Monday, May 9, 2011

The Disillusioned Reality of U. S. Unemployment

News reports continue today on the "positive", "encouraging",  "better than expected", "stunningly strong" U. S. jobs report last week, because it reported a net gain of 244,000 jobs in April seasonally adjusted.  Bottom line, the job gains were more than expected, but they, at best, are only just providing for the jobs needed to meet population growth.  It does not seem to make any difference how many accurate evaluations of the U.S. Jobs Report are done, particularly by Calculated Risk, the news media keeps pumping, for instance today, how this "encouraging" jobs reports is spurring a commodities rally in Asia and the U.S., as if the commodities sell off last week would not, in itself, provide the stage for a rally attempt at the beginning of a new week..



In order to start making a dent in the continued high unemployment which went up two tenths to 9.0% (13.7 million), the monthly jobs gain needs to be at least 350,000 and should, for recovery purposes, be over 400,000 minimum per month.  Even at the latter rate it would still take five or more years to fully recover to pre-financial crisis employment levels.  Those unemployed for less than five weeks increased 242,000, while those unemployed more than 27 weeks and still receiving benefits declined 283,000 to 5.3 million.

The participation rate (employed or unemployed and looking for work) remained unchanged at 64.2%, which is a 25 year low and below the average of 67%, for the fourth month.  The employment-population ratio was 58.4%.  The involuntary part-time workers was little unchanged at 8.6 million.  (See charts.)  Total unemployed including discouraged workers was officially up 2 tenths to 15.9%.  If one used the 1994 methodology for calculating total unemployment including discouraged workers, it would be approximately 22.3% rather the current 15.9%.  This employment recession is the worst since World war II in percentage terms and the 2nd worst in unemployment rate (the 1980's had a peak of 10.8%).

While the employment gains cut across the different segments of the private sector (temporary jobs and government did not increase), they were not high paying jobs.  Despite the increase in private employment, the work week was unchanged with aggregate hours only increasing two tenths of a percent to 100.7 and average hourly earning increased only 5 cents (two tenths of percent) to $19.37.

Doug Short at dshort.com has a monthly update (the content of the update changes monthly but the html address does not --- I urge you to visit his website) on the jobs report which contained these three graphs:

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In reference to this last graph, Doug Short said, "The inverse correlation between the two series is obvious. We can also see the accelerating growth of two-income households in the early 1980's. The recent ratio low of 58.2% in November 2010 and December 2009 was a level not seen since August 1983. In fact, those recent lows were almost back to the 58.1% ratio of March 1953, when Eisenhower was president, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio, for April 2011, is 58.4%, down 0.1% from last month."

If the truth be told Wall Street and corporate America profit from high unemployment, because it keeps wage increases down and boosts earnings margins.  Despite the Fed's dual mandate, high unemployment also keeps the Fed on the sidelines, because it aids in keeping inflation and interest rates low.  However much we blame the Fed for continued high unemployment, the Fed cannot significantly attack unemployment without effective application of governmental fiscal policy.  For over two years, I and many others have been adamant that the economic stimulus, which has since ended, was too little, not long enough in duration, and not focused on creating employment.

With respect to the current Administration, it has failed the American people by not tackling continued high unemployment, while throwing regulatory privileges and money at the corporate and financial sectors.  We need a second, more focused economic stimulus to create jobs and reduce continued high unemployment to sustained economic recovery and renewed growth.  As Marshall Auerback has recently advocated , we need a new, modern Job Guarantee program.  If we do not, we risk high unemployment becoming entrenched.  At present, the unemployment problem is obviously cyclical and not structural (although I would argue, if the data existed, those over 55 years old and unemployed are least likely to be re-employed, if ever, in positions consistent with their education, experience, and current skills).  Unemployment in early career for young people will fundamentally limit their lifetime earnings ability and income.  As the Australian economist Bill Mitchell has written and argued, full employment can be achieved without setting off inflation and at any level of aggregate demand.  The choice is clear: support the corruption of corporatism and slow growth flirting with stagnation and potential double dip spawned by the next financial sector crisis or sustained economic growth with full employment and individual freedom. 



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