We have a new unemployment rate of 8.6% that looks much improved on the surface. Notice I had to qualify that statement. This is because of the flows in and out of labor markets and the patterns of jobs. Ever since they changed the measures of “employed” to mean any one working at least one hour of work, the rate is less meaningful than the underlying patterns. There are several underlying numbers that make this unemployment report a mixed bag.
On the good side, there was some job creation and there appears to be a larger number of people working more hours. This means that underemployment is improving. I should mention that unemployment can actually get worse for awhile after a recession–making it a lagging indicator–because improving job markets encourage unhappy job holders to start looking for a different situation. What we are seeing is that people are able to pick up more hours. That’s not part of the job switch behavior. It means the situation for current job holders is improving.
The bad news is for the long term unemployed whose unemployment levels stayed the same. There are also indications of an outflow of “discouraged” workers who have simply given up looking for work and are likely off the unemployment roles now. This is very troubling and requires immediate policy response.
In November, the number of job losers and persons who completed temporary jobs declined by 432,000 to 7.6 million. The number of long-term unemployed (those
jobless for 27 weeks and over) was little changed at 5.7 million and accounted for 43.0 percent of the unemployed. (See tables A-11 and A-12.)
The civilian labor force participation rate declined by 0.2 percentage point to 64.0 percent. The employment-population ratio, at 58.5 percent, changed little.
(See table A-1.)
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) dropped by 378,000 over the month to 8.5 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.)
There are two ways the government could deal with this long term unemployment. The first would be most direct. That would be hiring them directly. Given the current political situation, that is unlikely to happen. The second way would be to pay for the first year or two of their salaries and benefits. This would probably be more acceptable to republicans–however I do question their commitment to improving the economy and the job situation in general–but it would take some work to get the apparatus in place. President Obama has made policy suggestions that would pay states to keep education, public health, and public safety employees but that has met with demands for cuts elsewhere to pay for reimbursements. This is a good suggestion, but doesn’t do anything to deal with the number of long term unemployed who are know disenfranchised from the work environment, are losing skills, and are less likely to be hired due to discrimination by employers who don’t like large, “unexplained job gaps. A program needs to be directly targeted to this group.
Why am I suggesting this? It is because the number of labor market economists that are crunching numbers at the moment show us that it’s taking forever at this rate to bring down unemployment and we are likely creating a permanent underclass. Felix Salmon has a graph and some analysis this demonstrates the problem.
When employed people become unemployed, that’s bad news, and immediately visible in the unemployment rate. When unemployed people leave the labor force entirely, that’s equally bad news, but it’s a tougher measure for the public to connect with, since at that point they’re no longer counted in the unemployment rate. Everybody knows what “unemployment” is; the population which cares about the “employment-to-population ratio”, by contrast, is wholly comprised of wonks.
The plunge in the employment-to-population ratio over the course of the Great Recession is going to be its biggest and most lasting legacy. We’re now back to the levels last seen in the days before most women worked, but we live in a very different world now. In the late 1970s, a woman without a job was much less likely to consider herself unemployed than in the early 2010s. And when she casts her vote in November, the degree to which she’s happy or unhappy with the current administration is going to be much more connected to her actual employment status than it is to whether she’s officially showing up in the unemployment rolls.
Over the next few months, we’ll get a better sense of the signal-to-noise ratio in the 8.6% number. I’m hopeful that we’ve seen the last 9 handle in the headline unemployment data series, and if I’m right, then the optics of the unemployment rate are, at the margin, good for Ds and bad for Rs. But the unemployment rate is not a particularly good gauge of how well the economy is functioning, or how many people have jobs. And I’m very pessimistic that the employment-to-population ratio is going to get back above 60% even over the medium term. It’s certainly not going to get there before the election.
Here’s some more composite analysis from NBC interviews with economists.
Long-term unemployment remains a big problem: The average duration for joblessness surged to a record-high 40.9 weeks. Stagnation in wages also continues, as more employed workers took on second jobs. There were just under seven million multiple job-holders for the month, the highest total in 2011 and the most since May 2010.
Traders offered little reaction to the report. Futures already had been indicating a positive open but lost some ground in the ensuing minutes after the Labor Department report hit the tape.
“At this pace of job growth, it will be more than two decades before we get back down to the pre-recession unemployment rate. Moreover, a shrinking labor force is not the way we want to see unemployment drop,” said Heidi Shierholz, economist at the Economic Policy Institute. “At this rate of growth we are looking at a long, long schlep before our sick labor market recovers.”
It takes roughly 90,000 jobs to keep even with the growth of the labor force. At this rate, it will take close to 200 months, or 16 2/3 years to make up for the 10 million job deficit in the economy.
Even the White House is admitting that we’re a long way from the pre-recession employment numbers. Here’s the nifty graph that Calculated Risk has been updating over time that clearly demonstrates the literal uphill battle. Since republicans are in no mood to improve the economy and the jobless rate given their strong desire to regain the White House and the Senate, I don’t see much hope for any solution any time soon. If they do regain any of the above after the election we probably won’t see any improvement at all. That’s why I think the Obama administration needs to work on continued targeted fixes. Again, I would recommend directly paying businesses to hire the long term unemployed. I actually think it would be worth offering some spending offsets if that is going to be what it takes because we can’t afford to continue to endure these levels of duration. The more chronic the problem becomes, the more it will cost us and the more it will ruin millions of folks’ lives.
I’d like to focus on some potential policies that could see us through this difficult economy. It should be apparent that we’re in for a period of time where uncertainty will cause a lot of stress in the financial markets. The uncertainty has bled into the ‘real’ economy where we’re seeing increasingly higher levels of unemployment and distress in industries outside the banking world. If you haven’t noticed, the Fed has been actively working on this for some time. It’s major tools indirectly impact the real economy by influencing the credit markets and the availability of loans. It’s pretty straight forward actually, in a normal economy, low interest rates would cause banks to lend to more businesses and households and this would stimulate the economy out of a recession. The problem right now is that losses from loans are creating such problems for bank profitability, banks are holding the money. We have extremely low interest rates right now. This is a situation that we saw in Japan during the 1990s. It took a decade for the Japanese economy to snap out of it. The Fed’s rate to banks is 1% right now. It is cheap for them, and now many other financial institutions to borrow from the Fed. There is still some constipation, if you will, in the banking system. What is worse, some of the money sent to these banks that has gone to healthy banks is going into buying other banks. None of this will help stimulate the economy. So how do we avoid Japan’s stagnant decade?
If you know me, you know I do not favor bailing out the automobile industry. We have a system to help corporations rearrange their obligations and make themselves more able to carry on in the future. It is called bankruptcy. We’ve watched the airline industry go into the bankruptcy process and come out as healthier companies. Usually, all contracts between debtors and the companies are either renegotiated or foregiven. The stockholders lose their stake. The Unions will have to scale back on their contracts. This will all happen in a very structured manner and all will have to sacrifice for the companies to survive. I’m afraid that if we do not force them into this circumstance that we will find that we lend them money, only to have them pay creditors at the same losing level with the same bad managers. The folks we could spend the money on would be the folks that do lose their jobs. We can provide them with extended unemployment insurance and with job retraining. We’ve seen the Treasury’s deal with bank result in outcomes we did not want: no credit going to main street, bonuses and dividends still in tact, and buy-outs. We do not need to repeat this mistake.
Do we need another stimulus package or do we need tax cuts? If so, who should be the focus? Short term tax stimulus is probably in order. However, if we spend all of this money, we will grow the deficit. Growing the deficit is not a bad thing during recessions, however, we already are running a huge deficit and it’s getting bigger because of two wars and the Bush tax cuts. If we continually push 10 year bonds out to the market, there will be a point where the big money (mostly soveign wealth funds) will begin to balk. Rates could go up which means that we could spend a huge amount of money just servicing the debt. Any stimulus should be short-lived and should focus on the middle and working class. Tax increases, even on the wealthy and on corporations, should be avoided for several years. The adminstration will have to scale back on its offerings of new benefits and programs. I don’t think we’ll see work on the health care system right now because other things will take priority.
There are two areas where new spending should be encouraged. These are energy independence and infrastructure rebuilding. This does not mean building new bridges to nowhere, but fixing our aging infrastructure. This expenditures will create future economic growth and can provide jobs during the recession. Grants to states for specific purposes can be used so that states with the biggest problems can get the highest priority. There are challenges to this, however. The biggest problem with major programs like this is getting them to move out of congress and committees. This can take so much time that the projects may never have an impact. Since the Democrats have strong majorities in both houses, they should be able to usher through these types of programs. These need to be expedited. The one big thing I worry about here is that they will not focus on what is best, but will focus on enriching groups that supported election winners. Projects providing jobs that focus on building our future potential would be a lot better use of funds than just giving folks extended unemployment benefits. Hillary Clinton’s green jobs program and McCain’s cap and trade system to reduce green house gases are both good programs. Jobs could include retrofitting existing houses to be more energy efficient. The focus needs to be on the underlying capital that leads to future growth so that even if some of them are slow to develop, there will be economic development.
The focus during the rest of this year and into the next will undoubtedly be dealing with the ongoing slow-down in the economy. We will soon see if we will get real change or just a bigger deficit with spending that accomplishes little. I’m worried about the quality of the spending, because as I said, most of our debt is financed by the international community. There are many other places to park their wealth. If they pull it, U.S. citizens will not be able to come up with the difference without getting use to much higher taxes.