Bloomberg: Discouarged Workers Complicate Fed's Response to Jobless Fall

By @ibtimes on

One area this website, and a few others in the blogosphere, have been highlighting the past year is the decrease in the labor force participation rate.  This reduction has helped the unemployment rate drop sharply the past 4 months - indeed, in a piece of irony, a more healthy job market SHOULD bring a temporary higher unemployment rate as more people come off the sidelines and re-enter the job search market. 

We are now over 2 years since the months where the U.S. had the most traumatic job losses in winter 2008-2009  (i.e. January 2009 around 700K), and any of those people who have not found work are certainly out of unemployment benefits and lost somewhere in the system.  Also recall, if you are not actively searching for work for four weeks in America - you no longer are unemployed.

That said, it has been a mystery as to where so many working age Americans have disappeared to (well in excess of 2M) - only part of that could be explained by going back to school or 'early (forced) retirement'.  We did discover last week some half a million Americans in 2010 alone joined the disability rolls [Apr 7, 2011: Nearly 1 in 20 Working Age Americans are on Disability] and 2009 seems to have printed a similar number.  So that might explain where 1M people 'disappeared' to.  Whatever the case the unemployment RATE (which like almost all U.S. statistical measures, has been massaged sunny side up versus how it used to be measured in the 1980s and early 1990s - I've estimated it's about a 4% variance as measured versus 1980s), is not telling us the whole story - as this report in Bloomberg expands on.

  • The sharpest drop in unemployment in more than a quarter century obscures a simple fact: The jobs market still isn’t working for many Americans.  Some 6.3 million people have been out of work and looking for a job for more than six months. The employment-to-population ratio is lower than it was when the recession ended as companies have been slow to add to payrolls. And big sources of hiring in the past -- government, health care and retailing -- may not be able to reprise that role in the future as lawmakers limit outlays and consumers curb spending. 

Mark's note - This chart is about 18 months old, but it shows you how the public sector and what I call pseudo public (healthcare - dependent on Medicare, Medicaid... and education - dependent on property taxes) have driven all the job growth in the country)

  • “The trends are a little bit scary,” said Nobel laureate Michael Spence, a professor at New York University. “There’s been a break in an important part of the social contract” for many Americans who are finding they can’t get ahead.
  • Mixed messages from the jobs numbers make decisions more difficult for Federal Reserve Chairman Ben S. Bernanke and his central bank colleagues as they wrestle over monetary policy.  Rising prices and falling unemployment -- the jobless rate dropped to 8.8 percent in March from 9.8 percent in November, the biggest four-month decline since 1983 -- suggest that the Fed should raise rates from near zero later this year to keep inflation in check, according to Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities in New York.
  • The ratio of people employed to the population stood at 58.5 percent in March, down 0.8 percentage point from July 2009 when the recovery began and up just 0.3 point from a 27-year low of 58.2 percent in November 2010, according to data from the Labor Department.  The ratio is a better measure of the jobs market because, unlike the unemployment rate, it isn’t affected by changes in the size of the labor force.
  • The employment-to-population ratio in the last expansion, which began in 2002, never reached the 64.7 percent peak it attained in 2000 during the previous upturn. 
  • About half of the fall in the jobless rate during the last four months was caused by Americans who gave up looking for work and left the labor force -- a development that he said isn’t something to welcome. “It’s people getting so discouraged that they’re dropping out,” said Leamer, who is also director of UCLA Anderson Forecast.
  • That number may grow later this year as extended government unemployment benefits run out, Krueger added. To collect those benefits, the jobless must show that they are searching for work, and the longer people are without a job, the less time they spend looking, according to a study of 6,025 unemployed that Krueger conducted with Andreas Mueller of Stockholm University in 2009 and 2010.
  • Some 45.5 percent of those classified by the Labor Department as jobless in March had been without work for more than six months, just off the record high of 45.6 percent set in May last year.
  • Rising income inequality and sluggish wage growth during the last expansion also suggest that the labor market’s troubles are ingrained, Spence said. Average hourly earnings showed little growth from 2002 to 2007 when adjusted for inflation.  (we've obviously been talking about this for years on end)   [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?
  • Economists posit a variety of reasons for the dysfunction. Spence attributes it partly to globalization, as China and other emerging markets take work Americans once did. Leamer points to technology, with machines replacing people in the production process. [Mar 28, 2011: Productivity - (Wo)Man v Machine

Very important comments here - essentially the few areas of job growth in the U.S. the past few decades are those that the global labor arbitrage pool with a few hundred million new workers coming online, can't compete with.  i.e. that Chinese migrant worker, can't cut your hair.

  • The challenges facing the U.S. involve both the quality and quantity of jobs created, Spence said. A study he did with NYU researcher Sandile Hlatshwayo showed that virtually all of the growth in employment between 1990 and 2008 was in the nontradable sector of the economy, which isn’t subject to international competition. Government and health care together accounted for almost 40 percent of the jobs added. 
  • The result, according to the paper: growing income inequality as many of the jobs the U.S. created were low-paying ones that added limited value.    “The American dream is being seriously tested right now,” Leamer said. “It’s an emergency for the middle class.”

Cursory anecdotal example to finish the piece.

  • Gwen Robbins, a 61-year-old resident of Savannah, Georgia, is a self-styled 99er, so called because her 99 weeks of employment benefits ran out in January. Robbins, an office manager until December 2008, said she’s “applied for probably close to 400 jobs” since then.“I’m giving up on the private sector,” said Robbins, when asked if she’s continuing her search. Many companies seem more interested in hiring younger applicants, she said, adding that she now is seeking public-sector work with the city.
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