It's Hot Outside but Cold in the Job Market
Sweltering DC humidity arrived on schedule this morning, but it brought with it a truly lousy jobs report. I give the full low-down here, but the punchline is that the unemployment rate leapt up a big half-percent in May, from 5% to 5.5%, the largest monthly increase since the mid-1980s, and the highest unemployment rate since late 2004. Payrolls contracted for the fifth month in a row, down 49,000, led by job losses in most industries, including construction, factories, offices, and retailers.
If you insist, you can bring these gloomy data to bear on the recession question ("are we or aren't we in one?"). In fact, since the 1950s, whenever payrolls have reversed course like this, the period has ultimately been dated as a recession. But there are many other indicators out recently that have been more ambiguous--stuff like factory orders, core capital goods, and even the first quarter GDP report, which showed the economy growing around 1%.
But at this point, forgive me if I submit that the recession question is almost wholly uninteresting. The economy may be doing better than expected, but a) it's demonstrably growing too slowly to prevent unemployment from climbing, and b) it's failing to generate the income growth folks need to keep their living standards from sliding. One of the most important numbers in today's report shows weekly earnings growing 3.2%, reflecting both slower hourly wage growth and diminished weekly hours. That's well below the rate of inflation, which has been trending around 4%, so most workers' buying power is on the wane, and has been for the past seven months.
In other words, to claim the economy is doing okay right now, you just have to ignore the people in it.
Be forewarned, there are those that will try to dismiss May's unemployment spike, arguing that it was mostly driven by teens. That's wrong. The adult rate was up from 4.5% to 4.8%, also a big spike, and various older groups of workers took a hit too. For example, the jobless rate for women, 25-54, was up 0.4% almost as much as the overall rise.
But even if the unemployment spike were mostly among young people, why should we discount it? If they're flooding the summer job market and not finding jobs, that's a problem too.
A better discounting argument is that you shouldn't build too much into a monthly jump like this. But the fact remains that what we're seeing in the job market is perfectly consistent with all the other economic indicators that have been flashing recession for a while now.
The thing to do at this point is to prepare a durable safety net to catch the rising number of persons stuck in unemployment by extending unemployment insurance benefits, as stressed here.
For those hoping the cost of gas might stop it's upward climb, oil is at $138.97 on NYMEX at this time, up over 10% from lows yesterday, on the instability in the MidEast (there are more threats against Iran, this time from Israel) and due to the continued shrinking value of the US dollar. $5+ gas is not too far down the road.
The economy is finally paying the price for the train wreck called the Bush administration, and we may be just in the beginning of the economic meltdown.
June 6, 2008 3:34 PM | Reply | Permalink
Over at the Book Club we've been chatting about the usefulness of historical analogies.
And now, we're saddled with a Fed Chairman who has an historical analogy for every occasion -- as long as the occasion is 1932.
June 6, 2008 4:36 PM | Reply | Permalink
Every time unemployment rises, liberals always propose extending unemployment benefits, and conservatives always resist it. I can understand and appreciate the conservative argument - that you create moral hazard, and may in fact worsen the situation, when you create an incentive for individuals to remain unemployed for longer periods of time - but I confess I don't understand the liberal one other than the purely humanitarian one. Is that the sole reason why liberals are always proposing to extend unemployment insurance? If that is the case, then what is the basis for extending it by only 13 weeks rather than by, say, 20, 30, or 40 weeks? Should there be any limits? And how does the liberal propose to make sure people don't use unemployment insurance as a crutch, rather than for its intended purpose, a temporary and transitional source of income?
June 6, 2008 7:36 PM | Reply | Permalink
Unemployment benefits stimulate consumption, hence production, hence employment. So extending them is good anti-recessionary policy. Capisce?
June 6, 2008 8:11 PM | Reply | Permalink
SqueakyRat,
If the economic goal for extending unemployment benefits is to stimulate the economy, then isn't that goal already being met by the stimulus checks we all received (or are receiving soon)? In general, wouldn't it be better to send a check out to everyone rather than just to those who are unemployment - that is, if the goal is to stimulate the economy?
You also mention the goal of creating jobs, which is great. However, instead of giving the money to unemployed people (who, by definition, aren't terribly capable of creating jobs on their own), wouldn't it be smarter, in an economic sense, to give that money to companies for the purpose of creating jobs? Or even for the government to spend the money to create public works jobs? I wouldn't be in favor of that last option, but at least it would seem that the money would be spent more in harmony with the economic goals that you laid out. It would seem to be a more efficient economic expenditure for the money to be spent directly creating jobs, as opposed to giving it to unemployed people who may (or may not) spend the money in a way that may (or may not) lead to more job growth.
June 7, 2008 4:07 AM | Reply | Permalink
The goal is to tide people over until they can find a new job, because most of us think (quite reasonably) that forcing people to liquidate all their assets to cover their expenses during a short period of unemployment (or to live on the street and beg) isn't really a solution that leads to a truly healthy economy or a stable society. The length of the benefit period is based on what our representatives have determined to be a reasonable period to find a job if someone is searching reasonably hard. During periods of high unemployment, jobs take longer to find, so our representatives increase the period allowed.
The moral hazard argument against modest, limited unemployment benefits is absurd, especially in our modern, dynamic economy, where companies rely on the flexibility to reduce and increase labor forces at will in response to market fluctuations. Sure, a few people do abuse the system, but the vast majority of unemployment benefit recipients are very happy to find a new job--and, in fact, do just that. The benefits of the system so greatly outweigh the few negatives that arguments like Chemjeff's rarely advance beyond college dorm rooms.
June 7, 2008 7:38 AM | Reply | Permalink
PurpleState,
First, I must object to your unbalanced comparisons that you make w.r.t. unemployment insurance. You compare the ideal, happy situation in the presence of unemployment benefits (i.e., people using it as intended, as a temporary measure) to a nonideal, dystopian situation in the absence of unemployment benefits (i.e., people starving and begging in the streets). The real situation is not likely to follow these two extremes. I have noticed this is a common rhetorical device that many use, and it's even been given a name: the Fallacy of Asymmetric Idealization.
You say that the benefit length "is based on what our representatives have determined to be a reasonable period to find a job if someone is searching reasonably hard". Do you have any empirical evidence that 13 weeks (the current length) are insufficient? It seems to me that 13 weeks, since it corresponds to one quarter, is a convenient number rather than one based on any empirical data. But, even if we are to assume your premise that 13 weeks is a reasonable amount of time under "normal" circumstances for a person to find a job, wouldn't it make sense, then, in good economic times, to decrease the benefit length? Surely during times of near full employment it shouldn't take an entire 13 weeks to find another job. Yet I never hear this argument made by anyone, liberal or conservative.
Gotta run for now, more on the moral hazard argument in a bit.
June 7, 2008 11:48 AM | Reply | Permalink
Well, let's get some facts straight. In most states the maximum duration of unemployment benefits is 26 weeks, not 13. And the average payment is about 50% of wages while employed. The DOL's statistics show that, on average, people stay on unemployment for about 13 weeks. About one-third of the people who get unemployment benefits stay on them for the full 26 weeks. That means the two-thirds who don't stay on them for the full period average about 6 or 7 weeks on benefits. Obviously, the 26-week increment (and 13 week extensions when they occur) are selected because they are half and quarter years. One could do a study and try to make a more precise estimate of the optimal length of time, but I'm not sure it would be all that helpful. What we know is that with the current system, a very large percentage of the people who qualify for benefits are off them in a matter of two or three months. And the system is not really designed to incent people to get off the benefits as quickly as possible into whatever job is available. It's designed to give the newly unemployed a reasonable chance of finding a job comparable to the one they lost. Some leeway is desirable in this kind of system because forcing an experienced engineer who's laid off to take the first job that opens at McDonalds isn't necessarily the best result if that engineer can get a job in his or her field with just another month or so of searching. (It's also not a good result for the local McDonald's manager who doesn't want to keep hiring and training engineers who leave just a few weeks after they're hired to take "real" jobs.)
Overall, if you look at the actual usage of unemployment benefits, it's hard to say that abuse of the system is rampant (remember, the program provides people with only 50% of their monthly earnings on average, so the benefits aren't that attractive). This isn't to say there is no abuse--but separating the abusers from the legitimate users would probably require a whole army of bureaucrats and lawyers. Given the apparently low level of abuse, that seems like a silly waste of time and taxpayer money.
Two few other points:
1. Fallacy of Asymmetric Idealization or not, a lot of people would indeed be driven into bankruptcy without these benefits. Too many Americans exist right on the edge of bankruptcy, and a few months' loss of income can destroy them. Many of these people are married with children to support. The social costs of not providing unemployment benefits are highly significant. I don't have proof of this, but I'm going to take a wild guess and say the economic and social costs of letting a significant number of people fall into bankruptcy because of unemployment are greater than the cost of the abuse of the current unemployment system. Even if it isn't greater, I'm willing to tolerate the economic inefficiency because I think it's the right thing to do. Abolishing charity for those who need it to avoid the moral hazard for those who don't is a strange type of morality indeed.
2. Decreasing the 26 week period during good economic times would make sense if we were being silly and trying to precisely match the average length of time it takes to find a job in every economic period. But the system isn't designed to do that. It's designed to provide a reasonable amount of time for a person to find a job in good to average economic conditions. In good economic times, the system tends to self-adjust. In fact, the data show that the average length of time that people spend on benefits declines by a week or two during periods of lower unemployment. Similarly, in periods of high unemployment, the average duration of benefits increases. During recessions, however, a lot more people start hitting the 26-week maximum. That's when pressure grows to extend the maximum for another period (and 13 weeks is a convenient length of time, which is as good as any other, since we can't predict exactly how long the recession will last and how long extra benefits will be needed). I guess we could refuse to the extend the benefit period and let a bunch of unemployed people go bankrupt. But that seems like a bad policy during a recession--likely to make the recession even worse--and therefore creating an even bigger unemployment problem. Personally, I don't think wiping out a bit of moral hazard is worth the cost. But then, I guess I'm not such a prig as some.
June 7, 2008 1:05 PM | Reply | Permalink
Purple State,
Also, thanks for engaging me in this discussion. Thanks also for correcting my factual errors, yes it is 26 weeks not 13. And before we declare that abuse of the system is "minimal", it would be nice to have some data to back up this claim. Also keep in mind that abuse of the system can also be made on the part of employers, who treat unemployment insurance like severance pay. I don't think that is particularly honorable either.
And the point of the Fallacy of Asymmetric Idealization is that if we are to compare the consequences of a decision, we should consider the likely consequences, not the most absurd, extreme consequences that we can dream up. If unemployment benefits were not extended, would there be some increase in bankruptcy? Perhaps. But, would there also be more people who would take advantage of the benefits instead of looking for a job? Perhaps as well. What are the costs to the economy of the additional bankruptcies vs. the costs to the economy of the lost employment? I would also add: what are the moral costs of not preventing additional bankruptcies vs. paying people not to work? Nothing is cost free.
June 7, 2008 6:29 PM | Reply | Permalink
Chemjeff...
You and I both have the same problem, since the data I would need to prove that abuse is minimal would be the same data you would need to demonstrate that moral hazard actually is at work to any significant degree.
What we do know, is that the vast majority of recipients of UI benefits do not use them for very long, just a month or two. The fact that payments are very low pretty much prevents much of the moral hazard you fear--regardless of whether the benefit period is the normal 26 months or the extended 39 month period. Most people can't afford to live on UI payments for very long, so even if they are abusing the system by delaying going back to work a bit, they probably can't afford to continue their abuse for more than a few weeks.
I also don't believe employers are prone to abusing UI. They pay the taxes that fund the insurance and in most states I believe their rates go up with the number of their ex-employees that file claims for benefits. Employers in certain industries (like construction) where seasonal layoffs are common also pay higher tax rates in most states.
I imagine neither of us can provide a cost-benefit analysis to determine conclusively whether extending unemployment benefits has higher net utility than not extending them (or vice versa). I can say with confidence, though, that during recessions, there are a comparatively large number of people who really do want jobs who can't find them. I'm willing to risk a few abusers to help these good citizens get through their difficulties. In general, I think, we want to support the people doing the right thing (looking for a job) more than we want to punish those doing the wrong thing (being lazy). So not having a definite answer whether extending benefits is cost-effective or not, I'd err in favor of extending on the assumption that helping the good is more admirable than punishing the bad.
June 7, 2008 11:52 PM | Reply | Permalink
Re: I can understand and appreciate the conservative argument - that you create moral hazard, and may in fact worsen the situation
Anyone who has ever collected unemployment knows that this is a howling absurdity. While the limit varies by state, the most you can collect is between $1000 and $1200 a month (and no health benefits of course). That's poverty level wages. No one, I repeat, no one is going to dally about getting another job for that meager pay. Living off unemployment is a quick road to foreclosure, eviction and bankruptcy.
June 6, 2008 9:08 PM | Reply | Permalink
JonF311,
Who says that an unemployed person receiving unemployment benefits is living solely on those benefits? The person may be part of a double-income household. The income from the job that was lost may have only been supplemental income and hence may not be terribly missed that much. And, let's face it, the job that was lost may have been only a minimum wage job in the first place, so the unemployment benefits, as meager as they are, may be a somewhat adequate substitute for the lost income. Extending unemployment benefits will aid all of these people as well, along with the archetypal working-class-single-mom-living-on-one-income-who-can't-find-another-job-right-away-and-has-no-choice-but-to-live-on-unemployment-benefits-for-a-while.
And none of this addresses the moral hazard question: should government be paying people, effectively, not to work, even if it is a small amount, and even if it is for a limited amount of time? How can the moral damage of this policy be ameliorated?
June 7, 2008 4:24 AM | Reply | Permalink
Do you have any empirical data that shows the moral hazard issue is in any way significant or are you just talking out your ass?
June 7, 2008 7:41 AM | Reply | Permalink
Re: Who says that an unemployed person receiving unemployment benefits is living solely on those benefits?
What else are they living off of? Drug money? Sure some people may have a working spouse, or income from rental property or investments. But even if that's true they had that income before they were unemployed and any way you cut it their cash flow has taken a major hit. I repeat: except in very exceptional cicrumstances involving people who didn't really need to work to start with, no one malingers on unemployment. It just doesn't pay enough! So dump the ideological blinders and try using common sense.
re: And, let's face it, the job that was lost may have been only a minimum wage job in the first place, so the unemployment benefits, as meager as they are, may be a somewhat adequate substitute for the lost income.
If that's the case then the benefits would be much smaller than the maximum. I guess I'm posting to someone who has never had any contact whatsoever with the unemployment system?
Re: And none of this addresses the moral hazard question: should government be paying people, effectively, not to work, even if it is a small amount, and even if it is for a limited amount of time?
Yes, and for several reasons:
1. It's good for the economy, helping to prevent recessions from spiraling down into depressons
2. It's good for the political economy as well, preventing recessions from generating violence and revolt (or worse, something like a fascist or socialist dictatorship)
3. The money is not coming out of thin air: it was paid into a fund on behalf of the employee by the employer (ultimately it represents deferred compensation).
4. Often enough it's the govermment's own policies which have resulted in unemployment. As long as the Fed frets over the inflation rate (granted they haven't done much of that lately) and sees increasing unemployment as a remedy for inflation, then the government damn well should be ameliorating the harm it is causing.
Re: How can the moral damage of this policy be ameliorated?
You and I do not inhabit the same universe. I don't even see that there is "moral damage", though there may be "morale damage" from unemployment itself. Again, I am forced to conclude that you have zero real-life experience in this area. I have. My morals did just fine while I was unemplpyment: continued going to church, being nice to little old ladies and kittens, etc.
June 7, 2008 9:02 PM | Reply | Permalink
I am not going to pretend that the economy is doing well. But something was seriously wrong with this employment report. Fewer jobs were lost than expected and wages growth was higher than predicted.
What grew the unemployment number was a lot of people who entered the job market. A good number of these were high school and college students. Some others might have been stay-at-home moms who now need a job to offset rising gas prices.
There seems to be a huge difference between people entering the market because they lost their job and people entering the market after sitting out for a while. Before everyone starts screaming that the sky is falling they should probably wait until next month before making any conclusions. If these new job seekers are still unemployed next month the we can say the economy is struggling.
June 6, 2008 9:59 PM | Reply | Permalink
The American economy has lost jobs every month for the last five months. If the American economy isn't generating 100,000 new jobs every month it is losing ground.
June 7, 2008 1:12 AM | Reply | Permalink
"... the largest monthly increase since the mid-1980s," ay?
Who was in the White House and what were the key reasons for it then?
Just curious.
June 6, 2008 11:51 PM | Reply | Permalink
I heard the President say the jump in the unemployment rate is because a lot of kids graduated. If the President said it, it has go to be true. Right?
Kids graduate every spring, and winter for that matter, so the jump in the demand for jobs is to be expected right. The fact is every spring a lot of those kids start off with seasonal jobs. This season those jobs just aren't there. It's not that we have too many teenagers and young adults, it is we don't have anything for them to do.
I have got an idea, why don't we start rebuilding our energy and transportation infrastructure? Hummm. That would put the new kids to work.
June 7, 2008 1:08 AM | Reply | Permalink
After seven year of the fascists in the Bush government robbing from poor and middle class American to feed the superrich and the fiends, criminals, and wanton profiteers in the predator class, there is no hope for job security, or decent wages, or employment opportunities. The predator class will gleefully hire illegal aliens to work as carpenters or masons, or job off all our tech service jobs to India or China, and leave Americans wanting and un or underemployed, while funnelling billions of dollars into off shore bank accounts to avoid tax liability, and engorging their own personal wealth.
The issue is not extending unemployment benefits, although that policy would be welcomed by the millions of Americans cast overboard by the fascists in the Bush government and their minions in the predator class, - but providing decent employment opportunities at livable wages to hard working Americans.
What exactly are American workers expected to "tranistion" to chemjeff? McDonalds? Burger King? Baby sitting? Lawn mowing? What jobs can Americans hope to possibly transition to, and at what wages, and with what security?
American labor is dead. There is no bargaining power, there are no decent jobs, and there is no hope until and unless the American people defang and dethrone the fascists in the Bush government and the rank appeaser and Bush government excuser and defender McCain who systemically rob from poor and middle class Americans to feed the superrich and the fiends, criminals, and wanton profiteers in the predator class.
June 7, 2008 3:32 AM | Reply | Permalink
TonyForesta,
Thank you for illustrating the typical response that I tend to get from the left side of the aisle whenever I bring up my opposition to extending unemployment benefits. It is either "there are no jobs anyway so this is the only way people can make it" or "you are a heartless bastard". None of this, of course, adds to the discussion, because there are jobs of all types everywhere and questioning the economic wisdom of perpetually extending unemployment benefits doesn't make one a heartless bastard - it makes one a wise steward of scarce public monies. Oh, and before you again use the term "fascists" to describe George Bush and Republicans, you may want to check out Jonah Goldberg's book "Liberal Fascism". It is quite illuminating.
June 7, 2008 4:28 AM | Reply | Permalink
It is true, of course, chemjeff, you are a heartless bastard who has never been out of work. Nobody, and I mean nobody, elects to stay on unemployment a minute longer than necessary. Unemployment just doesn't pay that well. It drains your soul.
The solution to unemployment is more jobs. The solution to the lack of jobs is for rich folks like you to start hiring Americans.
If you want to remain a heartless bastard free to continue spouting your unsubstantiated conservative dogma tell your boards of directors to stop sending jobs overseas and start creating them here. You might tell them to get out of finance and back into building stuff.
Oh, a lot of us think it is unAmerican for you to be a heartless bastard.
June 7, 2008 8:31 AM | Reply | Permalink
Ronbyers,
Your screed represents, approximately, the 4,927th time that my patriotism has been questioned by a liberal. But, as a conservative, I dare not question the patriotism of any liberal. Got it - patriotism for thee but not for me.
June 7, 2008 11:50 AM | Reply | Permalink
Now you know how I feel. For 20 years Republicans like you have been questioning the patriotism of progressive and even moderate Americans. It feels nice to turn the meaningless insult around on one of you elitists.
Now I notice you have done nothing to support your "moral hazard" argument except appeal to what you claim is obvious. I guess the folks around here think your idea of "obvious" reflects your profound inexperience with real life.
Nobody wants to extend unemployment forever. They want to extend it to fit the current need. Except for trust fund babies finding a job that pays an adequate wage is increasingly difficult.
June 9, 2008 8:08 AM | Reply | Permalink
But, but, but Jared, the fundamentals of our economy are strong.
June 7, 2008 12:26 PM | Reply | Permalink
chemjeff says"
"None of this, of course, adds to the discussion, because there are jobs of all types everywhere and questioning the economic wisdom of perpetually extending unemployment benefits..."
Name me two people who want to perpetually extend unemployment benefits.
June 7, 2008 12:29 PM | Reply | Permalink
chemjeff says;
"Oh, and before you again use the term "fascists" to describe George Bush and Republicans, you may want to check out Jonah Goldberg's book "Liberal Fascism". It is quite illuminating."
Jonah Goldberg, heh heh heh, a mile wide and an inch deep.
Try to find the tape of Goldberg appearing on The Daily Show. John Stewart raped him and his book, he had Goldberg sputtering.
Jonah Goldberg, heh heh heh.
June 7, 2008 12:36 PM | Reply | Permalink
Re: What jobs can Americans hope to possibly transition to, and at what wages, and with what security?
There are still plenty of decent jobs out there, the problem is there is a serious lack of such jobs for the whole bottom half of the economy. And no, college is not the answer: many of these people simply have no aptitude for or interest in college. Used to be they could be hired for unionized manufacturing (construction etc.) jobs. Now, very few of those jobs exist. I realize that on a blog like this we have mostly educated and middle to upper middle class readers who are going to put their own issues first, but on the jobs issue I would suggest we look beyond the mild cold our class is suffering, and see the pneumonia that is raging several rungs down the economic ladder.
June 9, 2008 9:48 PM | Reply | Permalink
After 8 years of the lies, corruption and incompetence of the Bush administration, self-confessed 'conservative' Americans, through their backing of Bush, can be excused from making judgments on 'moral hazards'.
June 7, 2008 2:22 PM | Reply | Permalink