, through aggressive “quantitative easing,” to combat the shock from the financial crisis. In assessing this move’s effect on the labor force, a key question again is whether the problem is best seen as cyclical or structural. If labor-force participation is down because of cyclical factors, keeping interest rates low has been a smart policy, even as unemployment falls—in fact, even if it continues to fall to very low levels to draw nonparticipants back into the labor force.
Research by economists at the Federal Reserve Board published in 2013 suggests that bringing Americans back to work in this way might succeed without sparking inflation—if low labor-force participation is largely a result of a conventional downturn in business activity. If the real problem lies in the rules of the game—that is, structural factors accounting for labor force participation—such a highly expansionary monetary policy ultimately runs the risk of igniting inflation.
As I see it, the policy response to our disturbing doldrums in the labor market has indeed struck the wrong balance. Whatever can be said for shorter-term measures to jump-start job creation and business activity, it seems clear by this late date that our problems are in no small part structural. What we need most urgently is to rethink the federal government’s wider role in the labor market. The importance of structural problems doesn’t imply that policy can play no role beyond conventional fiscal or monetary policy.
The fierce debate now going on in Washington about extending unemployment insurance and raising the minimum wage largely ignores these issues. Such policies may affect the incomes of some Americans, but they won’t do much to expand opportunity and bring more people back into the labor force. Sparking a broad-based return to the labor force demands a more ambitious agenda.
In the first place, we need to encourage low-wage workers and remove barriers to their lasting participation in the labor force. This encouragement is particularly important given the downward pressure on wages encountered by many low-skilled employees in the face of globalization and technological change. The Earned Income Tax Credit, which supplements the income of low-wage workers as they earn more, is supported by many conservatives and liberals alike. Expanding this program’s payments for single workers (that is, beyond workers with families)—or using an alternative low-wage subsidy—would create more powerful work incentives. Phasing out the support over a longer income range, so that it provides more help to those who succeed and advance and reduces the marginal tax rate on work as the support phases out, also makes sense. These changes would cost money, but they could easily be accommodated in a broad tax-reform package.
Another priority for bringing low-wage workers back into the labor force is reforming disability insurance, which is part of the Social Security system. Since changes in qualifications in the 1980s made it much easier to receive federal disability payments, the percentage of individuals reporting disabilities who are still working has dropped by half. For some, disability insurance has become an incentive to give up on work—but it doesn’t have to be this way. The program could be restructured to instead provide the employers of disabled employees with tax advantages for retraining them to remain on the job.
The Affordable Care Act, while giving some Americans access to health insurance for the first time, also creates certain disincentives for work. The law’s generous private insurance subsidies phase out as income rises. In a recent study that I co-wrote with John Cogan and Daniel Kessler of Stanford University, we estimate that the amount of the federal subsidy can decline by as much as 50 cents for each dollar of additional earnings. This implicit tax comes on top of existing income and payroll taxes, raising the effective marginal tax rate on earnings to as much as 80% to 100% for some middle-income families. A broader tax reform that gives a more uniform subsidy for health insurance and health spending would reduce this problem.
A second broad area of policy in need of structural reform is unemployment insurance. Unemployment insurance was originally designed to provide income to workers during temporary spells of joblessness. Longer spells of unemployment during the Great Recession have led to continued calls to extend these benefits. Such extensions certainly keep income support in place longer, but they also lengthen spells of unemployment, potentially making workers less attractive to employers going forward.
A better approach would be a policy pivot toward easing the return to work. A first step would be to complement traditional unemployment insurance with block grants to states to support training and workforce development through community colleges and vocational education. Congress could also create Personal Re-employment Accounts for individuals. These accounts would give lump sums to individuals who lose their jobs and make it likelier that they receive some support and training during long periods without unemployment. If such individuals find a job quickly, they could keep some of the money as a re-employment bonus. Advancing and updating skills are also important: Funds currently in other federal training programs could be repurposed to provide this pro-work support.
Finally, in response to the profound change in the demographics of today’s workforce, we really must consider eliminating the Social Security payroll tax on older workers. Today, older workers who delay retirement must keep paying Social Security taxes while receiving virtually no extra benefits—a strong incentive to stop working early. Getting rid of the payroll tax (currently 12.4% for Social Security) for older workers would remove this disincentive and increase employers’ demand for older workers because employers pay half the employees’ payroll tax.
In addition, Social Security reform should dispose of the “retirement earnings test,” which reduces benefits by about 50 cents on the dollar on earnings above $15,000 for individuals aged 62 to 65. This heavy tax directly discourages work. These pro-work reforms to Social Security wouldn’t be budget busters. Additional work by older Americans would produce income and Medicare taxes to offset much of the budget cost—while also slowing down the exit of workers from the economy.
None of the supply-side changes I’ve proposed would be easy to enact. They would require Democrats in Washington to confront the inadequacy of their stimulus policies to raise employment. And they would challenge many Republicans, who have focused their attention on economic growth, pure and simple, rather than on much-needed changes in federal labor policies. They will need to face up to the need for a more opportunity-oriented agenda for work, as Rep. Paul Ryan and Sen. Marco Rubio have argued, rather than simply opposing the extension of unemployment insurance or raising the minimum wage.
John Maynard Keynes once famously declared his fear that, at some point, much of humankind would have to cope with the problems of abundant leisure and little work. Perhaps. But we can no longer sit back and watch as growing numbers of Americans—not just the wealthy or the elderly—exit the labor force. This trend spells trouble for the nation’s economic and fiscal future. It is a bigger and less understood problem than we think, and it requires bolder policy action than we have contemplated so far.
U.S. Job Growth Jumps, But Shrinking Labor Force A Blemish
By: Lucia Mutikani
May 2, 2014
A woman looks at her smartphone as she attends the NYC Startup Job Fair in New York, April 11, 2014.
CREDIT: REUTERS/CARLO ALLEGRI
A help wanted sign is posted on the door of a gas station in Encinitas, California in this September 6, 2013 file photo.
CREDIT: REUTERS/MIKE BLAKE/FILES
(Reuters) – U.S. employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year.
The brightening outlook was, however, tempered somewhat by a sharp increase in the number of people dropping out of the labor force, which pushed the unemployment rate to a 5-1/2-year low of 6.3 percent. Wage growth also was stagnant.
Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was largest gain since January 2012 and beat economists’ expectations for only a 210,000 rise.
“It lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pick-up in economic growth momentum this quarter,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
March and February’s data was revised to show 36,000 more jobs than previously reported.
U.S. stocks briefly rallied on the report, which was later eclipsed by rising tensions in Ukraine. Stocks ended lower, while safe-haven bids pushed the yield in the 30-year U.S. government bond to its lowest level in more than 10 months.
The dollar was flat against a basket of currencies.
About 806,000 people dropped out of the labor force in April, unwinding the previous months’ gains. That helped to push down the unemployment rate 0.4 percentage point to its lowest level since in September 2008.
The labor force participation rate, or the share of working-age Americans who are employed or unemployed but looking for a job, also fell four-tenths of a percentage point to 62.8 percent last month, slipping back to a 36-year low touched in December.
Overall, however, the data suggested the economy was gathering strength and led investors to pull forward their bets on when the Fed will start to raise interest rates.
The strong payrolls growth added to upbeat data such as consumer spending and industrial production in suggesting that sputtering growth in the first quarter was an aberration, weighed down by an unusually cold and disruptive winter.
The Fed on Wednesday shrugged off the dismal first-quarter performance. The U.S. central bank, which announced further reductions to the amount of money it is pumping into the economy through monthly bond purchases, said indications were that “growth in economic activity has picked up recently.”
“It also matches well with the Fed’s expectations for the labor market, excluding the sharp unemployment rate drop, and likely means more $10 billion dollar reductions in monthly asset purchases at future meetings,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
LABOR MARKET IMPROVING
Economists expect second-quarter gross domestic product to top a 3 percent pace. Last month’s drop in the labor force could have been driven by some of the 1.35 million people who lost their longer-term unemployment benefits at the end of last year.
Since they are no longer receiving unemployment benefits they have little incentive to continue looking for work as required by law. Part of the decline in participation in the labor market also reflects changing demographics, as well as people going on disability while waiting to reach retirement.
“Baby boomers are retiring and the various government benefits including disability are contributing to the drop in the participation rate,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.
Still there is little doubt the labor market is strengthening. A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a 20-year low of 12.3 percent in April. It was at 12.7 percent in March.
In addition, the number of people who have been unemployed for more than six months saw its biggest decline since October 2011 and the average duration of unemployment fell to 35.1 weeks from 35.6 weeks in March.
The short-term jobless rate hit a new cycle-low of 4.1 percent. Employment gains in April were broad-based, with the private sector adding 273,000 jobs and government payrolls rising 15,000. Manufacturing employment increased 12,000 after rising 7,000 in March.
Construction payrolls gained 32,000 after increasing 17,000 in March. The hiring trend could slow in the months ahead as residential construction loses some steam.
Despite the strong gains, average hourly earnings were flat in April, pointing to lack of wage pressure and still ample slack in the economy.
“There is just no sign of any broad-based wage pressure,” said Josh Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. “There is still slack in the labor market and with labor costs still dead in the water, the Fed is probably not going to have to rush (to raise rates).”
The length of the workweek held steady at 34.5 hours last month after bouncing back in March from its winter-depressed levels.