Broke Okun

Both New Deal Democrat and myself noticed the anomaly in Okun's law and it's thumb in the air ratio to GDP.

Now the Atlanta Fed's MacroBlog, in GDP benchmark revisions: Count me very surprised, has revised their Okun's rule graphs based on the recently revised GDP numbers.

alt. fed. unemployment rate change vs. GDP change

src: Altanta Fed Macroblog, click to enlarge

After these revisions it’s clear to see that the current recession is even more of a dramatic Okun’s Law outlier than was originally thought when observing the pre-revised data.

I'm sure us Populists will be revisting this topic soon, but for now even Economist Brad Delong is affirming the obvious:

I'm guessing there is another set of factors at work. Manufacturing firms used to think that their most important asset was skilled workers. Hence they hung onto them, "hoarding labor" in recessions. And they especially did not want to let go of their prime productive asset when the recovery began. Skilled workers were the franchise. Now, by contrast, it looks as though firms think that their workers are much more disposable—that it's their brands or their machines or their procedures and organizations that are key assets. They still want to keep their workers happy in general, they just don't care as much about these particular workers.

The hypothesis is that firms believe that their remaining workers will forgive them if they fire large numbers of workers during a recession out of economic necessity, but not at other times. Hence the start of the recovery is a business' last moment to slim down its labor force and become more efficient and profitable in the coming boom.

Now will we finally hear productivity and offshore outsourcing in the same sentence?

Let me steal another fantastic graph from Macro blog, the revised GDP rates.

altanta fed macroblog revised GDP

src: Atlanta Fed Macroblog, click to enlarge

Macroblog's previous post on the unemployment rate data point outliner: Unemployment rate: Count me surprised

I feel validated...and as broke as Okun is.

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I think that NDD probably hit it on the head when he

pointed to outsourcing/free trade is what broke Okun's law. Since you're the math fiend, I'll ask the following. I vaguely remember suffering through my linear regression models course, and I'm thinking that you could take that fitted line and superimpose the standard deviation onto it. So +/- 1 SD gives you ~67% of all predicted cases, +/- 2 SD  97%, +/- 3 SD 99.7% and so on. 

So we could get an idea of how much of an outlier this is. 

 

Further, it would be interesting if there was a way to calculate the effect of outsourcing, and run that as a second IV in the regression.  Hmmm.... Maybe a trade openess index, of which there should be at least one available online.

 

It's one thing to say this, it's another entirely to demonstrate it with their own models.....

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eeek, ok

I just added mimeTex, which is a faster way to add LaTeX type setting server side. I also added on online grapher for raw data.

See Math EQ's & Graphs on EP in the admin section.

So, if we're going into the hard core analysis here, well, frankly feeding the pig, that is EP the blog will slow down...
it's way easier for me to post little data blurbs etc. that go off and calculate something....

Just sayin'.

Then, another thing, let's check each other's statistics and calculations when doing this....I mean it's one thing for Nobel Prize winners to screw up in a blog post, it's another for the official layperson's blog to write up inaccurate calculations, data points.

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addendum

I would not claim it's "trade" per say and we have another most difficult raw data issue implied here, which is we cannot get an accurate, direct tally of the jobs offshore outsourced and even more insidious, how many jobs would have been created if they were not offshore outsourced.

So, 100% finished product, i.e. the trading of goods and not the elements of production, capital, I wouldn't expect those to create a deviation from the norm....

Anywho I wanted to differentiate between labor arbitrage vs. what one thinks of conceptually as trade.

Oops, them big ass words r' poppin' out....we're going to have to translate every single difficult concept to blogger speak, to real words everyone can understand btw.

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The reason I thought

about trade is because there are ten billion trade openness indexes available. Not so much (that I know of at least) with outsourcing. Maybe Ron Hira would have something?

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data

send me some of this trade data offline. There are a variety of estimates, Hira has some, EPI has quite a number, Sloan might have some, but it's called "dig around and get that data yourself", which very obviously is absurdly time consuming, fraught with errors due to inaccurate reporting or no reporting...(of let's say GM opens up a new plant in China and claims to create 5k jobs...
well, it might in reality be 20k jobs or it might be in reality 3k jobs....because corporations hide this data...they also might not even announce R&D investments too).

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In time

I've got a paper I'm working on. Have to get it ready. I'm taking it to an academic conference in Massachusetts this fall.

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Statistical basis small

And not so sure it's so much trade openness but a fetishization of the stock market and quarterly bottom lines as the only criteria of economic health.

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