Behind the Unemployment Rate

We’ve discussed this before. The unemployment rate that is used as the benchmark of the state of the job market by the mainstream media does not contain the full story. It’s missing the faces of people that have given up on the job market and are considered ‘outside’ the labor force. It considers any one employed that one works one paid hour per week even though those people want 40 hour a week jobs and maybe working multiple part time or temporary jobs to make ends meet because unemployment insurance only goes so far. It doesn’t give you information on how persistent that unemployment is and there’s no inference of where the unemployment is the worst. It’s just an average of every one who is actively looking for work and is not currently employed at least one hour a week as a percentage of the total labor force.

It is the flows in out and out of employment and unemployment and the labor force itself that gives you more information. It is the stratification of that unemployment by race, by industry sector, by region, by sex, by age and by education that gives you an idea of the faces behind the unemployment rate. It is also the source of unemployment and the duration or length of time out of a job that provides the detail that you must have to develop a successful unemployment policy.

I’ve mentioned that the duration of unemployment in this recession and its root in structural unemployment is what is so worrisome about the unemployment we have today. It appears that many of the jobs lost over the last decade are gone permanently. The financial crisis put a large number of these folks on the unemployment roles. Their benefits are running out and there are basically no jobs for them any more. Worse yet, states are cutting their budgets which mean job training and education are less available and will continue to become more personally expensive and less available. They will be unreasonable choices for older, unemployed Americans with only high school degrees and job skills that only China requires.

The article in the NY Times today called “The New Poor- Millions of Unemployed Face Years Without Jobs” is a good overview of what we’ll look forward to as we creep out of the recession. I was struck by the stories of the people profiled in the piece as well as the candid discussion that most of these folks will never know what it is to be middle class again.

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

This is a radical change from a country that prior to this century was a job creation machine for every one. Bostonboomer discussed the dark side of this change in her morning news thread on Saturday morning. We can look at the unemployment number and realize that it serves its role as barometer of bad numbers. It has some Cassandras–like Yves Smith of Naked Capitalism–wondering how these people will take their status as permanent underclass. Will it be with quiet resignation or more teaparties with more pitchforks and rifles?

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

What does it mean when so many Americans are so visibly losing the American promise? What will it mean if–in order to continue replenishing necessary campaign coffers–American politicians continually sell out the American labor class for the American capital class? Obviously, in a democracy, those of us that rely on paychecks instead of dividend checks and capital gains can out vote them the bonus class. But can we achieve any real change when the two major parties continually move towards the same policies with only the only difference being which industry sponsors which version of the rhetorical spin?

Traditionally, three sectors have led the way out of recession: automobiles, home building and banking. But auto companies have been shrinking because strapped households have less buying power. Home building is limited by fears about a glut of foreclosed properties. Banking is expanding, but this seems largely a function of government support that is being withdrawn.

At the same time, the continued bite of the financial crisis has crimped the flow of money to small businesses and new ventures, which tend to be major sources of new jobs.

I think I mentioned before that my laugh line from the State of the Union Address was the one where POTUS said he wanted to double exports and make us an export driven economy. Most of us had the same reaction WTF are we going to export? Disneyland? Yellowstone Natinoal Park? Old Arnold Schwarzenegger movies? Where are the jobs coming from? What do we produce any more? Much of our economy seems based on manipulation of information to disenfranchise many and benefit a few or feeding, massaging, and entertaining the bonus class or giving sophisticated medical procedures to people with Cadillac insurance plans. Many of these folks worked with their hands. They made cars or houses or sewed clothing. We now have too many houses and we prefer cars from elsewhere. All of our clothes are made by the indentured servants in third world countries now.

What are these people to do? Our safety net programs have been gutted and the states are now in the position of gutting education and training. That link is from CNN.

States face combined remaining budget gaps of $134 billion over the next three years, the report said.

It said there has been no leveling of state revenues and most states are seeing monthly totals that are lower than recent forecasts.

Citing the Rockefeller Institute of Government, the report said that state tax collections have declined for four consecutive quarters, beginning in 2009’s third quarter.

Meanwhile, Medicaid costs have grown, the report said. And states continue to lose jobs. In January alone, states eliminated 18,000 jobs, and will continue to shed jobs, the report said.

Because states are required to balance their budgets, they will “continue to cut spending and increase taxes, which will also weaken the economy and, thus, its ability to generate private sector jobs,” it said

This is back from the NY TImes:

Some poverty experts say the broader social safety net is not up to cushioning the impact of the worst downturn since the Great Depression. Social services are less extensive than during the last period of double-digit unemployment, in the early 1980s.

On average, only two-thirds of unemployed people received state-provided unemployment checks last year, according to the Labor Department. The rest either exhausted their benefits, fell short of requirements or did not apply.

“You have very large sets of people who have no social protections,” said Randy Albelda, an economist at the University of Massachusetts in Boston. “They are landing in this netherworld.”

…

“We have a work-based safety net without any work,” said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, Madison. “People with more education and skills will probably figure something out once the economy picks up. It’s the ones with less education and skills: that’s the new poor.”

The majority of people in this country rely on their jobs for everything. The majority of business in this country (in terms of numbers) rely on customers who pay for their products and services with their pay checks. When the money is sucked out of this process to a few people, the house of card falls. Income inequality is not good for the country at all, but that’s been the increasing story since the 1980s. Here’s another disturbing headline from FT Alphaville: “The US is not a viable concern anymore”. The thread is based on an interview with Richard Duncan, partner at Blackhorse Asset Management and author of The Dollar Crisis. He’s written a new book called The Corruption of Capitalism.

The point being: the world’s largest economy and engine of global economic growth — the United States — is simply not a viable concern any more. As Duncan explained it:

The country is de-industrializing because wages in the US are up to 40 times higher than those in developing countries like China. Therefore, the United States makes very little that the rest of the world cannot buy somewhere else much more cheaply.

And so, like any troubled company, the US too must restructure itself if it is to remain operational, says Duncan. How it goes about it, though, will be crucial to its success. The best policy according to the author would be heavy government investment in so-called ‘future’ industries — everything from solar, biotech, nano-technology and so on. Trouble is, a move like that would take more government spending not less.

What kind of future does this leave us with? That is why BB’s self-titled “incoherent ramblings” were not the least bit incoherent. It’s just very hard to grasp losing the promise. Suicides will go up as well as murder-suicides. More and more people will have to find other ways to get what they need outside of the traditional job structure. Read into that what you will.

Is the American Dream over?