Wages are flat because unemployment IS so low

The New York Times had a feature on February 2nd on why wages continue to lag despite the extremely low unemployment rates at the moment.

There is a basic presumption in this article that is no longer valid, however: namely that the unemployment rate today is the same kind of unemployment rate from 10 or 20 or even 30 years ago.

In Wisconsin, the news for some time has been how the state’s unemployment rate and benefit payments to claimants are at record lows. For instance, a January 2018 press release from the Department includes the following observations:

Other indicators of the state of Wisconsin’s economy include:

  • Initial UI claims ended 2017 at their lowest level in the last 30 years.
  • Continuing unemployment claims ended 2017 at their lowest level since 1973.

See also this October 2017 press release. What is notable here is that this decline is well known and part of an apparent plan.

As previously noted here, this decline is occurring because of Department efforts at making it harder for the unemployed to qualify for unemployment benefits and then disqualifying them for not jumping through some state requirement fast enough or alleging unemployment fraud for nothing more than simple claim-filing mistakes.

But, the data in Wisconsin does not explain what is happening nationally. The National Employment Law Project has already noted how unemployment has changed significantly across the nation the last few years. But, thanks to the efforts of some smart folks in Pennsylvania, national unemployment data is now available in a highly convenient format and which produces eye-catching charts.

NOTE: I cannot say enough good things about this unemployment data explorer. Pretty much any unemployment data currently being collected is now available for quick analysis in a chart. Moreover, you can easily see and download the data being used to create the charts. Excellent work.

This data provides some charts that can compare what is happening from state to state. For instance, separation data (how claims are denied because of a quit or a discharge for which misconduct/substantial fault is found) presents the following set of charts:

50-state denial rates from 2005 to 2017

The red line in these charts is the national rate. As obvious, this chart shows that there is a great deal of variation from state to state. And, because there have been big changes in the number of claims being filed, this data is somewhat incomplete. SeeEmployer UI taxes declining because more UI claims being denied” (24 August 2016) for an examination of how changes in the number of claims being filed affect Wisconsin’s claim-filing numbers.

But, the variation among the states also reveals some obvious increases in denial rates in Kansas, Maryland, New Mexico, South Carolina, and Wisconsin. On the other hand, Alabama, Colorado, Florida (a surprise), Mississippi, New Hampshire, New Jersey, and New York show significant drops in denial rates.

This 50-state data gets even more interesting when “other” reasons for denying unemployment benefits are examined:

50-state denial rates for other reasons from 2005 to 2017

NOTE: “Other” reasons include, for instance, a claimant not being able and available, not completing the required job search actions for that state, not attending call-in or meeting requirements a state has mandated, or not registering for various state-mandated services. Wisconsin specific data on these issues “other” denial reasons is available here from this prior post on the financial impact of Wisconsin’s substantial fault disqualification. Outside of able and available status, these “other” reasons generally encompass requirements an individual state creates as part of its claim-management bureaucracy for supervising the unemployed.

Again, the red line in this chart is a national average of cases being decided for “other” reasons. As evident here, there has been an increase (and even an explosion in some states) in “other” denial reasons the last few years in Florida, Louisiana, Massachusetts, Michigan, Mississippi, Montana, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, and Tennessee. Indeed, the national trend of these “other” cases increasing over time would probably be much more significant if the extremely large populations of Texas and California were removed from the analysis (Texas has been flat, and California has actually declined significantly). As such, national data is masking significant changes in the availability of unemployment benefits in numerous states.

Of course, this table is simply showing the number of cases being decided for “other” reasons. If all of these cases did NOT lead to a denial of an unemployment claim, then there is essentially no harm, no foul in these cases. But, the actual denial rates for “other” reasons reveal a not-so innocent story.

50-state denial proportion for other reasons from 2005 to 2017

Where California declined and Texas increased slightly and then plateaued, Delaware, Florida, Iowa, Illinois, Indiana, Louisiana, Massachusetts, Maryland, Michigan, Mississippi, Montana, North Carolina, North Dakota, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, South Carolina (showing shocking jumps from year to year), Tennessee, Utah, Wisconsin, and Wyoming have seen obvious increases in denial rates since 2005.

These other reasons for the most part did not exist until very recently and almost none go back a decade in significant numbers in any one state. The Wisconsin data on this issue, for instance, is telling: cases involving profiling registration requirements were in single or low double-digits until 2015 when they sky-rocketed to hundreds and then thousands. What this last chart reveals is that numerous states have essentially created numerous mechanisms for disqualifying claimants even when those claimants are initially eligible for unemployment benefits.

Given that we are all human and can only take so much abuse before moving on, it is extremely likely that most folks have simply stopped filing unemployment claims because of the obstacles states have placed on their eligibility and not because they have found the jobs they have wanted all along.

So, if states are making it much, much harder to receive unemployment benefits when filing a claim, then the low unemployment rates of today are NOT comparable to the low unemployment rates of yesteryear or even to unemployment rates of a decade or so ago. Instead of creating a question about how low wages and low unemployment rates can co-exist, the low unemployment rates of today may actually be placing a brake on wage growth: the state unemployment policies at issue here increase the supply of individuals looking for any work in place of their missing unemployment benefits. That increase in the labor supply, as a result, creates downward pressure on wages. At least, that is what I learned in labor economics 101.

Advertisements

Unemployment is going away

The March 2nd edition of the Isthmus has an excellent cover story about unemployment changes the past few years. Make sure to read it.

The Department’s press release that same day provides some additional insight into what is going on with unemployment in this state.

Two issues arising from these news items deserve additional comment.

First, the response from the Department in the Isthmus story indicates that this expansion of concealment to include mistakes is intended.

Now, honest mistakes can lead to fines and criminal charges, Forberger says.

Tyler Tichenor, a DWD spokesperson, counters that the change was made “to make the definition clearer for claimants so they could better understand what they need to do to file a claim accurately.”

John Dipko, another department spokesperson, says the state is making a concerted effort to crack down on fraud and that referrals for prosecution began increasing even before the definition change.

“The number of referrals have gone up,” Dipko says. “We’ve been much more aggressive in referring the most egregious cases of fraud for consideration for possible prosecution.”

The change Mr. Tichenor is referring to is the 2015 change in the statutory definition of concealment. He is NOT referring to providing simpler explanations of unemployment issues for claimants or making the filing process easier to follow. No claimant (or employer for that matter) should be expected to review a legal statute simply to make sure he or she is doing what the Department wants him or her to do. Such a policy is akin to the IRS making everyone read the Internal Revenue Code when filing their taxes. Yes, the statutes govern. But, the agency responsible for carrying out those statutes has a duty to explain those statutory requirements as simply as possible and in a way that is not intended to confuse and trip folks up.

But, confusion and mistakes are the whole point of unemployment concealment now. For instance, the on-line filing process is now more complex, not less, with numerous requirements for which any single mistake can now lead to a charge of unemployment concealment.

And, this concealment push cannot be under-stated. When filing on-line, the first thing a claimant sees, even before he or she creates a user-id and a password, is this screen:

UI claim initial screen

Notice the specific language being used here — “If you make a mistake or forget to report a material fact related to your claim . . . ” The Department is officially declaring here that a simple mistake or even forgetfulness can be the basis for a concealment charge.

Second, the Department’s press release about record-low unemployment claims and a sudden rise in employees’ wages indicate how significant the Department’s changes in unemployment have been.

Four issues in the Department press release on March 2nd highlight the changes being wrought by the Department. First, the Department reveals that September 2015 to September 2016 job growth in Wisconsin was 29,486 total jobs and 25,608 private-sector jobs. When compared to prior job growth numbers, this trend indicates that job growth is actually slowing in Wisconsin — 37,432 jobs from March 2015 to March 2016 and 39,652 jobs from March 2015 to March 2015.

In light of the Department’s push for charging claimants with concealment for their honest mistakes and the loss of work search waivers during the winter months for seasonal employees, three other points from the press release suggest what is actually going on.

  • Quarterly wages by covered private-sector employers grew by 7 percent year over year. Total wages grew by 7.5 percent over the year.

  • Initial UI claims ended 2016 at their lowest level since 1988. Continuing unemployment claims ended 2016 at their lowest level since 1973.
  • More people were employed last year in Wisconsin (November 2016) than at any point in our state’s history.

As indicated here, the number of people working in Wisconsin is at a record high level. (NOTE: this statistic could also be — and likely is as noted below — because the number of people in the state remains relatively flat.) This increase in working folk should indicate that Wisconsin has a “hot” job market. Employees would then have increased bargaining power and be willing to switch jobs when employers are less than fair or better opportunities appear to be available with other employers. Such a “hot” job market would suggest that unemployment claims would rise somewhat because of individuals trying out new jobs that do not work out or which prove to be less than hospitable. But, initial unemployment claims are at record lows. So, folks either are NOT leaving jobs at all or are NOT filing claims for unemployment benefits when job separations do happen (because of the Department’s concealment push). Finally, the fact that wages have jumped over 7% in one year without a “hot” labor market indicates that employers are voluntarily raising wages for the employees they already have even though labor turnover (signified by the record low number of claims being filed) is markedly down.

As indicated in the Isthmus cover story, employers this past winter were faced with employees who no longer had seasonal job search waivers when claiming unemployment benefits and so had to do four job searches a week along with all the other job search requirements the Department has enacted the past two years. Those employees are essentially making themselves available to be poached by other employers, and so the Department has created a competition for employees among employers where none existed before.

If employees were little more than replaceable cogs, this increased competition would still not lead to higher wages. But, for skilled work where employees are not interchangeable, employers need to keep their skilled labor because of the high replacement costs that arise when those skilled employees leave.

To avoid this whole government-created poaching regime, employers’ only real option is to keep their employees off of unemployment by “hiring” and paying them during winter months despite the lack of actual work available for these employees. In other words, some employers have found themselves handing out winter make-do work to keep their employees off of unemployment. With full wages (or even partial wages), these employees are doing financially much better than when they just received unemployment benefits that max out at $370 a week.

NOTE: as this COWS report indicates, the wage growth at issue here is a very recent development. In January 2017, the story in Wisconsin was the flat wage growth in this state.

Finally, this lack of unemployment benefits is affecting everyone — employers and employees — when the record low in continuing claims is considered. This statistic indicates that even when employees file a claim for unemployment benefits, that claim is stopped shortly thereafter because they are either denied benefits because of substantial fault or misconduct or because they fail to meet some new job registration requirement that Department has enacted. With no unemployment benefits available, the unemployed are out searching for jobs or they are leaving this state for greener pastures where jobs and unemployment benefits are available. The state’s relatively flat population growth the last few years — a 0.6% growth rate in 2010 is 0.2% in 2016 — bears this point out. Because of the Department’s drastic changes to unemployment, the state is certainly not becoming business friendly for most employers.