Our Dismal Job MarketPosted: January 7, 2011
Economists–well at least NeoKeynesian economists that look at data–frequently use words like “rigid” and “sticky” to describe the jobs market. Rigid is a good word. It means “deficient in or devoid of flexibility”. The Labor Markets are the biggest empirical hurdles to jump if you want to buy into some variant of supply-side economics or NeoClassical economics.
Wages and quantities of labor used to adjust very slowly. They appear to be dismally slow these days. Part of this is obviously due to outsourcing. The substitution of foreign (e.g. outside of our borders; legal status really doesn’t matter for purposes of macro growth) for US-based workers seems to have made the NeoKeynesian assumptions of sticky and rigid wages even more so.
What’s very interesting about today’s BLS report on jobs is that the unemployment rate inched down but the fundamentals in the job market don’t appear to be changing much. Plus, the unemployment rate inched down based on the way it’s calculated by more than anything else. It’s not really fooling people that know economics or finance, but will the public at large embrace the nuance? A huge portion of the populace is simply leaving the job market.
Felix Salmon explains some of the nuances in his Reuters Blog today called “No good news for the long-term unemployed”. He focuses on some of the buried numbers rather than the top number. Yes, he has a nifty graph you should check that out too.
The December jobs report turns recent history on its head. We’ve been used to healthy increases in employment making no dent in the unemployment rate, but this time a mediocre jobs figure—just 103,000 new jobs were created—coincides with a gratifyingly large fall in unemployment, to 9.4% from 9.8%. For those keeping track at home, that’s employment up by 103,000 and unemployment down by a whopping 556,000.
There’s no doubt that the headline payrolls number is a disappointment. The economy just doesn’t seem to be creating jobs: we need to see 150,000 new jobs a month just to keep pace with population growth. But is there some good news, at least, on the unemployment front?
I’m not sure. While unemployment is down from both December 2009 and December 2010, it’s down only for those who have been out of work for less than 26 weeks. The ranks of the long-term unemployed are still rising
Well, it’s not so ‘whopping’ in context–as we’ll see in a moment–but let’s look at some other things. The underlying numbers appear to be a total disconnect–and Salmon’s analysis is not unique among economists’ take on the situation–with the assessment of the President who just appointed lawyer Gene Sperling to do an economist’s job. President Obama also continued his rhetoric on substanial job creation being just around the corner and how the trend is just so much rosier under his leadership. Does any one outside of his circle actually believe this?
Now, read this Bloomberg article and notice the part at the end that I highlighted.
Obama said Sperling has been an “extraordinary asset” over the past two years as a senior adviser to Treasury Secretary Timothy Geithner, helping to pass a small-business jobs bill and a tax-cut compromise.
Obama said one of the reasons he selected Sperling is that “he’s done this before,” a reference to Sperling’s 1996-2000 leadership of the NEC during the Bill Clinton administration.
Obama also named Jason Furman as principal deputy director of the NEC, and nominated Katharine Abraham to the Council of Economic Advisers. He also nominated Heather Higginbottom as deputy director of the Office of Management and Budget.
Obama spoke on the same day that government data showed that the U.S. added 130,000 jobs in December and the unemployment rate dropped to 9.4%. Read MarketWatch’s story about jobs report.
Obama trumpeted 12 straight months of private-sector job creation and said, “the trend is clear.” But he said there’s a lot of work to do to get more people back in the labor force, and pledged to forge ahead with more job-creation efforts.
Sperling was also deputy NEC director during Clinton’s first term, which was marked by standoffs that resulted in government shutdowns. Sperling helped negotiate a balanced budget agreement in 1997 and was an advocate for the repeal of the Glass-Steagall law that separated commercial and investment banking.
We now have Sperling who advocated repealing Glass-Steagall as the nation’s top economic advisor. Again, the man’s not an economist albeit he’s got a policy background. It’s not the same thing. You can check out Susie Madrak at Crooks and Liars for some details on William Daley or my thread yesterday. He’s now the President’s Chief of Staff. Susie more than adequately sums him up as “Banker, Lobbyist, NAFTA advocate”. Now, I’m all for trade and even free trade being some one that researches that stuff and teaches that stuff and understands that stuff at a fairly complex level. The problem what we’ve got now is trade that is not mutually beneficial or even-handed; let alone fair or free trade. The country is on the losing end of a lot of trade agreements. Given the Wikileaks showed that even our diplomats are nothing more than corporate salesmen abroad, I understand why trade negotiations appear to be based on the interests of specific industries more than then the country at-large now. We don’t have fair or free trade. It’s unfair and expensive trade.
Obama’s appointing the very people that put us in this crisis mode. We’re getting one dude that tore down Glass Steagall which was so badly done that we let a huge set of unregulated depositary institutions–money market accountss–and a shadow banking industry that was poorly regulated and monitored run amok. Yesterday, we got one of the guys that didn’t consider what a trade union would mean between two countries–the US and Canada–that have similar economies and run on similar laws and have similar institutions and a trade partnership with a failed Narco-state like Mexico. Milton Friedman–in a seminal 1958 paper–wrote about the disaster in price and wage instability that results from that sort of thing. Yes, he supported free trade, but read the fine print and see how disruptive that law of one price can be when turned lose in a friction-filled world. The Maastricht Treaty was set up to avoid–and apparently unsuccessfully so–that kind of situation with unification of the EuroZone. (Greece and Goldman Sachs evidently lied Greece into the Maastricht criteria.) But the Eurozone is clever enough to make its partners meet certain criteria before opening a Free Trade Zone. We’re evidently not that clever or we’re motivated by something other than free trade.
So, we’ve got TWO people with TWO of the most important jobs in the country right now who are responsible for the TWO most disruptive policies in the country with access to the President’s Tin Ears. I call that a recipe for another Financial Crisis Disaster. On top of that, POTUS is bragging about something that is NOT real job creation while appointing them.
Let me take you back to the unemployment data and the fine print that only economists read. The BLS reports the monthly numbers on inflation and employment in the US. Here’s their release of the jobs numbers from today. First, you’ll see that the unemployment situation isn’t rosy and that average only reflect the average. Millions of minorities and young people are way worse off than average.
The number of unemployed persons decreased by 556,000 to 14.5 million in December, and the unemployment rate dropped to 9.4 percent. Over the year, these measures were down from 15.2 million and 9.9 percent, respectively. (See table A-1.Among the major worker groups, the unemployment rates for adult men (9.4 percent) and whites (8.5 percent) declined in December. The unemployment rates for adult women (8.1 percent), teenagers (25.4 per-cent), blacks (15.8 percent), and Hispanics (13.0 percent) showed little change. The jobless rate for Asians was 7.2 percent, not seasonally adjusted. (See tables A-1, A-2, and A-3.)
In December, the number of job losers and persons who completed temporary jobs dropped by 548,000 to 8.9 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 6.4 million and accounted for 44.3 percent of the unemployed. (See tables A-11 and A-12.)
The civilian labor force participation rate edged down in December to 64.3 percent, and the employment-population ratio was essentially unchanged at 58.3 percent. (See table A-1.)
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged in December at 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)
About 2.6 million persons were marginally attached to the labor force in December, little different than a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force,wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)
Among the marginally attached, there were 1.3 million discouraged workers in December, an increase of 389,000 from December 2009. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities. (See table A-16.)
First, let’s look at a few KEY words. The first set are all numbers with “the data are not seasonally adjusted” attached to them. It’s December, right? What happens in December? You don’t have to be an economist to know that there’s a lot of SEASONAL work in December right?
There’s another REALLY important thing buried in there too. “The civilian labor force participation rate edged down in December to 64.3 percent.” That’s important because it goes to the heart of how the unemployment rate is calculated.
The Unemployment Rate = (Unemployed Workers / Total Labor Force) * 100
So, the Total Labor Force is the denominator right? So what happens to a ratio when the denominator goes down? Just pull some numbers out of thin air and do the math. I’m beginning to see that I‘m not the only one doing this exercise as I look around the web. The Labor Force Participation rate just dropped to a 25 year low. That means the job market is so bad, people are just leaving it and that’s what’s really forcing the unemployment rate down for December on top of the smaller numbers of teens entering the labor force. Also, we’ve got a chunk of the population in Afghanistan and Iraq.
The Labor Force Participation rate usually only moves consistently up or down on major trends. The biggest ones used to keep the bottom of that number up. That force would be increased participation by women in the labor market since the 1950s coupled with a slightly lower increased participation rate by men. (Men had social security and pensions and could retire for a change rather than die on the job.) The other big thing was the increase in the 60s to 80s due to baby boomers. Now, it’s tapering off due to the baby busters but they haven’t left yet so that wouldn’t really impact the labor force participation percentages. I wouldn’t bet that the baby boomers leave quietly now that they’re social security is threatened and their assets have been raided. One other thing really impacts it. That would be War. Active duty soldiers pull the participation rate down. As a side note, putting huge numbers of people in jail has the same impact.
On my google data search, I found that Tyler Durden had already cranked through the numbers for me. Thank you, Tyler. I found this when I did a search for the trend in labor force participation.
While today’s unemployment number came at a low 9.4%, well below expectations, the one and only reason for this is that the labor force in America has plunged to a fresh 25 year low. Assuming a reversion to the mean in the long-term average participation rate back to 66%, means that the civilian labor force, which in December came at 153,690, a drop of 260,000 from November, is in reality 157.6 million, a delta of 3.91 million currently unaccounted for. Maybe someone can ask Bernanke during his imminent presentation before Congress what happened to the unemployed population, which would have been 18.4 million if this labor force delta was incorporated, resulting in an unemployment rate of 11.7%.
There’s also a nifty graph at that Prison Planet link showing how people have been dropping out of the Labor Force in droves. The two most significant inflection points happen in June of 2009 and April of 2010. You may remember that part of the stabilization occurred due to part time census jobs. That explains the flattening of the curve at several points. You don’t have to be an economist to figure out that the labor market would be terrible if people hadn’t just up and disappeared from the labor market because the labor market is terrible. (If my friends who teach community college around the country are any indication, their huge class waiting lists could indicate folks sitting this out by trying to go to school. Wonder what the number of people living on student loans looks like right now?)
So, we have major appointments of two people that basically engineered some of the things that brought us to this crisis point, complete denial that it’s not job creation but abandonment of the job market that’s creating a false impression of at best a stalled labor market, and a presser that reinforces the notion that all of this policy stuff is working out just fine and dandy. Please, expatriate me, shoot me, or explain to me why every one’s hair isn’t on fire about this.
Then, we have the entire delusion coming from the inner sanctum of the catfood commission that the problem is that there are too many entitlements and government is spending too much. Plus, add to that steaming pile of dung, the passing of huge tax cuts to people that really don’t need them.
No wonder he doesn’t want a real economist in talking to the Tin Ears. He wants to be as deaf and dumb as his idol Ronald Reagan. We’re being set up for a bigger crash that the one that started in 2007. Meanwhile, the Republicans are obsessed on repealing the HRC, controlling every uterus, and weeping over the speaker’s gavel.