The Complex Jobs Puzzle
Do you know that, across the United States, 4,014,000 people got new jobs in August? and at the end of that month, companies and governments reported openings for more of 3,056,000?
That's pretty startling, isn't it? From the news coverage, it looks more that hardly anyone is getting any job these days.
There is a catch, of course, that in this big, fluid U.S. economy, a lot of people also got laid off, fired or quit. These separations totaled 3,968,000. Thus, there was a net increase of about 46,000 net new jobs in August: 4.01 million hires less 3.97 million separations. These numbers come from the Labor Department's monthly survey of hires, layoffs and openings; it is appropriately dubbed the JOLTS data.[1] Indeed. The numbers of hires and openings show obvious steep drops during the recession, and they have come back somewhat, as we see here for hires.
In the graph, we call your attention also to the aftermath of the 2001 recession. By 2003, some 18 months after the subsequent recovery had evidently started, we were all concerned at what we were calling the "jobless recovery". It is visible here in the lack of improvement in hiring until the second half of that year. So the malaise we are currently feeling about jobs and employment following the 2008-2009 contraction is hardly a new phenomenon.
Separations from employment include both layoffs and voluntary quits. The situation with layoffs has improved dramatically from the worse months of the recession, as seen here, with just 1.66 million in August, compared to the 2.34 million monthly average during the winter and spring of 2009. However, the very recent pattern shows some indication of renewed increases, with a three-month average at 1.71 million through August, up from 1.60 million back in the early spring of this year. Voluntary quits have increased a bit too lately. But that is usually interpreted as a good sign, that people are finding new work or other activity to give them the confidence to quit a job they currently hold.
Overall Jobs Improvement, But It's Modest
As we've thought about the seeming lack of jobs in the U.S. recently and the stubbornly high unemployment rate since the recession, job dynamics such as these are one of the facts that keep coming up. The U.S. economy is huge, dynamic and varied. Patterns of layoffs and hires differ from region to region and industry to industry. Employees work for more than 6 million companies that do business in some 9 million different jobsites.
All together, these data show some improvement in labor market conditions, and to our way of thinking, a surprising dynamism that often gets lost in the quick looks we take at unemployment rates and employment totals. Clearly, though, the clawback from the severity of the recession is still much less than it takes to generate sustainable gains in that aggregate employment measure and a meaningful fall in unemployment.
Why Would Employers Add New Workers?
To prompt an employer to add an employee, there generally needs to be some sense of growth in demand for the business's products that exceeds the load on the existing workforce. Sometimes you can fulfill extra demand by using overtime or restructuring production to raise productivity. But if it looks like the demand will be sustained at a higher pace, then you would consider adding workers. You might also consider doing so if your cost structure can be reduced and you have some confidence that costs won't suddenly turn higher. However, in this post-recession period, it's been hard to see consistent demand gains, and uncertainty about costs and taxes has, if anything, only increased.
Much of the legislation meant to correct these conditions and promote new jobs is only temporary, so if there's a cost restraint or tax relief this year, in most proposals, that would reverse right after the General Election next November. It doesn't really pay, then for employers to invest in expanding their hiring much in response, only to have the assistance fade after the new workers have on the payroll just a few months. Then the employment equation changes again.
Industries Vary Greatly: One-Size-Fits-All Policy Doesn't Fit
The complexity of this is seen in other compilations of the value of production, labor costs and profits, which portray widely differing cost relationships among industries. For instance, in the manufacturing sector, which has seen its role in the U.S. economy decline significantly, Commerce Department figures show that pension and insurance costs per employee amounted to $12,300 in 2010, twice as much as in all of private industry, which had an average of $6,200. Such costs in the finance industry, $10,100, are not even as high as in manufacturing. In retailing and food services, which are known for their skimpy benefit systems, the comparable calculation shows retail at $3,250 and food services (reported as a combination with entertainment and other recreation) at a mere $1,625.[2] Turnover, both hiring and separations, in those industries is much more frequent. Often, of course, these industries consist of small businesses that have flexibility in hiring – and in letting go. Many observers cite small businesses as key to overall job growth.
Such considerations are significant in trying to design government policies intended to help job creation. Kelly Edmiston, an economist at the Kansas City Federal Reserve Bank, has explained that jobs policies that target small business might well generate job growth, but the jobs themselves might not be very productive or very long-lasting. In promoting economic development in local communities, he advocates a balanced approach that is supportive of "organic growth" for businesses of all kinds. He recommends that governments "focus on developing an attractive and supportive environment that might enable any business, whether small or large, to flourish, and to allow the market to sort out which businesses succeed. Many communities have had success in creating this environment. They have developed and fostered a high quality workforce through great schools, community colleges, and universities. They have . . . built and maintained high-quality public infrastructure [and] created a business climate with reasonable levels of taxation and regulation . . . ."[3]
That's pretty startling, isn't it? From the news coverage, it looks more that hardly anyone is getting any job these days.
There is a catch, of course, that in this big, fluid U.S. economy, a lot of people also got laid off, fired or quit. These separations totaled 3,968,000. Thus, there was a net increase of about 46,000 net new jobs in August: 4.01 million hires less 3.97 million separations. These numbers come from the Labor Department's monthly survey of hires, layoffs and openings; it is appropriately dubbed the JOLTS data.[1] Indeed. The numbers of hires and openings show obvious steep drops during the recession, and they have come back somewhat, as we see here for hires.
In the graph, we call your attention also to the aftermath of the 2001 recession. By 2003, some 18 months after the subsequent recovery had evidently started, we were all concerned at what we were calling the "jobless recovery". It is visible here in the lack of improvement in hiring until the second half of that year. So the malaise we are currently feeling about jobs and employment following the 2008-2009 contraction is hardly a new phenomenon.Separations from employment include both layoffs and voluntary quits. The situation with layoffs has improved dramatically from the worse months of the recession, as seen here, with just 1.66 million in August, compared to the 2.34 million monthly average during the winter and spring of 2009. However, the very recent pattern shows some indication of renewed increases, with a three-month average at 1.71 million through August, up from 1.60 million back in the early spring of this year. Voluntary quits have increased a bit too lately. But that is usually interpreted as a good sign, that people are finding new work or other activity to give them the confidence to quit a job they currently hold.
Overall Jobs Improvement, But It's Modest
As we've thought about the seeming lack of jobs in the U.S. recently and the stubbornly high unemployment rate since the recession, job dynamics such as these are one of the facts that keep coming up. The U.S. economy is huge, dynamic and varied. Patterns of layoffs and hires differ from region to region and industry to industry. Employees work for more than 6 million companies that do business in some 9 million different jobsites.
All together, these data show some improvement in labor market conditions, and to our way of thinking, a surprising dynamism that often gets lost in the quick looks we take at unemployment rates and employment totals. Clearly, though, the clawback from the severity of the recession is still much less than it takes to generate sustainable gains in that aggregate employment measure and a meaningful fall in unemployment.
Why Would Employers Add New Workers?
To prompt an employer to add an employee, there generally needs to be some sense of growth in demand for the business's products that exceeds the load on the existing workforce. Sometimes you can fulfill extra demand by using overtime or restructuring production to raise productivity. But if it looks like the demand will be sustained at a higher pace, then you would consider adding workers. You might also consider doing so if your cost structure can be reduced and you have some confidence that costs won't suddenly turn higher. However, in this post-recession period, it's been hard to see consistent demand gains, and uncertainty about costs and taxes has, if anything, only increased.
Much of the legislation meant to correct these conditions and promote new jobs is only temporary, so if there's a cost restraint or tax relief this year, in most proposals, that would reverse right after the General Election next November. It doesn't really pay, then for employers to invest in expanding their hiring much in response, only to have the assistance fade after the new workers have on the payroll just a few months. Then the employment equation changes again.
Industries Vary Greatly: One-Size-Fits-All Policy Doesn't Fit
The complexity of this is seen in other compilations of the value of production, labor costs and profits, which portray widely differing cost relationships among industries. For instance, in the manufacturing sector, which has seen its role in the U.S. economy decline significantly, Commerce Department figures show that pension and insurance costs per employee amounted to $12,300 in 2010, twice as much as in all of private industry, which had an average of $6,200. Such costs in the finance industry, $10,100, are not even as high as in manufacturing. In retailing and food services, which are known for their skimpy benefit systems, the comparable calculation shows retail at $3,250 and food services (reported as a combination with entertainment and other recreation) at a mere $1,625.[2] Turnover, both hiring and separations, in those industries is much more frequent. Often, of course, these industries consist of small businesses that have flexibility in hiring – and in letting go. Many observers cite small businesses as key to overall job growth.
Such considerations are significant in trying to design government policies intended to help job creation. Kelly Edmiston, an economist at the Kansas City Federal Reserve Bank, has explained that jobs policies that target small business might well generate job growth, but the jobs themselves might not be very productive or very long-lasting. In promoting economic development in local communities, he advocates a balanced approach that is supportive of "organic growth" for businesses of all kinds. He recommends that governments "focus on developing an attractive and supportive environment that might enable any business, whether small or large, to flourish, and to allow the market to sort out which businesses succeed. Many communities have had success in creating this environment. They have developed and fostered a high quality workforce through great schools, community colleges, and universities. They have . . . built and maintained high-quality public infrastructure [and] created a business climate with reasonable levels of taxation and regulation . . . ."[3]
Our look at these jobs data and varying employment costs – and note that we didn't even mention wages – suggests that broad solutions to the overall scarcity of employment opportunities won't fit simple formulas. As we saw, however, even as there is shrinkage in some areas, there is job growth in others, some of which looks pretty sizable. The diversity of the U.S. economy is a real plus.
=====================================
[1]Bureau of Labor Statistics, U.S. Department of Labor. Job Openings and Labor Turnover. Latest release here: http://www.bls.gov/news.release/pdf/jolts.pdf . Graph via Haver Analytics, Inc.
[2]Bureau of Economic Analysis, U.S. Department of Commerce. National Income Accounts, Section 6 "Income and Employment by Industry" http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 , accessed October 23, 2011.
[3] Kelly Edmiston. "The Role of Small and Large Businesses in Economic Development", Economic Review, Federal Reserve Bank of Kansas City, Second Quarter 2007, pp. 73-97. http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2q07edmi.pdf
Labels: Economy, Government Policies
posted by Carol S. | 10/24/2011 03:59:00 PM
3 Comments:
To tie a few of your pieces together, the TARP bailout protested against by the Tea Party and Occupy Wall Street has inflicted lasting damage on business growth and survival. The mechanism is the credit market which seized up with the massive issuance of new federal debt. Instead of investing in expanding businesses or supplying short-term loans for businesses with short-term cash flow crises, investors shifted their funds to the more "secure" Treasuries being sold to bailout private banks. The result was that those businesses doing well in the fall of 2008 did not expand into new or larger operations requiring new employees and businesses with minor problems failed leaving their workers unemployed.
You and others suggest that this massive dislocation of business and employment forestalled some worse calamity than our current Great Depression II. Yet, far from being a "necessary evil", the Bush TARP a thoroughly unnecessary evil, as was its successor, the Obama stimulus. As you note in your current article, businesses fail every day in a healthy economy. There is no reason to exclude "too big" banks from that fate and, in competition and anti-trust, a very good reason to include them specifically in the ranks of failing businesses. Rather than protecting "too big to fail", the real need was for the continuation of the judicial functions of the banking system regardless of the success or failure of companies of whatever size. To satisfy that real need, those functions should have been taken out of private control and vested in a purely judical bank. My alternative to the TARP and the Stimulus proposed just such a bank, titled "The Third Bank of the United States" (see http://www.carlpeterklapper.org/solution.html), to oversee the conversion of mortgage loans to percentage equity transfer agreements. This alternative proposal, if enacted, would have stopped and reversed foreclosures, something which both the TARP and the Stimulus failed to do, and would have done so without an increase in federal debt.
Behind the employment story reported by he Bureau of Labor Statistics (powerfully related in this column in detail) is an untold backstory of millions of persons who never get into the official data. These are persons who never get a job which is reported because they never work full time, never have unemployment insurance paid on their behalf, and never receive benefits. In the inner city this results in an unemployment rate which can be double or triple the official rate. An official BLS rate of 11% can reach as high as 50% when viewed in from this perspective in impacted localities. These unemployed or underemployed persons are not those described as "having stopped looking for work." These are persons who often work, but never get more than part-time (often 30 hour) employment, never get benefits, and who, having never been officially employed, are never reported as officially unemployed. This substitute for regular, full-time employment has been developed extensively by state and local governments, as well as by national and local businesses, over the past two decades, and it is part of the untold story affecting every major American city at ground level. It means that a reported 9-10% unemployment level in America actually represents an unemployment or severe underemployment level closer to 20% overall, and 30-40% in heavily impacted localities.
These issues are never as simple as they look, as Mr. Campbell's statement and the very thrust of our our article highlight.
At the same time, the U.S. Bureau of Labor Statistics tries hard to portray as accurate a picture of unemployment as they can, and we would differ at least somewhat with Mr. Campbell's view here. The unemployment numbers in the official "unemployment rate" are separate from the numbers of people receiving unemployment insurance (UI); nationally and for states, these numbers are taken from a monthly population-based survey conducted by the Census Bureau and have nothing to do with unemployment insurance. For cities and other localities, the Census Bureau's monthly survey is not large enough to produce individual city numbers and here there is some use of the unemployment insurance data. But it is augmented by information on people who have never had jobs but would like to work, and these figures are aligned each month with the state totals compiled in the Census Bureau's survey.
Indeed, some "inner city" areas may have alarming jobless situations, but we defend the BLS and Census tabulations as broadly measured and as accurate as possible at the overall city level.
Also, because these BLS-Census Bureau-collected numbers interview people directly, they may actually capture some people who work in the "underground economy", who would also otherwise be captured by unemployment-insurance-linked data.
The main point is that in all of these measures, to be counted as "unemployed" does not require that anyone have had a job before. So students getting out of school or young mothers returning to the labor force can indeed be included as unemployed if they are still looking for their first job.
We hope this helps. Our government statisticians try hard to give accurate portrayals.
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