Another blow to the US labor force
The Senate voted down the American Workers, State, and Business Relief Act of 2010, 57 to 41 (see an earlier version of the CBO’s estimate here for a breakdown of the Bill). The emergency extensions to weekly unemployment benefits will now expire, leaving many without government support as the labor market improves at snail speed.
Those who support the Bill claim that benefits prop up consumer spending. It is true, that unemployment benefits payments are more likely to be spent rather than saved. However, the latest version of the Bill allocated about $35 billion to benefits, just 0.34% of consumer spending in Q1 2010. Consequently, the direct impact on consumer spending of extending the benefits would have been small. (The provisions of the Bill in full would have quickened the recovery, according to David Resler at Nomura.)
Those who oppose the Bill claim that extending the benefits only increases the duration of unemployment – in May 2010 median duration was 23.2 weeks, its highest level since 1967. This is a weak argument when 7.4 million jobs, near 6% of the current payroll, have been lost since the onset of the recession (this is a cumulative number, which includes the gains since January 2010). The bulk of the unemployed would likely jump at an opportunity to work rather than live on benefits.
One way or another the government will plug the hole that is private spending. And the government will find this out the easy way (expansionary fiscal policy) or the hard way (perpetual deficits that result from weak private-sector tax revenue). Apparently it’s going to be the hard way.
At 9.7% unemployment, isn’t it obvious that Congress is not “spending” enough?
The chart illustrates the Nairu-implied level of unemployment (NAIRU, or the nonaccelerating inflation rate of unemployment) versus the measured rate of unemployment. The concept of NAIRU is limiting in that it inherently binds fiscal policy and is a theoretical notion at best; but it does present a baseline for comparison. The Nairu-implied level of unemployment is simply the CBO’s estimate of NAIRU multiplied by the current labor force. Let’s call points when the current level of unemployment is above the NAIRU-implied level as cyclical surplus of workers.
According to this measure of worker surplus, the state of the labor market is obvious: depressed. The NAIRU-implied level of unemployment is half of that currently measured by the BLS with a record wedge between the two. Furthermore, the cyclical surplus of workers in ’82-’83 – the last time the unemployment rate peaked above 10% – was relatively mild compared to current conditions.
By failing to pass this Bill, the Senate reiterated its unwillingness to support the US labor market. Of course benefits are not the answer – we need a comprehensive jobs Bill to mitigate the consequences of such a depressed labor market. (There was a good article on the longer term unemployment problem at the Curious Capitalist some months back.)
Rebecca Wilder
with a record number of long term unemployed and a growing policy against hiring the unemployed (multiple citations available) it’s long past time for the government to move beyond being the lender of last resort into the employer of last resort.
It’s not like there isn’t a long list of work that needs doing. And with 20 year rates at 3.xx% and 2 year rates under 1% it ought to be easy to find projects that pay immediate returns bigger than the interest rate.
it isnt about economic stimulus or consumer spending…its about people who havent had a paycheck for over 6 months being able to pay the rent and put food on the table…
its been particularly depressing to watch that Senate inaction…it mustve been a half dozen times that that has been defeated over the past two weeks, just to come back more compromised and weaker each time…
When will it dawn on libs that the current policies are NOT WORKING????? Change the policies and there will be agreement within and without political circles. More of the same is just showing cognitive dissonance.
The example for this is this comment: “At 9.7% unemployment, isn’t it obvious that Congress is not “spending” enough?”
NO!, It shows that the spending is, has been, and continues to be in the wrong areas.
There are two words that describe what is happening economically: 1) Obama and 2) uncertainty. What rational business manager will make long term commitements in that environment? So, we have the continuance of a slow economy.
Also, the last administration had so much negative commentary thrown at it, but now that you have absolute control and are implementing your own policy aproaches, there is no recognition of how bad your views/policies really are. In Nov the cluebat will at least begin the learning cycle that your approaches DO NOT WORK.
“Those who oppose the Bill claim that extending the benefits only increases the duration of unemployment – in May 2010 median duration was 23.2 weeks, its highest level since 1967. This is a weak argument when 7.4 million jobs, near 6% of the current payroll, have been lost since the onset of the recession (this is a cumulative number, which includes the gains since January 2010).”
Hi Rebecca, screw the medians and lets deal with reality. I will reiterate what Laurent Guerby and myself have said repeatedly, the numerics only deal with those who are in the Civilian Labor Force and not those who are in Not In Labor Force. As an example and when last charted by Laurent, that number for males 25-54 was ~20% or 1 in 5 males on the sidelines. It is worst for those 16 – 19. The rabbit hole is far deeper than is being depicted by U3, U6, or Duration of Unemployment.
Job Creation is still nothing to crow about and the last few months of it have barely scratched the surface. As automotive reaches for the 90 days of inventory again (sigh) we all watch with baited breathe. Will the growth continue? With less of the civilian population in the Civilian Labor Force, it would seem unlikely. With less job creation, we are on a downward trend for many things impacting this economy. The natural outcome of little or no job creation is fewer in the Civilian Labor Force and many more in Not in Labor Force having given up the search for jobs. In which case, U3 will fall.
Liquidity trap, eh?
Why not raise taxes since there is nothing else to be done with the cash in the vaults?
It is somehow wise to cut off people’s bread in the face of huge amounts of cash with nothing good to do?
You want to get tough on the unemployed? Want them to take jobs from illegals?
Want to fix things that do not work.
Look at the Military Industrial welfare complex.
The current safety net policies are too little, to work.
However, if you worry about things that don’t work…..
The warfare state has been a welfare kingdom for decades, does not work and is plundering US productivity with artificially priced, failed projects and guaranteed new work to try do it all over and over.
Look at the Mc Chrystal thing. The war machine don’t work is a black hole for 7% of GDP and it needs to be gutted to pay for some level of safety net.
9 years in Afghanistan and we get Vietnam theory, not even renamed.
COIN is so Green Beret.
The war machine as much as anything else is destroying the US.
Why not immediately cut defense profits and automatic overhead charges to make them build something that works?
Why not take the tests the F-35 was supposed to have done in 2007 and fire the whole lot?
And if the US cannot afford pensions, like the states, cut rates by 20% to retired military and civil servants.
About things that don’t work………………………
run,
I can’t agree with you more, that the headline numbers mask the truly desperate situation of the labor market. One can better judge the depressed state by the employment to population ratio (which you have noted on several occasions, http://research.stlouisfed.org/fred2/series/EMRATIO?cid=12).
As you note above, manufaturing employment of late is directly tied to an inventory cycle that is about to slow markedly (Spencer noted, though, that there is underlying demand in the IP numbers). But private service-sector jobs growth has been pathetic and much of it temporary (in May the entire service-sector, which is the lion’s share of the private payroll, added just 37k jobs). And furthermore, the hours cycle in service – adding back hours to existing workers in lieu of new jobs – has barely even started. My point: the jobs growth is expected to remain muted for some time!
Something needs to be done – and as “amateur socialist” pionts out above, there’s plenty of resources that should be used to grow GDP, i.e., plenty of capacity to add productive jobs…but it has to come from the public side right now! Eventually, private sector saving will be satiated and private demand will take over. But we are far from that time now – have you seen the corporate saving rate? High.
Rebecca
Hey rj,
I understand what you are saying. But in aggregate it IS about fiscal stimulus and consumer spending. Because that’s where the job growth comes from, hence the paychecks.
Rebecca
this austerity=prosperity joke doesn’t get funnier the more you tell it.
It’s a joke right?
i know, rebecca, but when you have friends who are being hurt, you stop thinking in aggregate…
Rebecca, why would a business manager make any long term decisions in this political environment? There is way too much uncertainty over taxes, regulation and which industry will be demonized next.
Y’all carped from the sidelines for eight years. Now that you have absolute control over political action we can see how bad those policies are/were that you always said were better for?????? Certainly not the economy, the poorest, ….
You are so right.
As Randall Wray and Bill Mitchell have said, the govt (through their role as currency issuer) is responsible for unemployment. We would have no unemployment if there wasnt a currency which needed to be obtained to pay govt taxes. This line of reasoning makes it imperative that the govt itself DIRECTLY provide access to the currency (aka A JOB) in fulfilling its role as the main ensurer of public welfare. As the ensurer of public welfare the govt provides national defense, domestic police and court system and jobs that can keep people viable and hireable to the private sector.
We should (ideally) hope that everyone could find a job as an employee or private contractor in the private sector, but when the private sector is unable to hire everyone, as is the case today, there should be a job available from the public sector to all who wish to have one.
CoRev
You’v degenerated into a purely partisan political hack. Your expert “analyisis” of the situation is that the two words responsible for this situation is 1) Obama 2) Uncertainty?? Wow. This marginally better than your global warming insight 1) The sun is a big hot ball 2) the future cant be predicted accurately.
Why would a political party keep trying to sell the same tired useless formula that has not only led to massive failure but been repudiated at the ballot box decisively? Twice?
The mysteries abound, but good luck with that election thingie your party appears to be outstupiding the dems by a good margin. Again, no small feat that. Kudos!
AS, what tired, useless formulae might those be?
Stabenow: “Republicans Want This Economy To Fail”– In a depressing briefing with reporters, Sen. Debbie Stabenow (D-MI) charged that Republicans basically are holding back measures to extend unemployment insurance and create jobs in a cynical ploy to help their chances in November by crashing the economy and blaming the Democrats for it.At issue is the large tax extenders/jobs bill, which has been whittled down consistently over the past few weeks, with Republicans continuing to offer a united front against the bill. Today there will be a cloture vote on the bill, and absolutely nobody believes it will pass. All Republicans and Ben Nelson (one Senate leadership aide said to me “What’s the difference?”) oppose the bill…
rjs, republicans??? The Dems have absolute control over both houses and the WH. How’s the economy been under them?
corev, it only takes 41 A-holes in the senate to constipate the entire country…
rjs, yes, 41 is the magic number to stop something, but it only takes 60 to pass something. Currently there are “58 Democrats, 40 Republicans and two Independents (Joe Lieberman and Bernie Sanders, both of whom caucus with the Democrats)” (from wiki.)
CoRev:
Why should a business manager involved in a service or manufacturing make any decision to increase a business activity involving Labor when capital gains are heavily skewed towards capital sans Labor? This has little to do with present day political carping and more to do with changing the paradigm. There is more profit to be made on Wall Street than there is on Main Street by investing in Capital Appreciation. This has nothing to do with Main Street Business managers making a decision.
Skew productivity gains back toward industry producing product or services and Main Street business will grow as well as employment. Pass legislation which will change the SCOTUS Marquette ruling as well as make naked CDS,etc. expensive practices for the financial services sector. It is this sector, a sector that has grown at the expense of Labor
50 Dems, 8 blue dogs, and Lieberman (the senator from aethna) who flip-flops more than anyone else in Congress . . . healthcare being an example. Sanders, I can’t comment on. Unfortunately, Dems do not “lock-step” together to destroy a population or an economy to win an election. If Obama really had that power, the Repubs would have been reduced to a sniveling sideline party over the last year.
Run said: “Unfortunately, Dems do not “lock-step” together to destroy a population or an economy to win an election.” Now that’s the funniest statement we’ve heard. They might not, but the evidence is lacking. Try several of the proposals already on the table, healthcare just being the most obvious example. Environmental Regs that restrict access to raw resources, which raises prices, and weakens our national and economic security, are another example.
Oh, and when we have a major environmental catastrophe, in part due to these environmental regs, we just see Dems go into denial.
Run, I just don’t buy it. $1.2T is sitting on the sidelines because industry does not want to invest because they are making more in interest. You have looked the rates lately, haven’t you?
There is a flight to safety and let’s just wait out this anti-business administration attitude because there is so much uncertainty in what this administration will do next. Who’s the next demonization target? What’s the next new tax increase?
CoRev:
Who is talking interest rates? I know you are smarter than this.
CoRev:
Who is talking interest rates? I know you are smarter than this.
CoRev:
Really CoRev? How did Healthcare Reform come to be what it is today? Not by lockstepping as the Repubs did to oppose it. And Financial Reform is still being decided upon because the Dems won’t challenge the Repubs to filibuster. Dems don’t lckstep, no balls to do so.
Yes the libertarian conservative policies of the last 35 years has FAILED.
“We, the People” need to retake our country.