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Michael D. Farren



Articles by Michael D. Farren

The Economic Bottleneck is Upon Us

16 days ago

In biology, abrupt environmental changes can create evolutionary bottlenecks that force species to adapt or die. This dynamic has occurred many times during the history of life on earth, and genetic analysis suggests that humans nearly went extinct in our own bottleneck around 70,000 years ago.
Our economy is now at a similar crossroads. And, as in nature, economic bottlenecks are a regular part of business cycles. They occur each recession as businesses are forced to adjust to rapidly changing demand for goods and services. These shifts in the kind, quantity, and quality of products that customers desire spur businesses to adopt new production technologies (changing their inputs or processes) as they streamline their operations to survive. In general, businesses that are better able to

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The Remote Work Revolution Complicates the Fragile Economic Recovery

August 10, 2020

The labor market is poised, as if on a knife’s edge, between recovery and an even deeper hole. The recent jobs report showed that temporarily furloughed workers are returning to their jobs as businesses attempt to reopen. The recovery is fragile, however, with 9.2 million more workers still facing the possibility that their furloughs may become permanent.
The increasing embrace of remote work complicates matters, since it carries with it changes in office workers’ spending patterns. These changes will affect the demand for—and employment associated with—products and services ranging from office supplies, business lunches, and janitorial services to dry cleaning, vehicle repairs, and childcare.
The continued recovery is indeed good news, but many commentators seem to be missing the economic

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Employment Bounces Back in a Big Way

July 3, 2020

The labor market once again outperformed economists’ best expectations, with the Bureau of Labor Statistics (BLS) reporting on July 2 that payroll employment rose by 4.8 million jobs from May to June. Meanwhile, recent data classification problems, which have artificially lowered the unemployment rate by counting some furloughed workers as employed rather than unemployed, have been reduced, but there’s still more to the story:
After adjustments to account for the data misclassification problem, the unemployment rate dropped from 16.4 percent in May to 12.3 percent in June. It’s now only about 1 percentage point higher than the official rate (11.1 percent).
But the gap with the “pre-pandemic comparable unemployment rate” remains wider. This rate also fell, from 19.5 percent in May to 14.8

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Mercatus Scholars’ Most Influential Books: Michael D. Farren

June 15, 2020

In commemoration of the 40th anniversary of the Mercatus Center at George Mason University, we’ve asked some of our scholars to share the books that have been most influential or formative in the development of their analytical approach and worldview.
From existential engineering to the Salem witch trials to Argentine magical realism, our scholars have drawn inspiration from diverse and dramatic wellsprings of intellectual thought.
Read on for more about why and how the books we will discuss have influenced our scholars’ approaches to policy and philosophy, and what lessons other readers may draw from these works.
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Is the Economy Rebounding or Is the Unemployment Rate Wrong?

June 10, 2020

The news that unemployment fell in May surprised everyone, including most economists. Before the release of the latest jobs report on June 5, economists had anticipated that 8 million additional jobs would be lost between April and May. Instead, payroll employment rose by 2.5 million jobs—the largest monthly increase ever recorded—and unemployment fell by 1.7 percentage points.
But the good news is tempered by the fact that the true unemployment rate is higher than the 13.3 percent reported by the Bureau of Labor Statistics (BLS). The BLS estimates that because of a data misclassification the unemployment rate could actually be over 16 percent. Indeed, according to my calculations, the rate is likely even higher, at around 19.5 percent.
While the record-breaking increase in jobs is

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The Real Unemployment Rate Is Probably Higher Than Anyone Realizes

May 18, 2020

The official unemployment rate announced on May 8, 14.7 percent, was the highest level since the Great Depression. The truth, however, may be even worse: the Bureau of Labor Statistics (BLS) missed counting 15.5 million people who probably should be regarded as unemployed. This would mean that, in effect, the pre-coronavirus equivalent unemployment rate might actually be around 23.5 percent.
And yet, despite the deeper-than-expected economic hole we find ourselves in, there’s reason to be hopeful. It’s not far-fetched to believe that the recovery from this recession will be swifter than expected. Most of those who are unemployed are temporarily furloughed rather than permanently laid off. Combining that with effective policies, public health solutions, and entrepreneurial problem-solving,

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What’s the REAL Unemployment Rate? Introducing the “Pandemic Furlough Rate”

May 8, 2020

The US unemployment rate soared to 14.7 percent in April, the highest since the Great Depression, as the full impact of the coronavirus started to become clear.
However, the unemployment rate alone isn’t sufficient to understand the coronavirus’s effect on the labor market. A statistic that measures the changes in employment (e.g. job losses and furloughs, as well as reductions in working hours) since early February would provide greater clarity. But no single metric is capable of telling the whole story because the economic effects are too complex.
For that reason I’m suggesting a new metric, which I’ll call the “pandemic furlough rate.” The name highlights the fact that much of the increase in unemployment is through furloughs—temporary layoffs or reduced hours—rather than permanent job

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Unemployment Rate May Exceed the Great Depression’s Peak

April 10, 2020

At this point it seems quite possible that the US unemployment rate will eclipse the Great Depression’s jobless rate of 24.9 percent as a result of nationwide shutdowns in response to the coronavirus. Despite the astonishing turn in the economy, however, we should take FDR’s advice and realize that fear itself is the greatest threat to our future—the economy is not facing the deep structural imbalances that led to the Great Depression. And despite the scale of the bad news we’re getting on a daily basis, the recovery will likely be swift; it won’t take a decade to climb out of this economic hole.
Last week’s initial unemployment insurance claims came close to setting a new record for the third week in a row. While not surprising, given that the previous week saw 6.9 million people file for

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The Economy Looks Like It’s Falling Apart, But That’s the Plan to Fight COVID-19

April 3, 2020

The jobs report released by the Bureau of Labor Statistics today was out-of-date before it even hit the wire. That’s because it shows just the onset of COVID-19’s impact on the US economy, which lost over 700,000 jobs between mid-February and mid-March. This was the first net job loss in over ten years, bringing the record-making employment expansion to a close. And after achieving the lowest unemployment rate in 50 years, we’ve just seen the largest monthly jump in the unemployment rate since 1975, from 3.5 to 4.4 percent.
But the numbers in today’s report are only the tip of the iceberg. The surveys that are the source of the jobs report were taken from March 9 through March 13, the week before many governors and local officials started mandating social distancing and community-wide

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Job Growth Skyrockets, But the Coronavirus Looms

March 6, 2020

The Labor Department’s monthly jobs report released today shows that the US economy added 273,000 net new jobs in February, while the previous estimates for December and January were revised upward by a total of 85,000. Monthly employment growth has averaged 243,000 new jobs over the past three months, far exceeding most economists’ expectations, especially given that monthly job growth averaged 178,000 in 2019. 
That’s old news, though, as many economists, epidemiologists, and other experts warn that the coronavirus COVID-19 may develop into a pandemic (if it hasn’t already), substantially restricting people’s ability to work and reducing their net expenditures on goods and services over the coming year. US stock market indices exhibited some of their fastest drops into correction

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An Interstate Compact to Phase Out Corporate Giveaways

February 27, 2020

Chairperson Zalewski, Vice Chairperson Evans, Republican Spokesperson Sosnowski, and members of the House Committee on Revenue & Finance:
My name is Michael Farren, and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the possible solutions available for Illinois. I am pleased to contribute to the conversation regarding HB4138.
My testimony today has two main points:
Economic development subsidies generally fail to achieve their goals. That is,they generally don’t lead to broad improvements in economic outcomes for the states and cities that use them,
they aren’t as important as many people believe

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An Interstate Compact to Phase Out Company Giveaways

February 12, 2020

Chair Kaiser, Vice Chair Washington, and members of the House Ways and Means Committee:
My name is Michael Farren, and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the possible solutions available for Maryland.
Today, I will illustrate why economic development subsidies remain a problem despite growing agreement that they should be phased out and how an interstate compact offers an opportunity for a cooperative solution.
Academic research shows that economic development subsidies generally don’t achieve their stated goals. That is, they don’t result in broad improvements in local and state

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For Workers, the New Year Begins with a Bang

February 7, 2020

The January jobs report released today continues to attest to strong economic growth, as U.S. employers added 225,000 jobs last month. It seems the economy has not been spooked by the shadow of impeachment, which has otherwise consumed Washington, D.C., and national news cycles over the last few months.
The labor market appears to have now fully recovered from the economic downturn of the Great Recession. Total labor force participation increased by 0.2 percentage points, with the participation rate for “prime-age” workers (25-54 years old) hitting 80.6 percent. The prime age number is the highest it’s been since mid-2001, and with the exception of the late 1990s, it’s the highest it’s ever been. In addition, participation rate of prime-age women in the workforce (76.8 percent in December

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Understanding Why Economic Development Subsidies Are a Problem and What Can Be Done about Them

January 29, 2020

Chair Ancel, Chair Cummings, members of the House Committee on Ways and Means, and members of the Senate Committee on Finance:
My name is Michael Farren, and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the possible solutions available for Vermont.
Today, I will illustrate why economic development subsidies are a problem, why they remain a problem despite growing agreement that they should be phased out, and opportunities for unilateral and multilateral solutions.
First, academic research shows that economic development subsidies generally don’t succeed in achieving their stated goals. That is,

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Using an Interstate Compact to Solve the Problems with Economic Development Subsidies

January 28, 2020

Good afternoon, Chairman Almy, Vice Chairman Ames, and members of the New Hampshire House of Representatives Ways and Means Committee:
My name is Michael Farren and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the opportunity for states to create a cooperative solution using an interstate compact. I’m happy to contribute toward the conversation regarding HB 1132.
My testimony today has three main points:
Economic development subsidies generally fail to achieve their goals. That is,
they generally don’t lead to broad improvements in economic outcomes for the states and cities that use them,
they

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Latest Jobs Numbers are a Ray of Sunshine in Winter, But There are Still Clouds on the Economic Horizon

January 10, 2020

While net job growth reported today by the Bureau of Labor Statistics (BLS) was slightly lower than anticipated, the U.S. labor market remains strong. Continuing its longest expansion ever, the U.S. economy added 145,000 jobs in December and the official unemployment rate (U-3) held steady at 3.5 percent, the lowest it’s been since 1969. If the unemployment rate drops 0.2 more percentage points in 2020, it will mark the lowest level in 67 years. (The lowest unemployment rate of 2.5 percent was set in 1953)
It may seem the economy can’t get much better. But given recent studies on the effect of the ongoing trade war, as well as research on the economic effects of immigration, it’s worthwhile to consider how much better the economy could be if the U.S. were to reduce barriers to trade and

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Christmas Comes Early for US Workers

December 6, 2019

Some economists had expected a rebound in the job market, but the Bureau of Labor Statistics (BLS) has given job-seekers a larger-than-expected early Christmas present. The November jobs report released today estimates that the economy added 266,000 net jobs last month, and revised the estimates for September and October upward by a combined 41,000. At this point, 205,000 net jobs have been added to the economy over the last three months—close to the average monthly job increases seen last year (223,000), which had been tapering off in 2019.
A substantial part of this increase is due to 46,000 striking General Motors workers resuming their jobs in the wake of a new agreement between the auto company and the United Auto Workers union. But even subtracting the returning strikers leaves a

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Labor Market Shrugs Off Strikes, But the Blade Runner Economy Isn’t Here Yet

November 1, 2019

The October 2019 jobs report just released by the Bureau of Labor Statistics (BLS) shows a larger increase in net employment growth than anticipated. Some 128,000 jobs were added to the economy last month, compared the surveys of economists that expected the number to be around 85,000. Meanwhile, the job growth estimates for August and September were revised substantially upward by 51,000 and 44,000, bringing the three-month average net employment increase to a very healthy 176,000 jobs per month.
The low expectations for October’s jobs report were attributable to the recently-settled 40 day strike at General Motors by over 40,000 United Auto Workers members, which accounted for over 95 percent of striking workers in the BLS’s strike report. In fact, the strength of the labor market, in

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Ending the Economic Race to the Bottom: An Interstate Compact Is a Win-Win Solution to Subsidies

October 28, 2019

Michael Farren testified before the Utah State Legislature’s Economic Development and Workforce Services Interim Committee at its September 18th meeting in Salt Lake City, Utah. His presentation explained how an interstate compact could help end the wasteful practice of recruiting corporations to the state by providing targeted economic development incentives.
His presentation covered a brief history of targeted economic development subsidies (TEDS), described the core problems with TEDS (namely, that they don’t work, that they may actually slow local economic growth, and that they definitely lead to less national growth), and outlined why TEDS are still used despite these problems (because most nonacademic economic development research is a one-sided benefits-only analysis, and

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Michael Farren on the POTUS Channel

October 22, 2019

Michael D. Farren reviews Foxconn’s decision to not go through with constructing a manufacturing facility in Wisconsin, despite considerable tax breaks from state and local governments.

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Michael Farren WRVA Radio

October 22, 2019

Michael D. Farren explains how Virginia’s tax incentives to lure Amazon into building its HQ2 headquarters in Arlington will negatively affect Virginians.

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Comprehensive Jobless Rate Hits New All-Time Low

October 4, 2019

Most headlines today will trumpet the unemployment’s rate drop to the lowest level in 50 years (3.5 percent), but the comprehensive jobless rate (CJR), a more holistic measure of unemployment developed in Mercatus Center research, fell to the lowest level ever (6.3 percent).
The CJR is the most encompassing measure of joblessness, counting someone as unemployed if they simply say that they want to work, regardless of whether that person is actively pursuing employment or even available to start a job. As a result, it’s the highest valid estimate that any politician or pundit can claim as the “true” unemployment rate.
The comprehensive jobless rate isn’t intended to replace the official unemployment rates provided by the Bureau of Labor Statistics, but rather serve as complimentary

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