Today’s News: All About Jobs

Today and tomorrow we will experience a one-two punch with regard to the job outlook. So far this week we have seen the data suggest we are inching out of recession, the GDP figure last week showed more rapid growth but I think for the bulk of the economy the word ‘inching’ just about sums things up.

Take today’s claims for unemployment insurance: the numbers show a drop from about 530,000 last week to 512,000 this week. Great, we made progress again – the moving average is dropping, this week by another 3,000 – so evidently there is a changing of the tide in progress. But the movement is painfully slow. More to the point: we need these first time claims numbers to drop by another 100,000 of so before we can argue the economy is generating new jobs. Don’t forget that the first time claims is not a representation of total unemployment since it doesn’t capture the job creation side of the equation. In an economy like ours there will always be job turnover sufficient to force as several hundred thousand people to start to claim unemployment relief each week. Our objective is to get the economy vibrant enough that these people find new work quickly. As a useful rule of thumb we can use 400,000 to 450,000 as an initial target: once new claims are down in that range it is likely there are enough new jobs to prevent overall unemployment creeping up. So that’s our first objective. Beyond that we need to get even lower if we want to accelerate the decline in the unemployment rate. Unfortunately I don’t see that happening for quite some time.

One sign of just how sticky the job market has become is that the claims for extended unemployment relief jumped last week – it rose by 117,000, to a horrible new high total of 4.08 million. These are people who have exhausted their usual 26 weeks of unemployment insurance and are now relying on the emergency extension of benefits Congress has passed. Incidentally the passage of this relief cam in a strictly partisan vote: the Republicans objected to the extension, presumably hoping that by cutting off funds the unemployed workers would be forced to take jobs at significantly reduced wages. This position is ridiculous. At present the whole problem is that there are no jobs at any price. Business sentiment is so fear driven and negative that it continues to drive the economy off the cliff’s edge.

There has always been a school of thought that workers who lose their jobs should be willing to get any job at any wage rather than remain unemployed for long. This is the thought that underlies the textbook claim that there is no ‘involuntary unemployment’ – yes that’s exactly what the economics books say. Since economists look at work as a trade off with leisure they assume that an unemployed person obviously prefers leisure and is thus ‘voluntarily’ unemployed.

This is, in my view, callous nonsense, but it is the orthodox view. One reason that Keynes is such an anathema to the modern mainstream theorists in economics is that he disagreed: he argued that the job market is ‘sticky’ and thus cannot be relied upon to be ‘efficient’ in the textbook sense. He … gasp … argued that some people are unemployed against their will. For this enlightened and real world perspective he has been banished from the courses at MIT, Harvard, Yale, Chicago, and Stanford [amongst others].

I say all this by way of precursor to tomorrow’s news release of the monthly national unemployment figures. Most analysts – these are the folks who missed the collapse last year, so take their forecasts with a massive dose of salt – are looking for a 9.9% unemployment rate. I think they may be off a bit. It would not surprise me to see us break the 10.0% barrier tomorrow. Similarly I think it’s possible, though a stretch, to argue that unemployment will stay flat – that inventory build up suggests that factories have jobs available.

Nah! Who am I kidding? Unemployment will continue to tick up over the next few months. The private sector – that’s you and me – is just is too lame right now to turn this thing around right now.

As they say in sports: ‘wait ’til next year’.