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The Senate voted down the American Workers, State, and Business Relief Act of 2010, 57 to 41 (see an earlier version of the CBO's estimate here (pdf) for a breakdown of the Bill). The emergency extensions to weekly unemployment benefits will now expire, leaving many without government support as the labor market improves at snail speed.

Those who support the Bill claim that benefits prop up consumer spending. It is true, that unemployment benefits payments are more likely to be spent rather than saved. However, the latest version of the Bill (pdf) allocated about $35 billion to benefits, just 0.34% of consumer spending in Q1 2010. Consequently, the direct impact on consumer spending of extending the benefits would have been small. (The provisions of the Bill in full would have quickened the recovery, according to David Resler at Nomura.)

Those who oppose the Bill claim that extending the benefits only increases the duration of unemployment - in May 2010 median duration was 23.2 weeks, its highest level since 1967. This is a weak argument when 7.4 million jobs, near 6% of the current payroll, have been lost since the onset of the recession (this is a cumulative number, which includes the gains since January 2010). The bulk of the unemployed would likely jump at an opportunity to work rather than live on benefits.

One way or another the government will plug the hole that is private spending. And the government will find this out the easy way (expansionary fiscal policy) or the hard way (perpetual deficits that result from weak private-sector tax revenue). Apparently it's going to be the hard way.

At 9.7% unemployment, isn't it obvious that Congress is not "spending" enough?

Click to enlarge
The chart illustrates the Nairu-implied level of unemployment (NAIRU, or the nonaccelerating inflation rate of unemployment) versus the measured rate of unemployment. The concept of NAIRU is limiting in that it inherently binds fiscal policy and is a theoretical notion at best; but it does present a baseline for comparison. The Nairu-implied level of unemployment is simply the CBO's estimate of NAIRU multiplied by the current labor force. Let's call points when the current level of unemployment is above the NAIRU-implied level as cyclical surplus of workers.

According to this measure of worker surplus, the state of the labor market is obvious: depressed. The NAIRU-implied level of unemployment is half of that currently measured by the BLS with a record wedge between the two. Furthermore, the cyclical surplus of workers in '82-'83 - the last time the unemployment rate peaked above 10% - was relatively mild compared to current conditions.

By failing to pass this Bill, the Senate reiterated its unwillingness to support the US labor market. Of course benefits are not the answer - we need a comprehensive jobs Bill to mitigate the consequences of such a depressed labor market. (There was a good article on the longer term unemployment problem at the Curious Capitalist some months back.)

Source: Another Blow to the U.S. Labor Force