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my topic just now unmentionables according to the rise and fall of labor force participation in the u s at the st louis fed if you know only one aspect of the data on labor force participation it should be this labor force participation used to be relatively low it rose during the 1970s 1980s and 1990s peaking in 2000 and it has generally been declining since 2000 that s great if you only want to know the one thing here s their next thought from 1948 to 1966 the labor force participation rate was relatively low and relatively stable averaging 59 1 percent low and stable except for a one year increase of more than two percentage points which shall go unmentioned unmentioned i wonder why that is here some of my notes that didn t make it into the 13 april post the labor force participation rate lfpr shows the percentage of the working age population that has a job or wants one when baby boomers reached working age the rate went up when women in the workforce became a thing the rate went up the lfpr increased from 58 6 in january 1965 to 66 8 in january 1990 or 8 2 percentage points in 25 years a remarkable increase the lfpr increased from 58 1 in december 1954 to 60 2 in december 1955 or 2 1 percentage points in just one year a remarkable rate of increase if it had continued at that rate it would have equaled the 1965 1990 increase in less than four years not worth a mention productivity in the 1950s cost push inflation was sometimes attributed to low productivity in the wage push inflation thesis 1950 1957 lowell e gallaway 1958 wrote simply stated the wage push inflation thesis holds that money wage rates have increased more rapidly than physical productivity and consequently have exerted upward pressure on costs and prices in time magazine 15 july 1957 we read general motors set up the first automatic annual improvement factor increase in wage contracts in 1950 and the upward trend of wages was due not only to the scarcity of labor but also to the spread throughout industry of the g m idea of automatic increases this ran counter to traditional business practice because it placed emphasis on a long term rise in productivity and kept wages rising even when productivity temporarily stopped rising as it did last year or business temporarily slackened as in steel and autos this year note that they knew in 1957 that productivity stopped rising in 1956 that is the productivity problem i attribute to the 1955 increase in the labor force participation rate note also that a decline in productivity increases labor cost to business just as wage hikes do it would be a simple mistake to blame wage hikes when the problem was low or falling productivity but you couldn t fix the problem by holding wages down not in the 1950s and not since the 1980s in the early 1960s productivity was still sharply in focus in 1996 the l a times recalled that president kennedy used a tactic his economic advisor walter w heller called jawboning to urge business and labor to behave responsibly in kennedy s time that meant pay increases shouldn t exceed productivity gains and price hikes shouldn t exceed increases in wages and again in his january 11 1962 state of the union kennedy declared our first line of defense against inflation is the good sense and public spirit of business and labor keeping their total increase in wages and profits in line with productivity networker writes kennedy since the inaugural address and beyond had been asking americans and american business to exercise restraint to enable the united states to meet its obligations and strengthen its economy the steel workers of america agreed to hold off their demands for higher wages if the steel companies on their part would not raise the price of steel the workers kept their end of the bargain the companies did not ordering a price increase after a strike was averted this dishonest and irresponsible act angered kennedy as is made clear in the following speech then from kennedy s april 11 1962 speech there is no justification for an increase in steel prices the recent settlement between the industry and the union which does not even take place until july 1st was widely acknowledged to be noninflationary and the whole purpose and effect of this administration s role which both parties understood was to achieve an agreement which would make unnecessary any increase in prices in his very next sentences again productivity was central steel output per man is rising so fast that labor costs per ton of steel can actually be expected to decline in the next 12 months and in fact the acting commissioner of the bureau of labor statistics informed me this morning that and i quote employment costs per unit of steel output in 1961 were essentially the same as they were in 1958 it s a good speech kennedy was angry he called for a higher sense of business responsibility for the welfare of their country it s not like kennedy didn t know about productivity and cost he knew he was focused on it and he tried to keep prices from rising it didn t work i wonder why that is another unmentionable why didn t it work this wasn t the latter 1950s the economy was not adjusting to a sudden increase in labor force participation nor was it the latter 60s nor later the big change in labor force participation due to the baby boom and women in the workforce had not yet begun it was 1962 productivity growth was high again where was the problem i ll go back to saying what i always say debt was accumulating the cost of finance was rising surely by the time interest on household debt was taking more than 5 of employee compensation people considered it part of the cost of living surely rises in our paychecks had to cover the rises in our interest payments annual household interest costs as a percent of employee compensation interest costs go above the 5 level red before 1960 annual household interest costs growing as a percent of gdp and with household interest cost growing faster than gdp from 1946 to 1986 wage hikes that just covered the interest cost would surely have looked like inflationary increases looked inflationary and were inflationary people were covering their costs it was cost push inflation due to the rising cost of finance it looked like inflationary wage increases for a reason but finance didn t get the blame wages did come to think of it the policies that encouraged all that borrowing didn t get the blame either i wonder why that is at april 19 2021 1 comment email this blogthis share to x share to facebook share to pinterest labels apr13 saturday april 17 2021 the implications greater than s s could imagine from the tuesday post writing of samuelson and solow s 1960 paper james forder said the question they were addressing was that of the explanation of the inflation of the 1950s particularly the period 1955 57 and the implications it had for macroeconomics from steve waldman in comments i agree that one episode is not a proof of anything but despite that the episode in question provoked massive and in my opinion unwarranted and very destructive changes in the views of macroeconomists i m trying to counter those changes here from waldman s post since the 1970s macroeconomics as a profession has behaved like some freud obsessed neurotic constantly spinning yarns about how the trauma of the 1970s means this and that keynes was wrong nairu independent ha central banks a new keynesian synthesis made of output gaps and inflation and no people at all just a representative household reveling in its microfoundations self serving tall tales of the great moderation all of them at april 17 2021 no comments email this blogthis share to x share to facebook share to pinterest labels apr13 thursday april 15 2021 doublechecking again proofreading tuesday s post in the wee hours i came to the end far as i know which isn t far i admit the cause of the 1955 57 inflation was never discovered that kind of thing bothers me i d prefer to know then i remembered steve waldman s comment we have just one big boom to look at big boom i thought little boom i should use little boom in a search so i did at google search the little boom in the labor force participation rate in 1955 ten results searching the page coincidentally turned up 10 occurrences of 1955 nine of them are in phone numbers the other one was in my search text hey that means one of the ten hits google turned up might be worth checking nope it redirects to some place i don t want to be so no news i still don t know if the cause of the 1955 57 inflation was ever found except of course i found it now would i rather have found the cause to be cost pressure caused by the growth of finance that is what my guess would have been on 7 april i was still looking at financial cost push in the years before 1965 that post was withdrawn because one of my graphs was bad but there is a big difference in financial cost as you go from 1955 to 1965 i still think the growing cost of finance was the small problem that created cost issues which look like conflict inflation i still think it was growing financial cost that got the great inflation started but if the 1955 57 inflation was not caused by the cost of finance that s probably good it would mean that finance was not already too big in the 1950s and that would be a useful thing to know at april 15 2021 1 comment email this blogthis share to x share to facebook share to pinterest labels apr13 tuesday april 13 2021 answering an old question what caused the creeping inflation of 1955 57 lfpr labor force participation rate rising lfpr as a cause of falling productivity dietrich vollrath the late 1960s early 1970s coincide with the flood of baby boomers into the labor market are the returns to experience much more severe than we think from mincer regressions and so their entry lowered productivity growth before creating a spike in the late 90s as they really reached their peak steve randy waldman the crucial economic fact of the 1970s is an incredible rush into the labor force what was stagnant in the 1970s was productivity which puts hours worked beneath gdp in the denominator boomers headlong rush into the labor force created a strong arithmetic headwind for productivity stats falling productivity as a cause of inflation janet yellen my reading of the evidence suggests that the predominant medium term effect of a slowdown in trend productivity growth would likely be higher inflation tejvan pettinger if firms become less productive and allow costs to rise this invariably leads to higher prices rising lfpr falling productivity rising inflation hank m gracchus jr a change occurred in the late 1960s early 1970s however as labor productivity slowed under the then current regime labor income continued to grow in line with the economy maintaining its share of total income because productivity was no longer rising as much as previously though the return on capital consistent with a constant share of total income could not deliver an adequate rate of return a profit squeeze ensued this drove firms to increase prices leading to larger wage demands and cost push inflation waldman s not a monetary phenomenon the root cause of the high misery index 1970s was demographics plain and simple the nation faced a simple choice employ them and accept a lower rate of production per worker or insist on continued productivity growth and tolerate high unemployment the result was high inflation and would have been under any scenario that absorbed the men and the women of the baby boom in so short a period of time comments at waldman s slotowner writes i am concerned unanimous writes as slotowner says the history of a single episode is not really proof steve randy waldman writes slotowner unfortunately stats for the civilian labor force begin in 1948 we have just one big boom to look at and importantly steve randy waldman writes unanimous i agree that one episode is not a proof of anything but despite that the episode in question provoked massive and in my opinion unwarranted and very destructive changes in the views of macroeconomists i m trying to counter those changes here i think the evidence for a demographic explanation is at least as strong as any evidence of misguided policy and that post volcker triumphalism may well just be the fundamental attribution error in action there was a short lived but extremely rapid increase in the labor force participation rate in 1955 graph 1a labor force participation rate graph 1b percent change from year ago lfpr graph 1c detail showing the extraordinary 1955 increase i do not know why this anomalous increase occurred so the thoughts that follow could be ridiculous there was a drop in the labor productivity growth rate that appears to be related to and perhaps even caused by the lfpr increase the productivity drop does not appear to extend beyond the 1958 recession but i couldn t say graph 2 labor productivity quarterly 1950 1962 using the initial bounce of growth which typically follows recessions as start and stop points for short period comparison real gdp growth between bounces of the 1954 and 1958 recessions was noticeably low relative to earlier and later periods graph 3 average of annual rgdp growth rates including bounces omitting the fore and aft bounces from the calculations the average of annual growth rates shows an undeniable low between the 1954 and 1958 recessions graph 4 average of annual rgdp growth rates excluding bounces in evaluating rgdp growth in the 1950s keep in mind the high growth rates that were common in the early post wwii period this graph highlights rgdp growth during and after the 1955 lfpr increase graph 5 real gdp growth 1950 1962 there was despite the slow economy an unexplained creeping inflation during 1955 57 i want to say that acting through a decline in productivity the 1955 increase in the labor force participation rate was responsible for this inflation graph 6 three measures of inflation 1950 1962 the deflator starts rising a bit early but the pce price index bottoms out in 1955 q1 just where you might expect and the cpi rise starts after june 1955 writing of samuelson and solow s 1960 paper james forder said the question they were addressing was that of the explanation of the inflation of the 1950s particularly the period 1955 57 and the implications it had for macroeconomics nearing the end of their paper samuelson and solow wrote we have concluded that it is not possible on the basis of a priori reasoning to reject either the demand pull or cost push hypothesis or the variants of the latter such as demand shift if they couldn t distinguish what type the inflation was it s got to be safe to say they could not identify the cause of the inflation they wrote in 1960 it s been a long time far as i know which isn t far i admit the cause of the 1955 57 inflation was never discovered it is still an open question what caused the creeping inflation of 1955 57 the cause of that infl...