71 – Betsey Stevenson on Challenges in the U.S. Labor Market

Episode Summary

Executive Summary: Betsy Stevenson discusses labor-market slack, post-crisis policy, and structural forces behind weak participation and slower growth. She argues the recovery could have been stronger with larger fiscal and more aggressive monetary support, while also highlighting longer-run issues like declining labor mobility, trust, and the need for men to adapt to service-sector jobs.

Main Topics: Betsy Stevenson’s path into economics and policy (Priority: 4/5): Stevenson traces her interest in economics to a lifelong focus on incentives, then describes moving from academia to the private sector and back, and later serving as chief economist at the Department of Labor during the Great Recession. Labor-market slack and preferred indicators (Priority: 5/5): The conversation examines unemployment, participation, quits, and prime-age employment-to-population as ways to judge slack. Stevenson defends the unemployment rate’s value but favors a broad dashboard and especially the quits rate as an optimistic signal. Post-crisis fiscal and monetary policy (Priority: 5/5): Stevenson says stimulus was too small, infrastructure spending should have been larger during the downturn, and the Fed should have treated its 2% inflation goal as a true target rather than a ceiling, though she acknowledges political constraints. Labor-force participation and gendered occupational shifts (Priority: 5/5): Stevenson argues that declining participation among less-educated men reflects structural job shifts toward service and care work, where men may face identity barriers, and that female participation might be higher with stronger family-support policies. Video games, leisure, and labor supply (Priority: 3/5): The discussion reviews research claiming gaming explains part of the decline in work among younger men, but Stevenson is skeptical that leisure shocks alone explain the trend and raises the possibility that job loss drives more gaming rather than the reverse. Trust, social cohesion, and economic growth (Priority: 5/5): Stevenson emphasizes that trust in institutions and between people remains depressed after the recession, increasing transaction costs, reducing flexibility in hiring and exchange, and potentially slowing innovation and GDP growth. Dynamism, mobility, and the future of U.S. growth (Priority: 5/5): The episode closes on declining interstate migration, job switching, business churn, and barriers like non-competes and occupational licensing. Stevenson worries these trends reduce reallocation and wage growth, though she notes a benign explanation is better job matching.

Key Arguments: The unemployment rate is imperfect but essential because it provides a consistent, long-run measure; it should be used alongside participation, hiring, GDP, and quits data. The quits rate is a particularly useful labor-market signal because people usually quit only when confident about better opportunities; the rise from 1.6 million to 3.2 million signals strength. There was still slack in the labor market well after the recession; stronger growth was needed to pull in less-skilled and less-attached workers. The recovery would likely have been stronger with a larger fiscal stimulus and more public infrastructure investment during the recession, when labor and capital were idle. The Fed likely undershot its inflation target by treating 2% as a ceiling rather than an average target, which may have slowed recovery, though political risk constrained action. Female labor-force participation might have been higher if the U.S. had adopted policies such as paid parental leave, affordable childcare, and anti-discrimination measures during pregnancy. Men without college degrees face especially hard adjustment because growth is concentrated in service and caregiving occupations that challenge traditional identity norms and are not always viewed as masculine. The evidence that video games explain labor-force decline is intriguing but not conclusive; causality may run from weak labor demand to more gaming rather than the reverse. Declining trust raises transaction costs, reduces willingness to take risks, and makes hiring, trading, and innovation harder, which can weigh on growth. Lower mobility and business dynamism may be slowing the efficient reallocation of workers; however, a competing explanation is improved matching means less movement is needed. Non-compete clauses and occupational licensing are especially harmful because they restrict worker mobility and bargaining power, suppressing wages and growth.

Data Points: Unemployment rate during crisis: 9% to 10% - Stevenson describes the period when she was chief economist at Labor during the Great Recession. Quits rate in September 2009: 1.6 million - Used as a low point for worker confidence in the labor market. Recent quits rate mentioned: 3.2 million - Presented as a stronger-economy signal showing more workers feel able to leave jobs. Prime-age employment-to-population ratio before Great Recession: about 80% - David Beckworth cites this as a benchmark for working-age employment. Prime-age employment-to-population ratio after recession low: about 75% - Used to show the magnitude of labor-market decline during the downturn. Prime-age employment-to-population ratio recently: near 78% - Indicates recovery but not full return to the pre-recession level. College graduate unemployment rate: 2.4% - Stevenson notes this is low but still above prior-cycle lows. Previous peak college graduate unemployment rate: 1.6% - Cited as an earlier benchmark showing more room for labor-market improvement. Inflation average since June 2009: about 1.5% - Used in discussing the Fed’s failure to hit its 2% inflation objective on average. Fed inflation target: 2% - Stevenson argues it should be treated as a target, not a ceiling. Trust in most people, 1972: 46% - Survey benchmark cited in Stevenson’s Bloomberg View piece on trust. Trust in most people, millennials: 20% - Shows low interpersonal trust among younger Americans. Drop in trust in institutions: all-time low during recession - Stevenson and Justin Wolfers’ earlier research found trust in Congress, banks, and big business plunged. Decline in hours worked for men age 21-30: 12% between 2000 and 2015 - From the discussion of gaming and labor supply among younger men. Relative decline in gaming/leisure explanation: 23% to 46% of the decline in market work - Attribution from the Hurst et al. research discussed in the interview. Share of workers quitting by month comparison: roughly doubled from 1.6 million to 3.2 million - Illustrates improved labor-market confidence over time.

Pivotal Quotes: "I think that the unemployment rate is still our best, most consistent measure of what's going on in the labor market." — Betsy Stevenson: On why the headline unemployment rate remains valuable despite criticisms. "I think they should treat it like a target, not a ceiling." — Betsy Stevenson: On the Federal Reserve’s 2% inflation objective and the recovery. "Trust is essential to the economy." — Betsy Stevenson: On why declining trust can slow trade, hiring, and innovation.

Implications: Listeners should expect slower growth if labor mobility, trust, and worker adaptation remain weak. Policy that boosts demand, supports families, and lowers mobility barriers could raise participation, wages, and long-run dynamism.