A Mountain of Unemployment

August 10th, 2011 at 9:14 am

Sometimes it’s useful to look at something in a different way—maybe you’ll shake loose a new idea.

The picture below breaks the unemployment rate down into three flows into joblessness:

–employment to unemployment: lose your job, start looking for a new one;

–out of the labor force to unemployment: remember, you’re only counted among the unemployed if you’re actively looking for work.  So this category counts folks who formally gave up looking but are now trying again, as well as new entrants;

–unemployment to unemployment: not really a flow—just means you’re stuck there.

Source: BLS

Unsurprisingly, the largest contributor to the overall rate is unemp-to-unemp.  The lack of job creation has meant millions stuck in long-term unemployment.  In the last employment report, 44% of the 14 million unemployed had been seeking work for at least half-a-year.

Flows from job losses into unemployment have been pretty steady.  This is consistent with other evidence that our problem is not coming from layoffs as much as from weak job growth.

There has been a little bump up in the flow from out-of-the-labor-force to unemployment.  It’s small, so don’t want to read too much into it, but it’s important, because the share of the population in the labor force—either working or looking for work—is way down, as lots of folks have given up looking in such a weak job market.  If they start coming back, and presumably, many can only stay out for so long, that part of the mountain will grow, and that means we’ll need more jobs to get the overall rate down.

So, what are the policy implications of this?

Clearly, we need to lower the budget deficit and cut, cut, cut!!  Kidding…sorry…gallows humor.

The big non-flow component—unemp-to-unemp—implies the need to extend Unemployment Insurance benefits for at least another year.

The possibility that more folks are entering the workforce and falling right into unemployment, along with the big red chunk just discussed suggests that maybe a new jobs tax credit could be helpful right now.

The idea here is to give employers a tax credit when they hire a new worker, as opposed to the much broader approach of something like a payroll tax credit (which is a credit for all employees, new and old).  The new jobs credit is designed to give those employers considering a new hire an incentive to pull the trigger.

Of course, the credit won’t help much if demand is so weak that employers simply won’t hire, even if we make it cheaper for them.  Here again, more direct hiring programs, like FAST! can help.  Also, UI benefits have a relatively large multiplier, so you actually scratch of couple of itches by extending those benefits.

For the record, I’m well aware that this is all very analytical and logical in a world that is not particularly welcoming to such logic right now.  But I plan to continue calmly proceeding down the eightfold path of enlightenment, asking others to join me along the way.  It’s the best plan I know.

Update: Some folks have asked for the underlying data: here they are.  And here’s an article from Randy Ilg of BLS that provides information about the underlying data source.

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19 comments in reply to "A Mountain of Unemployment"

  1. Sanchit Kumar says:

    That’s really interesting. I’d always assumed that the onset of the recession increased the rate of separations – after all, we’d been talking about collapse of construction, demand losses, businesses firing zero MP workers, etc. If that interpretation was correct, I would have expected a sharp increase in job losses, not joblessness, cause the problem would have been people getting fired, not unemployment becoming more persistent!

    So I went through the BLS data for seasonal data on job separations, openings, and hires. Surprisingly (for me anyways) I saw what looks like a slight decline in the hiring levels, a huge and very sharp decline in the level of job openings, and an actual decline in level of separations (people getting fired/quitting). I went ahead and did the same thing with rates, and it was the same story, except the decline in hiring rates was comparable to the decline in rates of job openings.

    So, fewer people were getting fired/quitting (putting an arrow through my theory of more people getting fired/quitting), job hiring was falling, and job openings fell, so fewer jobs were on offer.

    That’s pretty much consistent with what your graph; it would explain why even though the number of people getting fired or quitting hasn’t increased a lot, unemployment rose – there were no jobs for people to get!

    Can we mark this as a point against arguments of unemployment being structural? Because in that model, you would expect firings and quits to increase dramatically… yet it didn’t.


  2. David R says:

    Excellent graph and right on point. As the post below points out

    http://dismalpoliticaleconomist.blogspot.com/2011/08/disturbing-picture-of-unemployment-in.html

    unemployment that contains a large component of long term unemployed is extremely bad for an economy.

    In fact a low unemployment rate that is primarily composed of the long term unemployed is worse for a socieity than a higher rate where the unemployment turn over is very high.

    Is anyone other than a few people who don’t seem to have much influence trying to do something about this?


  3. comma1 says:

    I thought recent graduates, or “labor force entrants,” weren’t counted in typical measures of unemployment? Along that line, aren’t they also excluded from unemployment insurance since they would likely not qualify if they were studying (full time)? Aren’t these people also the people whose careers will be most greatly effected by this recession? Aren’t these people also the people who are most likely going to be left horrible financial decisions from the government in coming years? Aren’t these people the least responsible for the economic mess — having neither bought a house nor invested in the stock market? Aren’t these people the ones who are facing the new competition with people in malaysia for jobs that pay 8.00 an hour? Aren’t these the people who are being asked to bail out homeowners by paying inflated rental prices to get rid of the foreclosure glut by renting houses out — thereby reinflating the most disasterous asset bubble in the history of man? All while being told that the key to finding a job is being mobile — the free movement of labor, like capital. Aren’t these people the type who are setting cars on fire in London? Weren’t these the people who decided that Obama would be elected?

    They are, and more unemployment insurance isn’t going to cut it. There is at least a generation of people being sacrificed to the monster at the end of the Cretan Labyrinth that is today’s radicalized Wall St and Constitution ave.

    Direct employment. Double time pay for over time hours. Lengthen the term of home loans to fifty years. Limit hours worked. Create more famaily leave time and sick time. Student loan forgiveness. Community Innovation banks. Angel investor banks — why do we have so much capital chasing such few investments, when so many people need startup funding? A manufacturing dollar. Add a mandatory greening of the houses that are rented out — FAST for rentals — solar panels, etc. Free tuition for high demand jobs… medical and engineering. (Lower the requirements to practice medicine). There should be a renewable energy race to the moon — shut down Nasa if need be to make the point. (People don’t need foam mattresses, they need energy independance).


  4. John B. says:

    This may be a suitable topic under which to mention some concerns I have about the WH stimulus plan pursued in 2009.

    As someone remarked on an NPR program a day or so ago, we can see all around the nation, even today, obvious signs of FDR’s New Deal programs from the 1930s: the bridges, highways, mountain ski lodges, hiking trails, TVA electrical grids, grand painted murals in public places, WPA-sponsored classic books, etc. etc. All things people take pride in even today, a century later.

    But thanks to the “shovel ready” emphasis of the 2009 stimulus there are few if any tangible results evident to the public eye; that is to say, what projects a community may have do not look any different from “normal.” There are so far as I know few or no projects that people can point to and say, as they do about a WPA seawall, “See? That was thanks to FDR.” Under the circumstances it’s almost impossible for the general public to see or appreciate resulting end-signs of the stimulus.

    That is a serious political problem for the president and congressmen who voted for the stimulus. The public can hardly be expected to wildly support large public expenditures on projects that, to the eye, are not readily discernible. Just as “continued joblessness” seems not to be changing, so also “public projects” that were prepared locally and just happened to be “shovel ready” don’t register with the public as a “benefit” when the stimulus money funded them. They seem only to be a continuation of “normal.”

    What’s worse, in localities where “normal” means good ol’ boys with their endlessly self-serving corrupt gamesmanship, it can be worse than a mere continuation. I know of a nearby middle- to upper-income area long held in the grasp of greedy developers and their sycophantic county political retainers. The only openly-identified “stimulus” project the public around here sees is a lowering of one high-income street (call it “Street A”) supposedly to improve drainage during storms for “Street B.”

    Street A residents know that this project assuredly will render their own street more vulnerable during storms. There also is considerable doubt it will improve things for Street B. At best, local consensus is the money will shuffle the drainage problem from “B” to “A.” At worst, it may inundate them both.

    The project was not a-typical for this area. A developer had dreamed it up years ago along with dozens other ideas, some perhaps good and others as idiotic as this one. Many would have been approved, over time, by the local pols in barter for campaign pledges and other favors. This particular “Street A” project was “shovel ready” only in the sense that it was one of many such plans and the contractor had time on its hands and workers who need a job. It’s unlikely it ever would have been done if the times hadn’t soured and someone else (i.e. the Feds) stepped up to pay for it. There simply are too many other better ideas with higher priority but they would have cost a bit more.

    In other words, where I live the stimulus brought to fruition a bad idea that was “shovel ready” but cheaper than better ideas. If it hadn’t been for the stimulus it would have remained “shovel ready” forever. Now, it only is cause for local mirth and the anger of residents on Street A.

    This may not be typical of other communities. I surely hope not. But it helps to underscore what I think was a major miscalculation of the administration when it came to the 2009 stimulus. By design, the stimulus did not aim for worthy projects that the public could see and appreciate and perhaps fondly remember over the next century, as we remember the WPA projects. It aimed to “continue” construction — which means it remained mostly unappreciated by the public or, at best, appreciated only in the abstract and only when someone stops to wonder might have happened without it.


  5. Tyler says:

    Here’s my jobs plan that could actually pass the House:

    1. Make the Bush tax cuts permanent for the middle class.
    2. Begin a five-year federal income tax holiday for the middle class.
    3. Extend for five years the current payroll tax cut.

    If the federal government enacted these measures, I believe unemployment would fall to four percent by 2017. It would be prudent to extend measures 2 and 3 until the unemployment rate falls under one percent.


    • Chigliakus says:

      I disagree that this could pass the house.

      1. The Republicans don’t care about the middle class, I think they’d rather see the tax cuts expire for everyone than see them extended for the middle class.

      2. Again, The Repubs would find ways to intimate that a tax holiday for the Middle Class was unfair to all those poor rich folks. Especially the ones making only 400k/year, I mean, they can barely pay the mortgage on their mcmansion, the private school tuition for thier snowflakes and the car loan on their Porsche suv!

      3. This would probably be feasible.

      Tax cuts tend to have a relatively low multiplier, I think your predicted results are a bit optimistic. If the federal income tax holiday included social security then you’d risk undermining that program in the future, and if it didn’t the savings wouldn’t be nearly as dramatic. The Middle Class folks who still have jobs would likely use the money saved to pay down debt, which could help in the long run but short-term isn’t going to change the unemployment rate.


      • Tyler says:

        Thanks for your comment. I’m just trying to think of ways to get more money into the pockets of people who will actually spend it. Once we get demand up, there will be a domino effect of good news.

        Regarding Social Security, I don’t buy the Right’s claim that it is unsustainable. We have our own currency.


        • Chigliakus says:

          I understand, and I don’t mean to be a naysayer, we absolutely do need some viable course of action within the restrictions of the current political environment. I think we agree that the primary problem is demand.

          I agree that SS is sustainable in the long term, exempting the meddling politics of the hyper-wealthy and the far-Right noise machine. Linking the sustainability of SS to the fact that we have our own currency seems like a stretch. Are you invoking some MMT ideas here, or am I misunderstanding?


          • Tyler says:

            Definitely invoking MMT – good catch. James Galbraith has got to be an economic genius. He sometimes catches Paul Krugman slipping.


  6. C Heinz says:

    Here is what will be written in the Conservative blogosphere about this article;

    “Look what Super Duper Liberal Jarad Bernstein said in his blog today.

    “Clearly, we need to lower the budget deficit and cut, cut, cut!!”

    It looks like the libs are finally figuring out what we holy Conservative decedents of God have known all along. Contractionary fiscal policy is expansionary.”

    LOL


  7. pjr says:

    I think we all ought to grasp now that incentives to hire are not working well, that trickle-down from the wealthy doesn’t happen, and that unemployment insurance extensions prevent further decline and suffering but do not boost the economy. Only job creation on a large scale can create the demand (customers) that will prompt the private sector to hire more and expand, drawing upon their unusually high profits and savings and the availability of low interest rate loans. If the federal government doesn’t do this via direct hires and contracts, then apparently nobody is going to do it.


    • Middle Molly says:

      Unemployment insurance does help to boost the economy through boosting consumer spending and demand. A dollar in unemployment insurance is usually immediately spent, going directly into the economy. But I do agree that job creation on a large scale is needed to boost demand and get private employers hiring.. but it is unclear if employers have any need to hire American workers. The “middle class” deal that kept our economy growing and kept the standard of living of the middle class improving.. that is, the employers employed the middle class and paid them reasonably well, and, in return, the middle class bought the stuff that the employers were making/selling.. that deal is no longer in effect. The employers don’t need middle America middle class workers to produce or to buy the stuff they make.


  8. Dave H says:

    The problem with this “new jobs tax credit” proposal is that the credit will go predominantly to firms that were going to hire anyway (See “Clunkers, Cash for”). You will experience a short-lived “sugar rush” of hiring, followed by an even worse hiring atmosphere when the credit expires. And the benefit will go primarily to large corporations run by – shudder! – corporate jet flyers. If you only want to create the impression of improvement, say, just before a certain election, then it might serve your political purpose. Or if you want to throw large corporations a bone in exchange for financial support for your campaign, it might do that, too. But it won’t do anything to improve the economy.

    Employers don’t hire based on tax gimmicks. If they hire somebody, they have to be prepared to pay him well after the tax credit has been completely realized (i.e, only in the year in which the hiring occurs, not in every year the employee continues to be employed). They hire because the additional (and continuing) employment cost (which is substantially more than the amount in the worker’s paycheck) will be more than offset by the additional revenue stream from the additional productivity – on an ongoing, long-term basis. One time tax credits won’t increase your revenue stream, which is what a company needs before it will hire additional workers. Nor will tax credits reduce long-term employment costs from regulation, and it’s those costs that are suppressing hiring these days.

    The only thing that can increase employment in a sluggish economy is reducing employment costs – on a continuing basis. And those costs are caused by regulation. So the answer is to reduce regulation to reduce permanent employment costs – not a one-time tax gimmick. If you want a one-time fix to the employment problem, repeal Obamacare. Or eliminate the minimum wage (a sure-fire antidote to high unemployment). Or reduce the payroll taxes on employers. If these solutions are unpalatable to you, then accept that high unemployment is the unavoidable outcome of high regulation. If you’re not prepared to make a permanent reduction in ongoing employment costs, then you’re just not advocating anything that will decrease unemployment to acceptable levels.


  9. Jim Edwards says:

    RE Path to enlightenment.

    It would be nice if you did some posts confronting the boogie men of doing the right thing such as the federal budget is not a family budget, crowding out, business confidence, etc. Then put those in a place that is easily referred to. Basically a debunk of commonly thrown around misinformation. That helps the rest of us when we are talking to friends, co-workers, etc who aren’t even necessarily right wing extremists, but believe these things.

    For example the family budget can start with families cannot print money, but then that leads to 1930s Germany, so why would that not be the same, and so on.

    Thanks,
    Jim


  10. Joseph Patrick Bulko MBA says:

    “The magnitude of the current jobs and growth crisis demands a boldness and urgency that’s utterly lacking [from the federal government].” -Robert Reich (8/10/2011)

    It should be abundantly clear by now that we cannot rely on government to do the right thing to steer the economy back to good health. We are living in a Friedmanite-Randian epoch and we must act accordingly (no matter how Machiavellian that might seem). What we need is a private-sector solution to the high unemployment problem, one that uses the power of capitalism and free enterprise (and not whining about the government’s inaction). Here’s my “bold and urgent” idea to solve the high unemployment problem: Let’s directly incentivize Wall Street (and associated corporate interests) to transfer massive amounts of investment funding to Main Street via the creation of a massive number of new entrepreneurial ventures. We need a mechanism that provides a profit-generating incentive to Wall Street (where the money is located) to create jobs on Main Street (where money is needed). I have devised just such a plan that ramps up employment quickly and puts money directly into the hands of the people who need it now: the consumers (whose spending represents 70 percent of GDP). This enormous financial turbo-boost to the economy reinvigorates economic activity and quickly returns the eight million jobs lost during the Great Recession. It is a private-sector free enterprise solution to the ongoing high unemployment problem, a mechanism that “piggy-backs” onto existing financial industry architecture to securitize the entrepreneurial investment process (enabling Wall Street to make boatloads of cash in the secondary market). The net result of the plan is the massive creation of new jobs to jump-start the U.S. economy back to full employment.

    Capitalism, Economic Recovery, and the Entrepreneurial Blitzkrieg:
    http://jpbulko.newsvine.com/_news/2011/08/08/7307552-capitalism-economic-recovery-and-the-entrepreneurial-blitzkrieg

    Joseph Patrick Bulko, MBA


  11. Gabriel says:

    It would be useful to break down the “Continuing Joblessness” category further by how long people have been unemployed. I think this would make it even clearer that the big change is the increase in the number of long-term unemployed. The red bar as shown mixes up people who’ve been unemployed 2 months with those unemployed for years.


  12. A Jac says:

    I know of 3 people who were unemployed (laid off) and received unemployment. All are near retirement age and all have the wherewithal to retire comfortably. They all would have preferred to continue working at the time of their layoffs, however, and the layoffs did cause them all to cut back on spending. They are fortunate that unlike most on unemployment – they can still make ends meet. One person has since run through all their unemployment benefits and extensions and subsequently “retired” for good. One person has decided to remain on unemployment until it runs out, at which point they too will “retire” and start to draw social security. The unemployment is enough along with their spouses’ wages to defer starting their social security for several months. Only one of the 3 is actually still looking for work – they still have kids to get through college. I wonder how many others in the unemployment to unemployment group are similarly just collecting benefits to delay when they formally retire and live solely on their social security, savings and/or spouse earnings? More refinement regarding people’s motivations to get jobs, ages, etc. would be useful. I suspect that there are many who decided after being laid off from a job within a year or two of when they planned to retire anyway – just decided to take the benefits but not pursue a new job.


  13. cassandravert says:

    As stated, extended UI would help the middle-aged stay afloat but would do nothing for their kids entering the job market–so another approach is needed for them. I don’t have a problem paying a sustenance amount to anyone who is unemployed, especially when there are, what, five or six unemployed people for every open job? I don’t think unemployment compensation should be based on your contributions or how much you were paid in the last 18 months. It should be based on your education, skills, and experience.

    Outsourcing/Overseasing is a big cause of the structural contraction of the labor market, yes? But the outsourcing companies still get big revenues from the U.S. market. So why are we letting them drain money from us as a market without supporting that market? I suppose that is what corporate tax is supposed to do, but…..yeah.

    So rather than trying to fix the broken tax code, why not simply assess an investment tax based on US sales (and other numbers)? Republicans love flat taxes, right? The money assessed could be put into the economy directly in the form of jobs or paid to the government to distribute to the people that should have been hired in this country. Cost of doing business. :)

    Another thing: the long-term unemployed are paying hefty fees to survive on their retirement savings. First, why is there no waiver of the early withdrawal penalty for the unemployed? Second, what is going to happen when these people hit retirement with no assets? For decades, since this is draining the wealth of the entire adult population? This is another way of kicking our problems down the road, but we are compounding them, too.

    The long-term unemployed need more than sustenance; they need to be able to build assets for retirement (or have it done on their behalf).


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