Saturday, March 28, 2020

Shuttering the Georgia economy to save the Georgia economy

A new study released by the Federal Reserve Bank of New York found that while the 1918 Pandemic lowered economic activity in areas severely affected by the virus, taking early and lengthy actions to stem a pandemic did not cause additional damage to the economy and actually resulted in a more robust economy during the recovery phase.

Researchers Sergio Correia, Stephan Luck, and Emil Verner looked at how American cities reacted to the 1918 Flu Pandemic. The 1918 Pandemic took the public by surprise and resulted in between 550,000 to 675,000 deaths in the U.S.

Decisions on how aggressively to combat the 1918 Pandemic were decided at the local level. Cities varied in their willingness to commit to a long fight using non-pharmaceutical interventions (NPIs) to combat the flu. Some cities took very aggressive actions for a longer time, while other cities were concerned that prolonging the fight against the flu virus would cause greater damage to their local economy.

The researchers used manufacturing employment as a proxy to measure the local economies. In 1918, manufacturing was a much more dominant part of local economies than it is today, and employment information on the manufacturing sector was the primary information collected by statistical agencies, so seeing the pandemic’s effect on the manufacturing sectors of various cities gives a good approximation on how the overall economies of various cities were impacted.

“Our paper yields two main insights. First, we find that areas that were more severely affected by the 1918 Flu Pandemic saw a sharp and persistent decline in real economic activity. Second, we find that cities that implemented early and extensive NPIs suffered no adverse economic effects over the medium term. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided. Altogether, our findings suggest that pandemics can have substantial economic costs, and NPIs can lead to both better economic outcomes and lower mortality rates.”

Plotting the mortality rate, the growth in manufacturing employment, and how long cities implemented NPI measures, the researchers found a correlation between the length of those interventions and the subsequent growth in employment between 1914 and 1919 (the time between two economic censuses) for a number of U.S. cities.

Impact in the South

While Atlanta is not one of the group of cities included in the study, Birmingham, Alabama., is included on the list. Birmingham at that time played much the same dominant role in the southern regional economy as Atlanta does today. In 1910, Birmingham had a population of 132,000, while Atlanta’s population was 154,000, so the two areas were relatively close in size at that time.

There has been some concern that taking more aggressive measures against Covid-19 will cause greater damage to the economy than by letting the virus take its course.

The New York Fed study does not support this hypothesis. In fact, the researchers write that cities that kept their interventions going for longer during the 1918 Pandemic actually benefited with their manufacturing employment growing faster in the medium term.

“Our regression estimates suggest that the effects were economically sizable. Reacting ten days earlier to the arrival of the pandemic in a given city increased manufacturing employment by around 5 percent in the post-pandemic period. Likewise, implementing NPIs for an additional fifty days increased manufacturing employment by 6.5 percent after the pandemic.”

Birmingham was one of those cities that chose to intervene for a shorter period of time relative to other U.S. cities and suffered both a higher mortality rate and lower employment recovery than cities that more aggressively battled the flu.

The most successful cities were those in the Midwest and West that saw the impact the 1918 Pandemic had on cities in the East and took more drastic measures to contain the virus as it traveled across the country.

Lessons for Georgia

In one sense, Georgia is lucky that the greatest impact of the virus has been in cities such as Seattle, and New York, giving Georgia time to take aggressive actions.

If the Atlanta region, and in fact all of Georgia, want to avoid the slower recovery that afflicted Birmingham in the early part of the 20th Century, then being more aggressive in combatting the coronavirus now may be the only means to avoid the longer-term risk of falling farther behind other parts of the nation after the infection rate slows.

British economist George Magnus has blogged recently that protecting lives and protecting the economy is not a choice.

“We are shuttering the economy because otherwise, letting the virus run, our health systems might collapse. As infection rates soared, we would not only experience high fatality rates in Covid patients, largely but not only older people, but also in a wide array of non-Covid patients, young and old, for whom the health system would barely be able to serve.” 

He finishes his blog by writing:

“So please, can we stop this red herring argument about choices between keeping the economy going versus saving lives? The latter is part of the strategy to get to the former. Simples.” 

As of March 28, Georgia is officially reporting 2,366 cases, 69 deaths and 617 hospitalizations. Undoubtedly, these numbers will grow, but the infection growth rate depends on how well policymakers learn from the actions in other cities.

Georgia’s policymakers at the state level need to reevaluate whether their current slow approach to fighting the virus will really provide the best result for the health of its citizens and the state’s medium-term economic future.

Sources:



WSBTV, March 28, 2020

 

Monday, March 16, 2020

Atlanta saves Georgia from net loss of jobs in 2019


Georgia showed the slowest annual growth in nonfarm employment in 8 years and the Atlanta area made up for a decline in the rest of the state’s job market in 2019, according to revised jobs data from the Bureau of Labor Statistics.

Each year, the Bureau of Labor Statistics revises its preliminary job figures from April through December of the previous year as a result of an annual benchmark processing to reflect 2019 employment counts primarily from the BLS Quarterly Census of Employment and Wages (QCEW), as well as updating of seasonal adjustment factors.

Georgia’s net job increase fell from a preliminary growth estimate of 69,400 to a revised estimate of 63,200 for calendar year 2019 resulting in a state growth rate of 1.4%, the same as the national average.

Employment in the Atlanta area was revised upwards from a preliminary estimate of 66,700 to a revised estimate of 69,100.

With the changes, the rest of the state actually declined by 5,900 jobs in 2019; the first time this has occurred since 2011.

Metropolitan areas in the state recording declining employment over the year included Athens (-1,300), Columbus (-1,100), Dalton (-2,000) and Macon (-300). Valdosta reported no net job growth for the calendar year.

Warner Robins was the standout area for Georgia with a net addition of 2,000 jobs in 2019.

Monday, March 9, 2020

Georgia falling short in productivity


Georgia’s private nonfarm sector’s productivity rose an average of 0.9% over 10 years, much lower than the nation’s increase of 1.3% for the same period. 

The increase at the state level reflected an average increase of 1.48% in output and an increase of 0.57% in hours worked.

States’ average annual productivity growth ranged from 3.1% in North Dakota to −0.7% in Louisiana.

New data from BLS

For the first time, the Bureau of Labor Statistics has released an experimental measurement of state-level productivity for the private, nonfarm sector. While BLS has published national levels of labor productivity for decades, information at the state level has been lacking, and to its credit, the federal agency is attempting to meet that need.

As they explain, “by analyzing state-level productivity trends over the long term, data users may learn more about regional business cycles; the persistence of regional income inequality; which states are driving productivity growth at the national level; and the role of regulations and taxes on growth.”

Although the agency is able to publish yearly data at the state level, because of the limitations of the information available and until more reliable data are available, a good place to begin looking at productivity numbers is over the length of a business cycle, so BLS has provided a 10-year average by state, from 2007 to 2017.

California and Georgia

As a comparison, while Georgia’s 0.9% average productivity rate fell below the national average, California’s long-run average rate at 1.7% was significantly above the nation.

From 2007 to 2017, average yearly output per worker increased by 1.62% compared to Georgia’s output per worker increase of 0.68%.

Unit labor costs increased 0.99% per year in California, while it rose 1.6% in Georgia.

The value of production in California rose an average of 3.85% per year compared to a 3.3% increase in Georgia.

For Georgia to more effectively compete with states like California in a technology-driven future, the state will have to find ways to increase its productivity numbers.

Why it matters

Productivity is key to economic growth. Higher productivity leads to higher wages and higher standards of living for workers. When workers are able to produce more output per hour worked, the entire economy benefits resulting in a higher standard of living.

Labor productivity benefits from increases in technology and new work processes. New technology and processes allow workers to produce more output per hour of labor, and so raises their output per hour.
Labor productivity also benefits from producing goods of higher value. If the output can be sold at a higher price because of value added during the processing, that makes it more valuable for each hour of labor needed for its input.

Imagine cutting a log. You can sell that log for one price, but if you turn that log into higher value wood furniture, it adds value and can sell for a higher price.

As companies in the state are able to increase the value of their output, the state’s productivity rate benefits.

To the extent that Georgia lags other states in its productivity numbers, it is a drag on the nation’s productivity measure and makes it harder to raise the state’s standard of living for workers.