Employment in Crisis 24 comments
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A new article at TheStreet.com (here), entitled "A Serious Degradation in Employment", discusses the critical nature of the record collapse in employment and the labor force detailed in the latest Employment Situation Report from the DOL (U.S. Dept. of Labor).
After that article was written, the downward revision of job losses for 2008 and early 2009 was announced (discussed here).
Historic Number of Job Losses
An informative graphic from chartoftheday shows the historic nature of job loss in this recession.
They also have this companion graph:
The second largest deviation occurred in the 1981-82. In that case we had the highest unemployment (U-3 = 10.8%) since World War II, which was reached for both November and December, 1982, just as the recession ended.
Most expect unemployment to peak much after the recessions ends this time, paralleling the last two recessions in 1990-91 and 2001. See the following graph:
Unprecedented Duration of Unemployment
The only reason we have not exceeded the 1982 unemployment rate high is due to the unprecedented duration of unemployment, which increases the number of ex-workers becoming discouraged and stopping work searches. This is not a marginal effect, but is dramatic, as seen in the following graph:
The Shrinking Labor Force
The result of this long duration of unemployment is that the labor force is shrinking at an unprecedented rate as discouraged workers stop looking for employment and are dropped from both the unemployed count and the civilian labor force, according to the established survey procedures of the DOL (Dept. of Labor). The "Incredible Shrinking Labor Force" is the title of an article discussing this recently at TheStreet.com (here).
The contraction in the civilian labor force is seen in the following graph:
This downtrend has continued with the September Employment Situation Report, surpassing the all-time low established in late 2001. In September, the civilian labor force declined by another half a million (571,000) and the count of those "Not In The Labor Force" increased by 807,000. The decline in the labor force since May is over 1 million and the increase in the count of those not in the labor force has increased by nearly 2 million in the same four months. Incredible shrinking labor force indeed!
Effects on Real Unemployment
If the 1 million who left the labor enforce since May are added back to the labor force, as well as the total unemployed, the U-3 unemployment rate would be 10.4%. If the 2 million increase in the count of those not in the labor force are added to both the labor force and the unemployed, the U-3 unemployment rate would be 10.9%. The shrinkage of the labor force is seriously distorting the official unemployment numbers.
I will use a hypothetical example to illustrate. Let's say that we have a labor force of 2000 and the group not in the labor force numbers 1000. Assume the current number of unemployed is 200, so the unemployment rate is 10% (200/2000).
Now, what if 250 of those not in the labor force are merely discouraged and will return to the labor force and look for work when the economy improves. That would mean we could define the potential labor force as 2250 (250 + 2000), and the number of unemployed as 450 (250 + 200). Now the unemployment rate is 20% (450/2250).
These numbers may be larger (in proportion) than would apply to the actual labor force. You can plug in your own hypotheticals to test other proportionalities. For example, if 5% of those not in the labor force (instead of the 25% illustrated) are long-term discouraged (but still not permanently), the increase in the unemployment rate would be 2.2%, to 12.2% (250/2050).
Could We Remain Below Full Unemployment for a Decade?
Are we building an employment crisis so large that it could last for many years. Barry Ritholtz at The Big Picture (here) provides the following graphic:
If I extrapolate his two dotted lines they cross in the 2016 to 2017 time frame. Could the unemployment problem we are still developing be so great that it will take a decade to return to nominal full employment?
Conclusion
We are in economic territory that has not been seen in over half a century. We have the first major credit driven recession since the 1930s. In "normal" business cycle recessions, employment has bottomed within two years (usually within one year) of the end of the recession and has recovered within approximately 3-4 years to near nominal full employment.
We cannot assume that will happen this time. Conditions are not the same as we have experienced in the last 50 years. We not only have a credit crisis. We also have an employment crisis.
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This article has 24 comments:
here in palookaville they are talking about forcing people off benefits and into work...
oh...and raising the pension age so people can work for longer...
funny old world...innit!
"If I extrapolate his two dotted lines they cross in the 2016 to 2017 time frame. Could the unemployment problem we are still developing be so great that it will take a decade to return to nominal full employment?"
We've experienced recessions at least once every ten years for this entire century. We would therefore be "due" by 2016. Also, it is in this time period that the potential GDP growth of the economy drops significantly. Gone are the prospects of 3-4% economic growth during expansions. The country begins to slow and grow older as the peak Korean War baby boom retires en masse. China and others are where we once were, when half the world behind the Iron Curtain had its hands tied behind its back. The dynamic growth torch is passed, in part, to them.
"The unemployed total for less than five weeks has fallen from a peak of 3.658m in January to 2.966m. There has also been a drop in unemployed for between 5 and 14 weeks, from a high of 4.321m in May to 3.910m. And there has been a dip in the category for 15 to 26 weeks, from 3.452m in June to 2.942m last month, although that was up from August (2.828m). However, all these improvements were offset by a jump in the long-term unemployed total (27 weeks and over), which soared 450k in September to a record 5.438m."
So 5.438m people unemployed for more than 27 weeks and therefore likely in real distress. How long can this continue before social unrest starts?
The several and serial crises that are emerging or cresting are derivatives of this root crisis.
Credit cannot be extended if borrower and lender do not trust each other: the former fears predatory behavior and the latter willful default; in either case there is a lack of confidence in the mutuality of property rights.
The dollar cannot be trusted because it is increasingly decoupled from the reality of National net worth and the ability to service national debt Many people, not just or only in America, fear that the dollar is now the private preserve of the WashDc-Wall ST Co-dominium and the fiat dollar is the means for aggrandizing and entrenching the very few at the expense of the many, worldwide.
Employment is in a "crisis" because fear about increasingly onerous, capricious, vacuous and malicious Big Govt tax, social, energy and environmental, healthcare,retirement, education and trade policies and regulations has suddenly and tragically raised the "embedded" or "structural" rate of unemployment: If small and medium businesses do not trust the Regime to honor property rights and new business formation is stifled, then why hire? Fear of the Regime is turning potential employees into potential liabilities, rather than prime assets for many small/medium businesses. The consequences for the young and the unskilled/low skilled are cruel and severe. It is they who are prevented from gaining the essential experience, self-reliance and performance capability that comes from entry level jobs and it is they who primarily constitute the new "structurally" unemployed.
Trust in major civil institutions, especially the institutions of legislative,(Govt) executive, media and financial authority and action, is eroding rapidly because scores of millions of Americans believe that the Bosses who now dominate these institutions have contempt for America's great legacy, traditional virtues and the Constitution. When large numbers of Americans fear that the very people and institutions designed and solemnly charged with protecting personal and property rights, providing for a sound currency, maintaining national security and defending the Constitution are now the greatest source of risk to both ordinary Americans and Americas global stature then indeed there will be cascading crises. Employment is just one of them.
To be sure unemploymnent is high, but not all of the non-employment seeking workers are still discouraged workers. This is a very significant social change that will have profound effects on consumption and savings for the next generation.
The past 25 years of runaway consumption in the US was fueled by the two income home and disproportionate wealth in the upper middle class (ie "mass affluence"). This will be replaced by increasing hourly wages for a reduced labor force, reduced consumption and increased savings rate.
They might know that 1982 was terrible, but unemployment came down quickly in '83. By the time Reagan was campaigning in '84 things were visibly better. Geroge HW Bush wasn't so lucky. Sure, the recession ended in '91, but unemployment unfortunately spiked during the conventions in '92. "Saddam? What Saddam? We don't care!" Out he went.
So by mid- to late-2010 when Congressmen return to their districts the topic will be the jobless recovery: "How many years does it last, and what are YOU going to do about it?" "Why did you waste so much time trying to force health care on us and giving handouts to corporations? Where is my bailout, and why is mortage modification such a slow and dreary failure?" There is a reason Hoover lost in '32: he was dull, clueless, unsympathetic and aloof. This, of course, does not mean Roosevelt was better, just less Hooverish. Translation: social and political upheaval 2010.
On Oct 06 05:33 AM Denis Gould wrote:
> How long can this continue before social
> unrest starts?
This Utopian idealist economy is 75% of our underlying problem right now. Manufacturing brought good jobs to the masses, service brings foodstamp supplements to the masses.
Great recovery plan.
On Oct 06 08:51 AM rick12345 wrote:
> The USA has a services based economy, accounting for about 70% of
> GDP. In other words it does not export a lot of manufactured goods.
> As yesterdays result clearly showed things are on the mend, so I
> would expect the employment situation to get a lot better from here
> on in. Unless I am mistaken, consumer confidence should show a more
> positive result today.
Jobs are listed for weeks and not filled, when you call to ask status you are being told budget has not been approved for the job. Minimum wage increases have killed the entry level jobs. No baggers, utility workers running around stores. Health Care fastest growing job market in recent years not hiring because of possible medicaid cuts. Construction is also losing jobs. Who is hiring?
The citizens save more but the government borrows even more per household.
On Oct 06 07:10 AM tedstr wrote:
> The past 25 years of runaway consumption in the US was fueled by
> the two income home and disproportionate wealth in the upper middle
> class (ie "mass affluence"). This will be replaced by increasing
> hourly wages for a reduced labor force, reduced consumption and increased
> savings rate.
On Oct 06 09:09 AM TeresaE wrote:
> How many cars, homes, stock portfolios or vacations are we going
> to sell to the "service" industry?
>
> This Utopian idealist economy is 75% of our underlying problem right
> now. Manufacturing brought good jobs to the masses, service brings
> foodstamp supplements to the masses.
>
> Great recovery plan.
"Amid credit market turmoil, a subsequent downturn in dealflow and a global recession, pink slips have littered Wall Street, and now PE firms, law firms and other companies are announcing layoffs. Here's Dealscape's latest:
www.thedeal.com/newswe...
I wonder who sound that estimate really is...
Assuming the growth projections are close (and they seem pretty conservative, really), and the current labor market numbers make sense (they seem to agree with my anecdotal evidence, at least), the big variable becomes what I think of as "job demand growth".
The mature economies which are held up during such comparisons often have dramatic differences from ours.
Japan relies heavily on exports, even as their domestic workforce rapidly ages and leaves the market. IF we were to actually see a drop in immigration (from whatever cause), I see this having a dramatic effect upon these charts.
LOL, I'm not putting forth the crazy idea that our political leaders might actually start to control our borders or anything, just wondering how turning that "requirement" into a smaller number would work. Somewhere in there it starts to look less like America and more like, say, Belgium...
One of the FIRST things you learn in economics is not assigning value to transactions that don't take place. Maybe the government should tax the 'people who are not working' based upon the 'wages that they should be earning!'
How the Department of Commerce keeps these wolves from the door, I do not know.
People making minimum wage paying 20% of gross salary for health care, increased utilities from Cap N Tax. Forced union dues (nothing but a mandated tax), the list goes on and on.
Then, when the situation (no wages) can no longer be denied, I'm sure we'll see a VAT or national property tax.
See, you don't need jobs for the government to figure out a way to tax.
On Oct 06 01:58 PM cyclingscholar wrote:
> OooooooooooooKkkkkkkkk... who don't work distort unemployment numbers....
> Do people who don't buy distort sales figures? Would you prefer that
> they steal, and then ya can count the goods as sold? Do people who
> don't vote distort voting numbers? Shall the Anointed One be able
> to 'vote those who don't vote' by proxy?
>
> One of the FIRST things you learn in economics is not assigning value
> to transactions that don't take place. Maybe the government should
> tax the 'people who are not working' based upon the 'wages that they
> should be earning!'
>
> How the Department of Commerce keeps these wolves from the door,
> I do not know.
We cannot assume that will happen this time. Conditions are not the same as we have experienced in the last 50 years. We not only have a credit crisis. We also have an employment crisis."
Well, duh! How long did we think we could run an economy based 70% on what we sell?
On Oct 06 08:51 AM rick12345 wrote:
> The USA has a services based economy, accounting for about 70% of
> GDP. In other words it does not export a lot of manufactured goods.
> As yesterdays result clearly showed things are on the mend, so I
> would expect the employment situation to get a lot better from here
> on in. Unless I am mistaken, consumer confidence should show a more
> positive result today.
The losers:
Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Mining; Public Administration; Other Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Information; Management of Companies & Support Services; Finance & Insurance; Educational Services; and Transportation & Warehousing.
Just because something is above the magic '50' mark doesn't mean all is well.
The 70% of the economy (the consumer), is in debt, out of work, worried about keeping their job or buckling down for a nasty winter.
They only come out when free money gets injected into the system, and thus stupidly lured into more debt (cash for clunkers).
On Oct 06 08:51 AM rick12345 wrote:
> The USA has a services based economy, accounting for about 70% of
> GDP. In other words it does not export a lot of manufactured goods.
> As yesterdays result clearly showed things are on the mend, so I
> would expect the employment situation to get a lot better from here
> on in. Unless I am mistaken, consumer confidence should show a more
> positive result today.
On Oct 06 07:10 AM tedstr wrote:
> This is not so complicated folks. The social change that is happening
> is that the dual income home is fading. More women are finding that
> they do not need or want to work as much. Some men are finding they
> do not need or want to work as much. Some of this takes the form
> of early retirement. Some is just moms staying home. Some is discouragement,
> some is just making choices.
>
> To be sure unemploymnent is high, but not all of the non-employment
> seeking workers are still discouraged workers. This is a very significant
> social change that will have profound effects on consumption and
> savings for the next generation.
>
> The past 25 years of runaway consumption in the US was fueled by
> the two income home and disproportionate wealth in the upper middle
> class (ie "mass affluence"). This will be replaced by increasing
> hourly wages for a reduced labor force, reduced consumption and increased
> savings rate.
Now imagine a different situation where the woman has spent all her gold living frivolously. And after realizing all her money is gone, she issues paper notes to the producers, so she can still get useful things from them. Perhaps at first, the woman's paper notes are accepted, but eventually the producers will realize the true value of those notes. And since there is nothing that the woman is giving them in exchange for their useful products made from hard work, they will begin to decline the woman's paper notes.
That old woman is US. The useful producers are foreign nations which still manufacture things.
I do like your analogy, too bad most people don't have a clue.
On Oct 06 02:35 PM Gedankonomist wrote:
> Imagine you have a small village where everyone manufactures useful
> items, and exchanges them with some medium--say gold coins, with
> one exception; there's an old woman living at the village who was
> once productive, but is now retired. But since she has gold which
> she accumulated from her hard work, and gold is accepted as wealth,
> she is able to exchange her wealth for useful goods produced by people
> still doing useful work.
>
> Now imagine a different situation where the woman has spent all her
> gold living frivolously. And after realizing all her money is gone,
> she issues paper notes to the producers, so she can still get useful
> things from them. Perhaps at first, the woman's paper notes are
> accepted, but eventually the producers will realize the true value
> of those notes. And since there is nothing that the woman is giving
> them in exchange for their useful products made from hard work, they
> will begin to decline the woman's paper notes.
>
> That old woman is US. The useful producers are foreign nations which
> still manufacture things.
Clearly, our officials and press are sticking their heads in sand, or are trying not to stir up a mass panic.
just keep this coming. i am going to jump on this wagon again this weekend. keep approaching this topic from as many directions as possible to demonstrate how screwed up this unemployment number is which we are relying upon.
i am truly concerned in this age of globalization, that we will start exporting more and more of our service sector jobs. between automation and moving jobs overseas, we have wiped out our manufacturing workforce.
call centers moved overseas. maybe we can see a doctor in india on the internet (or just go to overseas for health care). no more cashiers in supermarkets. robots to clean offices. labor is so expensive we are redesigning our lives to do without labor.
i am going to add my name to your list of commenters which believe we have hit the labor tipping point. we are having a collision between costs and automation. i cannot envision employment growing more than 1%.
we may be screwed.