US Dollar Bills, Construction Employment And Undocumented Workers

By: Paul_L_Kasriel

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

By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 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 opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 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 opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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