Greedy Goblin

Thursday, November 25, 2010

GDP/employed once more

Completely non-WoW related economic analysis (as opposed to doomsday prophecy) incoming.

More than a year ago I wrote about the statistics GDP/employed. I was curious how the last years data fit into those posts so included them. However I plotted a new chart and it shown perfectly how robust and useful this statistics is:
The chart shows the change of GDP/capita (red) and GDP/employed (green) in the USA. At first glance you can see that the red line is jumping like crazy compared to the green. More scientifically: the standard deviation of red is 51% bigger than of green, and if we place ropes to the chart lines, the red rope is 73% longer.

This means that the GDP/employed statistics is much less noisy than the GDP/capita (the GDP graph is equally noisy to that). "Less noisy" is usually "better", except if the "noise" is exactly the data. In 2008 we can see a huge drop in the GDP/capita graph while nothing particularly interesting in the GDP/employed. This is of course not a noise but the great depression of 2008.

What does the stability of GDP/employed say? The power of the working person is steadily and noise-freely grows every year, by about 4%. It is defined by fundamentals like technology and unaffected by monetary or fiscal effects, or in laymans terms: bankers and speculators can't mess with the foundation of our economy.

It seems that in economic changes the two lines move relatively to each other, like in the 2008 depression. What is their ratio? (GDP/capita)/(GDP/employed) = employed/capita = employment rate. The depressions and booms are not changes in productivity of an employed people, but changes in the employment rate.

I hope the GDP/employed statistics gets the attention of some more serious economists than me, because I'm sure that it worth further investigation and usage.


Anonymous said...

Interesting point, but I don't think it's that meaningful. GDP/employed doesn't represent the foundations of the economy, it is a measure of the efficiency of human capital. If GDP/employed goes backwards, it's because we're becoming less efficient and more wasteful, per person. The extra people we're employing are making us less efficient - diseconomies of scale, as you will.

It's an interesting measure to track, but I think it's well acknowledged that productivity efficiency doesn't change as a result of a depression / recession. At least, I don't know any economists who would suggest that, anyway.

Unknown said...

I think you need to track the graph with a third axis, that would measure the strength of the dollar, relative to trade imbalance.

Because one of the things learnt in the last 40 years is that economies have become globally linked. During the period you have graphed, the USA economy has seen many unskilled manufacturig jobs disappearing off shore to China.

Also separately would you like to predict now whether the market will or will not break the Euro? If the conclusion is the the euro will be broken by speculators, how should rl goblins prepare to met this fiscal oppurtunity? Or would you like me to answer it?

Ðesolate said...

GDP/employed is usually regulated by the less employed in depression and more employed in regression. If this self-regulation would be perfect it would be a straight line.
In extraordinary good years (in your graph around 1980´s) you have less free workers available, so GDP/employed increases. That was the time when the greencard-thing came up.

Comparing this with GDP/capita gives you the unemployment/employment as you said.

From GDP/employed alone you can hardly see anything, but compared with other statistics relevated to specific events it´s quite interesting but in statistics I´d say it has not really something extraordinary since ist´s also based on "official" unemployment rate.

Anonymous said...

In what numeraire is expressed your GDP?

Of course banks (central or not) can mess with that, they create money, and doing so, they depreciate it.

No economic temporal statistic is valid if not adjusted for inflation.

Anonymous said...

If they can make people think it legitimates banks and speculators, they will surely use this term eventually.

Taemojitsu said...

Several things could possibly distort evaluation of published economic growth rates for a country, and specifically the US:
- the US public debt is at $13,723,000,000,000 and still rising. Eventually this will have to be paid back, possibly at more favourable currency exchange rates. Odd that having a market to sell products to, even at a low price is more important for economic growth than finding people willing to accept employment..!
- it is logical that highly unequal income distribution combined with spending patterns could increase GDP, similar to how these non-market production activities are not included in GDP and their frequency as a percentage of total production will also vary by culture.

However it is also possible that the increase in current GDP that might result from changing income distributions and spending patterns, and particularly changes in cultural attitudes towards wealth, is properly measured at sufficient granularity to assess the variation of price for specific kinds of production that would result from a change in spending patterns; specifically, it is possible that government measurements are sufficiently agile to emerging markets that these price and spending pattern changes are included in, and given sufficient weight in the calculation of the GDP deflator which some economists do not always view as fully accurate.

(For example suppose the average professional baseball player made equivalent of 100,000 year 2010 USD in the year 1950, but makes 500,000 worth of year 2010 USD in the year 2010. Did the contribution of baseball players to GDP increase, or did it remain constant since real GDP theoretically adjusts for the change in cost of discrete products/services? most likely there is not a "baseball player factor" which increases the GDP deflator when their income goes up. Tho I think "painter who makes $500/hour pays stock speculator/manager who makes $500/hour pays individual fitness instructor who makes $500/hour pays painter" was a better example :<)

(note, consumer price index is similar to "cost of living" in intent and methodology, and does not reflect higher-income demographics, for whom basic needs such as housing are a much smaller part of spending, the way GDP deflator does :/ *oh it IS used for parts of the NIPA = GDP deflator according to addendum)

Taemojitsu said...

Link states that the GDP deflator for the US has been lower than the CPI-U for several decades, which could support (but not prove) the idea that the GDP deflator does not accurately measure the performance of new market niches (especially services), but only tracks the price of "old" services that have become less competitive, in a sort of measurement drift; or that it does not accurately achieve its goal of measuring the price-independent "volume" of economic activity due to long-term spending pattern changes in certain (non-CPU-I targeted) subsets of the US population. The main consequence of this would just be an overestimate of real economic growth. (in the latter case, cultural reversion could cause observation of GDP decrease)

Anyway: the independent chained-dollar trends for services vs goods from BEA is maybe the worth looking at, which maybe could be interpreted as two separate trends: lower production efficiency increasing the cost of durable goods at the start of data collection 1929+ leading to low "chained dollar value" for a certain current dollar purchase quantity; and a much smaller increase in measured "services efficiency" leading to a much smaller gap between modern "chained dollar value" for a percentage of disposable income and 1929+ spending on the same; and importantly, possibly this trend continues after goods production efficiency starts to level off (which could be related to lower GDP deflator than CPI-U).

With mass production and minimal price differentiation for useful products there are limited ways to transfer money away from wealthy persons other than "potions" and "ice cream", so many end up finding nothing worth spending it on until they find they have reached the top and someone else suggests they should give it away. =p..

Also economists like inflation, normal ppl don't at all ?

edits = another 1000 characters after first length rejection lulz

Anonymous said...

Could you change the graph colours? Change the green to blue or something? I'm not colourblind, but I'm sure people who are would have trouble. I think the bright green gets lost with the primary red colour.

Boxington said...

When you divide a negative cyclical variable by a positive cyclical variable, of course the variance will be lower, almost by definition. For instance, Temperature/Hours_darkness_per_day has less variance than temperature, precisely for the same reason.

What you have done here is disaggregate two relevant variables into one muddled one. Using a disaggregated variable is like basing your decision of what winter clothes to wear on Temp/HoursDarkness instead of just Temperature, which will have more analytic power than the muddled variable. In fact, one should be skeptical about using a GDP/employed variable precisely because it's a composite of two distinct processes whose relationship is not completely understood.

Either way, it most definitely is not sufficient evidence that speculators can't undermine the foundations of our economies.