Dollar Bills, Construction Employment And Undocumented Workers

By: Paul Kasriel | Tue, May 22, 2007
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Housing is in a relatively deep recession, yet the decline in residential construction employment (not including specialty contractors) has been relatively mild (see Chart 1).

Chart 1

One hypothesis for the relatively mild contraction in residential construction employment is that a lot of these jobs have been filled by undocumented workers in this cycle. If undocumented, these workers would not be counted when they were hired or when they were fired.

Is there any corroborating evidence that undocumented workers increasingly have been employed in the residential construction industry? Yes, the behavior of currency. Chart 2 shows a recent sharp decline in currency held by the public as a percent of the total M2 money supply. The decline in M2's relative currency component began shortly after the peak in this cycle's housing starts. Not only would undocumented workers likely not be counted in the establishment payroll statistics but they also would likely be paid in currency, not direct deposits to bank accounts. The absolute and relative slowing in U.S. currency growth in recent years is consistent with the hypothesis that there have been large layoffs of undocumented workers. In turn, this would help explain the relatively mild contraction in documented residential construction employment.

Chart 2



Paul Kasriel

Author: Paul Kasriel

Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

Paul Kasriel

Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.

Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.

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