The Rising Risk of Social Unrest

The risk of social unrest is on the rise around much of the world, according to polling data summarized in the International Labour Organization’s latest World of Work Report (ht: Tortsen Slok).

The ILO estimates that the risk of unrest has risen the most in advanced economies over the past five years, followed by the Middle East & North Africa and South Asia:

With people in the streets from Athens to Oakland, the ILO clearly has a point about the advanced economies.

And what factors contribute to a rising risk of unrest? The ILO pegs six, all of which sound familiar:

• Income inequality and perception of injustice: Perception of economic and social disparities, and increasing social exclusion, is said to have a negative impact on social cohesion and tends to lead to social unrest (Easterly and Levine, 1997).

• Fiscal consolidation and budget cuts: Austerity measures have led to politically moti- vated protests and social instability. This has been the case in Europe for many years, from the end of the Weimar Republic in the 1930s to today’s anti-government demonstrations in Greece (Ponticelli and Voth, 2011), but has also been a feature in developing countries, especially in over-urbanized zones, where protests have arisen following the implementation of austerity programmes imposed by the International Monetary Fund or the World Bank (Walton and Ragin, 1990). Meanwhile, societies that are more indebted tend to have higher levels of social unrest (Woo, 2003).

• Higher food prices: In addition to collective frustrations regarding the democratic process, rising food prices were also central to the developments associated with the Arab Spring (Bellemare, 2011).

• Heavy-handedness of the State: In countries where the State has resorted to excessive use of force (police and military) to tackle social upheavals instead of focusing on the actual causes of unrest, such actions have often exacerbated the situation (Justino, 2007).

• Presence of educated but dissatisfied populace: Countries with large populations of young, educated people with limited employment prospects tend to experience unrest in the form protests (Jenkins, 1983; Jenkins and Wallace, 1996). This has been the case recently in many southern European countries, such Greece and Spain.

• Prevalence of mass media: Past studies have highlighted the impact of radio on the organization of demonstrations, and clearly the use of the Internet (e.g. through the use of Facebook and Twitter) have played a role in recent incidences of unrest.

Better Than Feared, But Still Mediocre

America’s job market has been down so long, today’s mediocre report looked like up.

The headline figures — payrolls up 117,000, unemployment rate down a tic to 9.1% — were better than most forecasters anticipated. That’s a relief.

And many details moved in the right direction as well. Revisions to May and June added another 56,000 jobs, the U-6 measure of underemployment ticked down to 16.1%, and hourly earnings were up 0.4%.

But we still need much stronger job growth if we are ever going to get America back to work. Both unemployment and underemployment remain stubbornly high:

(The U-6 measures includes the officially unemployed, marginally attached workers, and those who are working part-time but want full-time work.)

State and Local Pay vs. Private Pay

Do state and local workers get paid more or less than their private sector counterparts?

That old question has taken on renewed life with the budget and labor disputes raging in Wisconsin and other states. Unfortunately, it’s not an easy question to answer.

As Ford Fessenden notes in a nice set of graphics at the New York Times,one reason is that observers disagree on what “paid” and “counterpart” mean.

If you simply compare average pay and benefits, for example, state and local workers come out well ahead:

But the two workforces differ. State and local workers are more educated, on average, than private ones. About 50% of state and local workers have a college degree, for example, while only 29% of private workers do. Controlling for that reduces the compensation differential.

But then you need to consider other factors as well, such as the generally longer hours and lower job security in the private sector.

Fessenden doesn’t reach a firm conclusion. Some data suggest that public employees are indeed paid more. But some narrower (and therefore more precise or less representative) comparisons show parity (hospital workers) or higher private pay (higher education).

Well worth flipping through the charts if you are interested in this issue.

Underemployment (U-6) Down to 15.9%

Nice jobs report on Friday. Let’s hope we get twenty or thirty more.

One good sign is that the broad U-6 measure of underemployment continues to fall. It peaked at 17.4% in October 2009 and was still as high as 17.0% last November.

In February it was down to 15.9%:

(As you may recall, the U-6 measures includes the officially unemployed, marginally attached workers, and those who are working part-time but want full-time work.)

Underemployment Moves Up in August

Friday’s job report was decidedly mixed. Private employers added 67,000 jobs–more than expected, but still tepid. Meanwhile the unemployment rate ticked up to 9.6%, and the U-6 measure of underemployment moved up to 16.7%:

(As you may recall, the U-6 measure includes the officially unemployed, marginally attached workers, and those who are working part-time but want full-time work.)

Both the headline unemployment rate (U-3) and the underemployment rate (U-6) are below their peaks of late 2009, but have basically been moving sideways. That’s much better than the sharp increases in 2008 and most of 2009. But we have a very long way to go.

Underemployment Fell in May

The headline jobs report on Friday was disappointing, as temporary Census workers accounted for almost all of the 431,000 of May’s increase in payroll jobs. As the economics team at PNC put it, the jobs report was “all frosting, no cupcake.”

The household survey provided a little more substance, as the headline unemployment rate fell to 9.7% in May from 9.9%. More encouraging, the U-6 measure of underemployment (which includes not only those who are unemployed but also marginally attached workers and those who are part time for economic reasons) fell sharply. The underemployment rate was 16.6% in May, down from 17.1% a month earlier (and from its peak of 17.4% last October):

As you can see, the headline unemployment rate (U-3) and the underemployment rate (U-6) have been moving sideways or slightly downward over the past eight months. That’s a step in the right direction after the sharp increases in 2008 and 2009. But we have a very long way to go.

Jobs Rebounding Faster at Large Employers

In testimony before Congress’s Joint Economic Committee today, Treasury Assistant Secretary Alan Krueger provides further evidence that small employers have been particularly hard hit by the financial crisis and economic downturn.

Using research data from the Bureau of Labor Statistics Job Openings and Labor Turnover Survey data (known as the JOLTS data), Alan found that the pace of job openings has been rebounding at large employers (in green), but remains low at smaller employers (red and blue):

He also found important differences in the way that large and small employers reacted to the worsening of the financial crisis in September 2008:

[S]mall establishments responded by quickly laying off a large number of workers.  Mid-size establishments … and large establishments … responded by sharply cutting back on hiring in the months immediately after the crisis, and while they also increased layoffs, the increase was not as large as that seen by the small establishments. [See his testimony for the corresponding charts.]

His bottom line:

[T]he improvement in the labor market seen to date has been unevenly distributed across establishments of different sizes.  On the positive side, labor demand has generally trended up at large private sector establishments since reaching a trough in February 2008. Moreover, large establishments have apparently increased employment in five of the six months since September 2009–a possible early sign of durable job growth.  At the lower end of the size distribution, however, labor demand by small establishments has continued to be weak, with notably low rates of new hires.

P.S. For an earlier discussion of the JOLTS data, see this post.

Sharp Drop in Underemployment

The most encouraging item in todays jobs report was the sharp drop in underemployment (which includes not only those who are unemployed but also marginally attached workers and those who are part time for economic reasons). The underemployment rate fell to 16.5%, down from its peak of 17.4% last October and from 17.3% in December:

The headline unemployment rate also declined; it now stands at 9.7%, down from its 10.1% peak in October and from 10.0% in December.

These declines are encouraging, but the labor market obviously has a long way to go. Just how far was reinforced by BLS’s updated figures on the number of payroll jobs. Total job losses now stand at 8.4 million since the recession began at the end of 2007.

Fewer Layoffs, Not Enough Hiring

(This is a slightly edited version of a piece that appeared yesterday over at e21.)

As policymakers ponder whether and how they might be able to do more to encourage job creation, they should keep in mind that the monthly payroll job figures [e.g., -85,000 in December] are the net result of literally millions of hiring and firing decisions each month. In addition to the well-known payroll data, the Bureau of Labor Statistics also provides information about the monthly pace of hiring, firing, etc. Those data, known as the Job Openings and Labor Turnover Survey or JOLTS, allow us to track the overall dynamism of U.S. labor markets and the relative balance of gross job gains and losses.

As shown in the following chart, the total number of new hires each month tracks fairly closely over time with the number of people who separate (either voluntarily or involuntarily) from their jobs:

As you would expect, new hires were higher than separations in the middle of the decade when employment was growing. Since the start of the recession, however, separations have outstripped hires by a wide margin.

As the chart shows, overall labor market activity has plummeted over the past two years. New hiring has fallen by more than 1 million workers per month. Employers hired more than 5 million new workers each month back in 2007, but have recently been hiring only slightly more than 4 million. Separations show a similar pattern, as about 1 million fewer workers are leaving their jobs each month than did before the recession.

The decline in separations may seem surprising at first, but is easily understood when separations are divided into layoffs and discharges (i.e., involuntary separations) and quits (i.e., voluntary separations):

As you would expect, layoffs and discharges increased sharply during the recession. During the depths of the financial crisis in late 2008 and early 2009, an average of more than 2.5 million workers lost their jobs each month. The pace of layoffs has since slowed—about 2.1 million workers lost their jobs in November—but remains above levels consistent with growing employment.

Quits, meanwhile, have fallen off a cliff. An average of 1.8 million workers left their jobs voluntarily each month during 2009, about 40 percent lower than the 3.0 million pace a few years ago. In short, many fewer workers are finding opportunities to move to better jobs.

The JOLTS data suggest that the pace of quits may be one of the best signs of a healthy labor market. The uptick in November—to the highest level in ten months—is thus welcome and something to keep an eye on in coming months.

A Sobering Jobs Report

Today’s jobs report invites both negative and positive interpretations.

The positives are fewer, so let’s start with them:

  • With job losses of 85,000, December was the second-best (or, if you prefer, second-least-bad) month since January 2008.
  • With today’s revisions, November actually showed job gains of 4,000, the first increase since December 2007.
  • Put that all together, and job losses averaged 69,000 per month in the last quarter of 2009. That’s unwelcome, but much better than the average of 691,000 jobs lost in each of the first three months of the year.
  • Employment in temporary help services–often viewed as a leading economic indicator–increased by 46,500 in December.

And here are the negatives:

  • December’s job losses were much larger than most forecasters had predicted.
  • The upward revision to November job growth happened only because October jobs were revised down, making November look better. The actual level of November jobs was also revised down (by 1,000).
  • Although the unemployment rate was steady at 10.0%, the details beneath that figure were horrible. Household-reported employment fell by 589,000; the only reason that the unemployment rate stayed constant is that even more people–661,000–dropped out of the labor force.
  • The labor force participation rate thus fell to 64.6% and the employment-to-population ratio fell to 58.2%, the lowest since 1985 and 1983, respectively.
  • The underemployment rate (U-6) increased to 17.3%.

Bottom line: The economy is growing (as suggested by other data), but that growth is not yet translating into new jobs.