Unemployment in Uncharted Territory

by: Tom Lindmark

You have already seen the numbers, weekly unemployment insurance claims increased by 25,000 to 429,000 according to the DOL. Increasing claims over the past couple of weeks have pushed the 4-week moving average back over 400,000. The economy is doing a poor job of treading water.

So, let’s take a look at what might well be a much more disturbing trend. It’s been talked about in fits and starts but mostly it’s the sort of thing that no one wants to acknowledge, sort of divert one’s eyes from and move onto more tractable problems. I’m speaking specifically about the long-term unemployment situation.

This chart was published on the Economist Free Exchange blog this morning.

It’s pretty clear that the US finds itself in uncharted territory. The author of the Economist post points out rightly that joining us in this misery have been Spain and Ireland. He speculates, perhaps not unreasonably, that each country experienced epic property busts which might explain the change in long-term unemployment, and offers that falling unit labor costs in these countries might help alleviate the pain. Cold comfort but probably a realistic assessment, to a point.

Let me add a thought or two.

First, it seems that we might be finding ourselves becoming much more like European countries than we suspect. Note how many countries experienced negligible increases in LTU despite suffering mightily. By and large they tend to be countries with high structural unemployment as well as safety nets that provide a level of comfort for those unable to find employment.

Second, the US is woefully unprepared to deal with this problem. For example:

Roughly 1 million people in the U.S. were unable to find work after exhausting their unemployment benefits over the past year, Labor Department data released Thursday suggest.

Economists said the back-of-the-envelope calculation is yet another sign that the labor market remains weak.

About 8.2 million idled workers were receiving unemployment benefits as of the week ended April 9, the Labor Department said in its weekly jobless claims report. This compares with about 10.5 million individuals at the same time last year, resulting in a decline of roughly 2.3 million people.

The federal government estimates that the economy created 1.3 million jobs during the 12 months ended in March.

“That leaves, roughly speaking, about 1 million people who have exhausted their unemployment benefits and have very likely not yet found a job,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.

But Nicholas Tenev of Barclays Capital said a precise figure is hard to calculate. He estimated the labor force has shrunk by 638,000 since March of last year, largely because of a demographic shift as baby boomers retire.

“While we don’t have an estimate of our own of how many people have exhausted all their benefits and are unable to find work, 1 million sounds high to me,” Tenev said.

Save for food stamps and a few other support programs, this group of Americans are most likely leading lives that they couldn’t have imagined. As an aside, I’m relatively certain that an unemployed Boomer pushed into early retirement will not be comforted by knowing she is part of a “demographic shift.”

So, we have a large group of people willing and wanting to work for which no jobs exist. Fiscal stimulus and extreme Federal Reserve monetary measures have failed to make a dent in the problem which of course leaves the private sector as the ultimate solution. What are they up to?

U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization’s effect on the U.S. economy.

The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That’s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad.

In all, U.S. multinationals employed 21.1 million people at home in 2009 and 10.3 million elsewhere, including increasing numbers of higher-skilled foreign workers.

Oops, doesn’t look like our salvation lies there.

If you can’t see the makings of one big political issue here then you have your head in the sand. I know not which party is going to try and exploit this issue. Right now they both seem to want to ignore it. I do know that there are an awful lot of Americans who don’t live in Washington or New York who live these statistics. If they haven’t been laid off they probably have seen some sort of cut in their compensation and they certainly know someone who is worse off then they are. They are scared and scared voters tend to sign onto radical solutions.