Most Details in Jobs Report Are Positive

The unemployment rate was unchanged in March. But it was the best possible variety of unchanged.

Although the jobless rate didn’t budge from its 6.7 percent February level, the details behind that number are almost entirely positive.
The number of people reporting that they were employed soared by 476,000, which normally would be enough to send the jobless rate
falling. The reason it didn’t is that the labor force rose by a whopping 503,000. It is part of a trend that has been underway all
year, with the labor force rising 523,000 in January and 264,000 in February.

In other words, half a million people who had not been looking for work decided they indeed wanted a job, and simultaneously about that many people found a job. The result was a standstill in the overall jobless rate.

A couple of the other details from the survey of households also point in a positive direction. The number of long-term unemployed â€" those without a job for more than 27 weeks â€" fell by 110,000. And the ratio of the population reporting they had a job ticked up to 58.9 percent from 58.8 percent.

The trend toward a rising labor force in 2014  suggests that America is finally getting back to work. It follows a long, sharp contraction
in the number of people with a job or looking for one. But it also could stand in the way of further progress toward lower unemployment. That’s a trade most people would take.

Still Needed: Millions of Jobs

Imagine for a moment that the federal government wanted to maximize employment - wanted to make sure as many people as possible had jobs.

We were still a long way from that goal in March.

1. There are, of course, the people the government counts as unemployed. About 4.2 percent of the adult population was included in this category in March.

Some unemployment is generally regarded as healthy. It means that people are changing jobs, and that employers have a ready supply of available labor. Before the recession, policymakers tried to keep about 3 percent of adults unemployed.

It’s not clear, however, that the government can reduce unemployment to its pre-recession level, at least not anytime soon. Even as the economy recovers, job growth may come in different places and in different fields than before the recession, so some people who lost jobs may not find new ones. The Federal Reserve expects economic growth to eliminate about half of the recent rise in unemployment.

Source: Bureau of Labor Statistics

2. There are also people working part-time who cannot find full-time jobs. Another 2.9 percent of the adult population fell into this category in March. As the chart shows, that share has not declined since the depths of the recession.

These people are generally regarded as obvious beneficiaries of increased economic growth, because they clearly possess some kinds of marketable skills. Some economists, however, see evidence that at least some of these workers may be consigned to part-time work because of their shortcomings, or because of underlying changes in the economy, suggesting that this category, too, may remain larger than it was before the recession for the foreseeable future.

3. Then there are the people who have left the labor market. We don’t know how many people of these people may start looking for work as the economy improves. The share of adults in the workforce fell sharply during the recession, but it is unlikely to return to its previous level because of demographic changes. The aging of the baby boom, and less immigration, means that a larger share of adults are beyond their working years. And some people who left the labor force, even among those in their prime working years, probably cannot be induced to return.

Still, it seems likely that some, who stopped looking for work because they were frustrated, will start looking again as they become more optimistic. One obvious measure of this group? The  government asks people who stopped looking whether they would still like jobs. In March, 2.4 percent of adults said “Yes.”

After Six Years, a Full (Private-Sector) Recovery

Today’s job reports for March finds there were 116,087,000 private-sector jobs. That figure is 110,000 higher than the 115,977,000 employed in January 2008, the previous peak.

That is by far the longest it has ever taken (at least since the government began releasing monthly figures in 1939) for private-sector employment to recover fully from a recession. The old record was 54 months, or 4.5 years, after jobs peaked in 2000 and the 2001 recession began.

Total jobs have still not recovered, because government employment continues to fall. In March, the government total was flat, as an increase in state and local jobs was offset by a decline in federal employment, but the 12-month change was still negative.

So over all, we need another 437,000 jobs to get back to the January 2008 peak. That seems likely to be in June, assuming current trends continue.

Of course, getting back to the old level would hardly be a great victory, because the population has been growing. But it would be a start.

A New Look at Big-Bank Subsidies

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

In fall 2008, some big financial companies in the United States and Europe were regarded as too important to fail. They received large amounts of government support, directly from the Treasury, through central banks and in other ways to prevent them from collapsing.

The question now under investigation by the Government Accountability Office and others is the extent to which companies, most notably the largest global banks, are still likely to receive special protection the next time investor sentiment turns sharply negative.

Such implicit (and free) downside insurance would amount to a particularly pernicious form of subsidy from the government and is likely to encourage excessive risk-taking and danger to the entire financial system. If the G.A.O. finds there are still big subsidies for too-big-to-fail banks, this will attract attention from both Republicans and Democrats â€" and will greatly strengthen the case for higher capital requirements (as laid out by Anat Admati and Martin Hellwig) and other policy changes.

Well-financed friends of large banks, such as the Clearing House Association in the United States, are fighting tooth and nail against the notion that there is a subsidy of any kind. A new report this week from the International Monetary Fund hammered their position. The chance that policy will soon move in the right direction greatly increased. (See Chapter 3 of the Global Financial Stability Report).

The I.M.F. is charged with overseeing the world’s macroeconomy and has learned the hard way over the last 20 years that troubled financial markets can ruin everything. Banking is both a big part of what has gone wrong in many so-called emerging-market crises, such as the episode that hit parts of Asia, Russia and Brazil in 1997-98, and what has derailed growth and employment so badly in the United States and in the euro area after 2007. (I was chief economist at the I.M.F. from March 2007 through August 2008, when financial sector issues were very much on the front burner, but I was not involved in writing this week’s report.)

The I.M.F. staff speaks only for itself in this kind of report, but it has a strong preference for being in sync with â€" or slightly ahead of â€" the thinking of officials in important countries, including the United States. I would be very surprised if there proved to be a great deal of distance between this I.M.F. publication and where the Federal Reserve ends up on this issue.

The I.M.F.’s findings are straightforward. Government support lowers the funding costs of big banks, because it provides a form of guarantee to creditors. Implicit subsidies of this form are worth up to $70 billion for the United States, and perhaps as much as $300 billion for the euro area, per year (see Pages 14 and 18 of the report). As the fund emphasizes, these are big and dangerous numbers â€" precisely because such commitments encourage dangerous risk-taking on a scale that can damage the macroeconomy.

Financial reforms, including those from the Dodd-Frank Act in the United States, contain useful measures but have not reduced these subsidies below their pre-2007 level. (The implicit subsidies are lower now than they were at the height of the crisis, but that’s the nature of a crisis â€" and we are trying to look forward to what would happen in the next crisis-type situation.)

Of particular importance is the way the I.M.F. handles questions of methodology in the relatively new field of measuring these subsidies.

A typical position from the Clearing House Association and big banks is that these issues are complex and nothing can be said with any certainty. But the same is true of any macroeconomic issue. Measuring inflation or unemployment properly is fraught with methodological difficulties, yet modern central banks are compelled to do exactly this.

The right approach is to construct a variety of plausible measures and to examine whether they agree on the broad picture. There will be pushback â€" and there certainly is on inflation and unemployment measures â€" and there is always some margin of error. The question is whether officials are confident that they have a sensible range of estimates.

To its credit, the I.M.F. gets this exactly right. Its report presents three approaches, which use different methodologies (based on credit ratings, options prices and bond yields). It is fully transparent about what these show using historical data, and it explains how reasonable adjustments would change subsidy estimates using the latest available data.

I particularly like how the report handles the comparison of interest rates across types of borrowers. The industry asserts that big banks borrow at roughly the same interest rates as other companies, when appropriate adjustments are made. The I.M.F. shows with great clarity that if you just adjust for leverage (how much equity a company has, relative to its debt), big banks borrow more cheaply â€" and the funding advantage is close to 100 basis points, i.e., one percentage point, which is a lot in today’s market (see Figure 3.7).

If anything, the I.M.F. numbers could be low estimates. For example, while the fund focuses on the “uplift” from credit ratings agencies because of expected support from the government, it does not dig into the full determinants of how a company’s debt is rated. The “stand-alone” rating of some of the biggest companies is surely affected by all the government support they have received and are expected to receive. And it’s not clear that the I.M.F.’s measures capture the full value of support provided to the derivative transactions of big banks, as these are not fully picked up by standard balance-sheet measures.

This approach should become a model for other studies, including the high-profile G.A.O. study that is expected this summer. As a result of a request by Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana, which garnered a great deal of support from their colleagues, the G.A.O. will report on exactly the issue addressed by the I.M.F. â€" although it will focus presumably on the United States. (I expect the Federal Reserve will soon come out with its own report; it would be shocking if the Fed’s Board of Governors allows the G.A.O. to define the issues and specify the numbers for such a first-order issue.)

The G.A.O. is being lobbied intensively by the industry. The I.M.F. report and the support it receives from others â€" Bloomberg View, to which I am a contributor, has long nailed this issue; other members of the financial press will surely follow â€" should be of great assistance to the G.A.O. in resisting industry pressure and in producing a credible set of estimates for the subsidies currently provided to too-big-to-fail banks in the United States.

The Wealth Gap in America Is Growing, Too

It is, by now, well known that income inequality has increased in the United States. The top 10 percent of earners took more than half of the country’s overall income in 2012, the highest proportion recorded in a century of government record keeping.

But wealth inequality has been increasing too, as a new study by Thomas Piketty of the Paris School of Economics and Gabriel Zucman of the University of California, Berkeley, shows. In a preliminary report, Mr. Zucman and Emmanuel Saez, also of Berkeley, find that at the very top, wealth is distributed as unevenly as it was in the early 20th century. And the wealthiest 0.1 percent, and especially the 0.01 percent, have left the rest of the 1 percent in the dust.

Source: Gabriel Zucman and Emmanuel Saez

It might help to step back for a minute: What’s the difference between wealth inequality and income inequality anyway?

When economists talk about income, they talk about the money a household or a person earns in a given year. That’s the salary you earned, the rent from a tenant above your garage and the bit of money you made by selling some stocks. Your wealth is the value of your assets - your retirement accounts, your home, the unsold stocks - minus your debts, like your credit-card bill and your mortgage.

Numerous studies have shown income inequality growing since the late 1970s. Real earnings have fallen for many families, with globalization, the decline of unions and technological innovations eroding workers’ wages. But earnings have soared at the top, with corporate executives and families with significant income from investments making out especially well. Here’s a famuos U-shaped chart from Mr. Saez and his frequent co-author Mr. Piketty, showing that phenomenon:

Source: Thomas Piketty and Emmanuel Saez

Surveys have generally shown wealth inequality growing, but more slowly than income inequality. Wealth might be more concentrated among fewer families, in other words, but that trend has changed less over time. Here’s a chart from the Economic Policy Institute, showing the distribution of wealth since the early 1980s:

Source: Economic Policy Institute

But Mr. Zucman and Mr. Saez show a dramatic increase in wealth inequality at the very top of the distribution, among households with more than $20 million in wealth - and especially among those with more than $100 million.

Source: Gabriel Zucman and Emmanuel Saez

The two economists developed a new technique for measuring the wealth distribution, using federal tax data and information on the returns to different asset classes. They then took a very close look at the wealth of wealthy Americans. They found that the so-called “middle rich” have actually been losing ground, wealth-wise, while the super-rich have accounted for a bigger and bigger share of the pie.

Source: Gabriel Zucman and Emmanuel Saez

Why? The economists don’t delve too deeply into the reasons, but the “middle rich” might be more reliant on pensions and housing - two categories that have proven soft of late. The very, very rich, on the other hand, might be more reliant on the stock market or corporate earnings.

The Many Classes of Google Stock

The price of Google shares is going to be cut in half on Thursday.

That is not because the company is worth less than it was. It is because an unusual stock split will take effect.

Owners of Google Class A shares â€" ticker symbol GOOG through Wednesday â€" will get an equal number of new Class C shares. Those Class C shares will get the GOOG symbol, while the Class A shares will trade under the symbol GOOGL.

Why bother? The new Class C shares have no voting rights. The Class A shares have one vote each, but collectively those votes are dwarfed by the 10-votes-per-share Class B shares. Those shares, which do not trade in the public market, are owned by Google insiders, who will also get Class C shares in the distribution.

As originally proposed by the company, the move would have made it easy for Google’s founders, Larry Page and Sergey Brin, and the chairman, Eric E. Schmidt, to cash in a large part of their holdings without giving up their voting control. But that ability has been limited after the company settled a class action suit filed by angry (Class A) shareholders, and reached agreements with the three top officials to limit their sales.

In essence, for every share of Class C they sell, they must also convert one Class B share into Class A. Presumably they will sell that share as well. So their voting rights will fall as they would have under the old structure, when they would have converted Class B shares into Class A shares before selling them.

But Google is expected to issue primarily Class C shares in the future, for acquisitions and in grants of share options. So the total number of votes will not be rising, and that will delay the day when the company’s leaders lose voting control of the company. Currently they own less than 16 percent of the company’s shares, and have 61 percent of the votes.

Google shares closed on Wednesday at $1,135.10. Trading on a when-issued basis, the new Class C shares closed at $567, and the new Class A shares closed at $568.07.

An interesting question is whether the Class A shares will trade for much more than the Class C ones. That might be expected to happen, on the theory that limited voting rights are worth more than none, even if neither class of share has any real control over the company. But the company has promised to compensate Class C holders in a year if there is a substantial difference in price, and that could hold down the difference.

One change all this has wrought is in the Standard & Poor’s 500-stock index. Until now, it has always contained 500 different stocks. Now it will contain 501, since it will include both Class A and Class C Google shares. (Among other things, this means that index funds will not have to buy or sell any Google shares to continue to reflect the overall index.)

At Google’s annual meeting on May 14, shareholders will be able to vote on a shareholder resolution calling on the company to switch to a one-share, one-vote system. Rarely has a shareholder vote been less suspenseful. With the Class B shares able to vote, the founders can easily vote down the proposal.

But it could nonetheless serve as something of a vote of no confidence in those leaders if a large part of the Class A shares vote for the idea of one share, one vote.

Self-Driving Cars Will Make Accident Claims Easier

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Getting injured or killed by an autonomous vehicle may seem like a nightmarish Hollywood movie, but technology trends and basic economics are pointing the real world in that direction.

Cars will one day drive themselves, and it is hoped that they will be safer than vehicles with humans at the controls, because machines don’t get tired, distracted or drunk. However, even when robots attain superior driving skills, they may still create damage in accidents as human drivers do.

Perfect driving records - for driverless cars or any other type of vehicle - may indicate that cars aren’t being driven fast enough to balance safety and driver convenience. States routinely adjust the speed limits on their highways to balance safety with drivers’ desire to get to their destination more quickly. A famous economics study found that seatbelt laws did not necessarily save lives because drivers responded to the laws by driving faster and getting in more accidents (each accident less fatal). For these reasons it is possible that regulators will allow robot-driven cars to travel at faster speeds than current speed limits, and more driving is likely in hazardous conditions.

This is not to criticize self-driving cars. They will be welcome, but their achievements may ultimately be more heavily weighted toward passenger convenience than safety.

Although some auto-industry experts are concerned that crashes involving robots will create excessive legal costs, insurance companies may have an easier time settling claims against robot-driven vehicles.

When two human drivers get in a crash, each may recall the accident details differently, and their conflicting memories may make it hard to come to an agreement as to who should pay for the damage. Self-driving cars will literally have photographic memories of their accidents. Other “witnessing” self-driving cars may be nearby an accident, and photographically record the event, too.

With less uncertainty as to what really happened in an accident, there will be less reason for a prolonged legal battle. Of course, assessing the severity of human injuries and the amount of compensation they deserve will remain complex and emotional issues.

Insurance markets have a variety of ways of adapting to the new technology. Owners of robot-driven cars could be required to carry liability insurance, just as many states require of the owners of human-driven cars. Presumably the liabilities of the manufacturers of driverless cars will not be much different than the liabilities of the manufacturers of traditional cars that had a mechanical failure that resulted in injury.

If you are one of the unlucky people who will be injured by a robot-driven car - inevitably, people will be so injured - you or your surviving kin can expect a relatively swift legal settlement. And the rest of society will enjoy getting places more quickly and conveniently.