unemployment – Donald Marron

The Worst Jobs Day Ever

Driven by the COVID-19 shutdown, April marked the greatest job loss in American history. The unemployment rate skyrocketed to 14.7 percent, and employers cut 20.5 million jobs.

Those figures are heart-wrenching. But as awful as they are, they do not fully capture workers’ hardships. To be counted as unemployed, people must be available for work and actively seeking it. With schools closed, job opportunities withering, and social distancing the new norm, many displaced workers don’t satisfy those requirements. Instead, they officially show up as having left the labor force.

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From February to April, the labor force shrank by 8 million people. Add that to the more than 17 million increase in unemployment, and 25 million Americans are no longer employed. More than 61 percent of Americans had jobs in February. In April, only 51 percent did, the lowest level since records began in 1948.

In addition, millions of Americans still have jobs but have seen their hours cut. From February to April, the number of people reporting that they work part-time for economic reasons rose by 6.6 million. That spike happened even though part-time workers have lost jobs at a particularly sharp rate. Unemployment among people who usually work part-time rose from 3.7 percent in February to 24.5 percent in April, while unemployment for full-time workers rose from 3.5 percent to 12.9 percent.

Americans from all walks of life are suffering in the great shutdown. But the employment damage is not distributed equally. As often happens in downturns, highly educated workers have fared better than those with less education. Among workers with a college degree, unemployment increased from 1.9 percent in February to 8.4 percent in April. High school graduates with no college education, however, have seen unemployment spike from 3.6 percent to 17.3 percent.

Teenage unemployment is now almost 32 percent, far more than for older workers. Unemployment among Hispanic workers has increased more than for white, black, and Asian workers. Women experienced a larger increase than did men.

We are living through remarkable times. The United States has not experienced unemployment at these levels since the Great Depression. The one bit of good news is that many job losses may be temporary. Indeed, a record 78 percent of unemployed workers report they are on temporary layoff.

Unfortunately, many jobs will be permanently lost. To date, policymakers have rightly focused on economy-wide disaster relief. Keeping families and employers financially afloat is essential for an eventual recovery.

When we start down the path to recovery, policymakers should assess how severe the longer-term damage will be and consider policies that accelerate the return to full employment.

This post originally appeared on the Urban Institute’s Urban Wire blog.

After 20 Years, Sweden’s Labor Market Still Hasn’t Recovered

By many accounts, Sweden did a great job managing its financial and fiscal crises in the early 1990s. But more than 20 years onward, its unemployment rate is still higher than before the crisis, as noted in a recent commentary by the Cleveland Fed’s O. Emre Ergungor (ht: Torsten Slok):

And its labor force participation rate is still lower:

Does Sweden’s experience portend similar problems for the United States? Ergungor thinks not. Instead, he attributes this shift to a structural change in Swedish policy that has no direct analog in the United States:

One study of public sector employment policies published in 2008 by Hans-Ulrich Derlien and Guy Peters indicates that for many years, the labor market had been kept artificially tight by government policies that replaced disappearing jobs in failing industries with jobs in the government. The financial crisis was the breaking point of an economic system that had grown increasingly more unstable over a long period of time. It was a watershed event that marked the end of an unsustainable structure and the beginning of a new one. Public sector employment declined from 423,000 in 1985 to 240,000 in 1996 mainly through the privatization of large employers—like the Swedish postal service, the Swedish Telecommunications Administration, and Vattenfall, the electricity enterprise—and it has remained almost flat since then.

With such a large structural change, what came before the crisis may no longer be a reference point for what will come after. Having corrected the root of the problem, the Swedish labor market is now operating at a new equilibrium.

That doesn’t mean smooth sailing for the United States, as he discusses. But it does leave hope that perhaps we do better than Sweden in creating jobs in the wake of a financial crisis.

A Good Jobs Report

Today’s jobs data exceeded expectations. Payrolls expanded by 114,000 in September, in line with expectations, but upward revisions to July and August added another 86,000 jobs, so the overall payroll picture is better than the headline.

The big news, though, is that the unemployment rate fell to 7.8%. That’s big economically and symbolically. Indeed, it’s so big that conspiracy-mongerers are suggesting the BLS cooked the numbers to help President Obama get re-elected. Let there be no doubt: That’s utter nonsense.

Other numbers also indicate an improving job market: the labor force participation rate ticked up to 63.6%, the employment-to-population ratio rose 0.4 percentage points to 58.7%, and the average workweek increased by 0.1 hours. All remain far below healthy levels, but in September they moved in the right direction.

Despite the drop, unemployment and underemployment both remain very high, as well. After peaking at 10% in October 2009, the unemployment rate has declined a bit more than 2 percentage points. The U-6 measure of underemployment, meanwhile, peaked at 17.2% and now stands at 14.7%:

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. One anomaly in the September data is that the unemployment rate fell from 8.1% to 7.8%, but the U-6 remained unchanged at 14.7%. Why? Because the number of workers with part-time work who want full-time work spiked up from 8.0 million to 8.6 million.

Weak Employment in One Chart

Another weak jobs report with payrolls up only 80,000, unemployment stuck at 8.2 percent, and underemployment ticking up to 14.9 percent.

But the real news continues to be how far employment has fallen. As recently as 2006, more than 63 percent of adults had a job. Today, that figure is less than 59 percent:

With the exception of the past several years, you’ve got to go back almost three decades to find the last time that so few Americans were employed (as a share of the adult population).

The stunning decline in the employment-to-population ratio (epop to its friends) reflects two related factors. First, the unemployment rate has increased from less than 5 percent to more than 8 percent. That accounts for roughly half the fall in epop. The other half reflects lower labor force participation. Slightly more than 66 percent of adults were in the labor force back them, but now it’s less than 64 percent.

Jobs Report – The Soft Side of Mediocre

As expected, today’s jobs data showed a slowing labor market. Payrolls expanded by 115,000 in April, less than hoped or expected. Upward revisions to February and March added another 53,000 jobs, however, so the overall payroll picture is better than the headline. The unemployment rate ticked down to 8.1%, the labor force participation rate slipped to 63.6%, weekly hours were unchanged at 34.5, and hourly earnings increased a measly penny from $23.37 to $23.38.

Put it all together, and this report is on the soft side of mediocre.

Unemployment and underemployment both remain very high, but they’ve been moving in the right direction. After peaking at 10% in October 2009, the unemployment rate has declined by about 2 percentage points. The U-6 measure of underemployment, meanwhile, peaked at 17.2% and now stands at 14.5%:

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

Getting Better But a Long Way to Go

Friday’s jobs data confirmed that labor markets are getting better, but slowly. Payrolls expanded by 200,000, the unemployment rate fell again to 8.5%, weekly hours ticked up from 34.3 to 34.4, and hourly earnings rose by 0.2%.

Of course, there is still a long, long way to go. Unemployment and underemployment both remain very high, but they’ve been moving in the right direction. After peaking at 10% in October 2009, the unemployment rate has declined by 1.5 percentage points. The U-6 measure of underemployment, meanwhile, peaked at 17.2% and now stands at 15.2%:

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

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.

Unemployment, Small Business, Quantitative Easing, and More

The Fed’s quantitative easing programs did indeed lower interest rates, but more so for Treasuries and mortgage-backed securities than for other kinds of debt. Small businesses are overrated as job creators. Extended unemployment insurance does increase unemployment rates, but not that much.

Those are just a few of the findings from papers presented today at the Brookings Institution’s twice-yearly conference, Brookings Papers on Economic Activity.

Courtesy of a Brookings release, here are brief summaries of five papers discussed today:

In Recession and the Costs of Lost Jobs, authors Steve Davis of the University of Chicago and Til von Wachter of Columbia University find that when mass-layoffs occur in good economic times, men with 3 or more years of job tenure suffer a $65,000 loss in the lifetime value of their earnings (a fall of about 10%), relative to otherwise similar workers who retain their jobs. But in a recession, a similar shock causes workers to lose $112,000 in the lifetime value of their future earnings (or about 19%). The authors also track worker perceptions about layoff risks, job-finding prospects, and the likelihood of wage cuts, finding a tremendous increase in worker anxieties about their labor market prospects after the financial crisis of 2008. This heightened anxiety continues today, they find. Davis and von Wachter also show that prior economic employment models have been unable to address the facts about the earnings losses associated with job loss, yet those earnings impacts appear to be one of the main reasons that individuals and policymakers are so concerned with recessions and unemployment. Finally, they note that pro-growth policies may be the most efficient and cost-effective means available to policymakers to alleviate the hardships experienced by displaced workers.

In What Do Small Businesses Do authors Erik Hurst and Benjamin Wild Pugsley of the University of Chicago overturn the conventional wisdom about the role of small business, finding that they aren’t the job engine most believe them to be. Most small business owners neither expect nor desire to grow or innovate, but rather intend to provide an existing service to an existing customer base. Analyzing new survey data, the authors find that, instead, it is non-financial reasons — such as work flexibility and the desire to be one’s own boss – that are the most common reason that entrepreneurs start their own business. Hurst and Pugsley note this behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. They conclude that standard theories of entrepreneurship may be misguided and result in sub-optimal public policy, suggesting that subsidies for small businesses may be better spent if they are targeted to businesses that expect to grow and innovate, rather than small businesses in general. They laud the partnership between the US Small Business Administration and venture capital firms as an example of strong targeted public policy.

In Unemployment Insurance and Job Search in the Great Recession, Jesse Rothstein of the University of California, Berkeley finds that recent extensions to the period in which the unemployed can draw unemployment benefits had a significant but small negative effect on the probability that eligible unemployed would exit unemployment, and that the effect is mainly concentrated among the long-term unemployed. Rothstein calculates that without those extensions, the unemployment rate would have been about 0.2-0.6 percentage points lower—a much smaller impact than implied by previous analyses, and that the long-term unemployment rate would have been even lower. He finds that half or more of these impacts are due to the unemployed remaining in the labor force rather than reductions in the chances of finding employment. As a result, Rothstein suggests that a generous extension of UI benefit in deep recessions should last until the labor market is strong again, thus giving displaced workers a realistic chance of finding new employment before their benefits expire.

In The Effects of Quantitative Easing on Interest Rates, Arvind Krishnamurthy and Annette Vissing-Jorgensen of Northwestern University show that the Federal Reserve’s recent quantitative easing (QE) programs (“QE1” and “QE2”) did in fact significantly lower interest rates on Treasury securities, as well as GSE bonds and highly rated corporate bonds. They also find that such programs affect interest rates differently depending on which assets are purchased: QE1, which involved the purchase of mortgage-backed securities (MBS) in addition to Treasury securities, significantly lowered MBS rates, whereas QE2, which focused exclusively on Treasury securities, had little effect on MBS rates. The authors identify several channels through which QE affects interest rates: first, QE increases the premium paid for assets with low-default risk (and thus lowers rates on these assets), by reducing the supply of such assets available to investors; second, QE drives down interest rates broadly by signaling a commitment by the Federal Reserve to keep interest rates low for a long period; and third, when QE involves purchases of mortgage-related assets, it lowers rates on such assets by affecting the price of mortgage-specific risk. Because QE does not affect all long-term interest rates equally, examining the impact of a QE policy that focuses on purchases of Treasury securities on long-term Treasury rates is likely to overstate the program’s impact on the long-term corporate and mortgage interest rates that all relevant to investment and housing demand. Interestingly, the results about having the Fed use its communication channel alone – that is, signaling its intentions – might be having a significant impact on rates without having the Fed actually take on the risks associated with increasing its balance sheet. The authors also conclude that expected inflation increased substantially due to QE1 and modestly due to QE2, implying that reductions in real rates were larger than reductions in nominal rates.

In Practical Monetary Policy: Examples from Sweden and the United States, Lars E.O. Svensson, the Deputy Governor of the Swedish Central Bank (Sveriges Riksbank) analyzes the actions of the U.S. Federal Reserve and the Swedish Riksbank during and after the summer of 2010, looking for evidence that perhaps central banks make mistakes. In that time period, both the Fed and Riksbank forecasts for inflation were below their target and their forecasts for unemployment were above the sustainable unemployment rate, suggesting that more expansionary policy was warranted. However, the Riksbank tightened policy while the Federal Reserve held rates steady. Although the Swedish economy developed better than expected, and the U.S. economy developed worse than anticipated, Svensson argues that these developments were the result of external factors — not, in fact, the nations’ respective monetary policies. The Riksbank benefited from higher-than-anticipated domestic and export demand, upward revisions of GDP data, and a lack of structural problems. On the other hand, the Fed had to contend with fiscal policy problems, a slower housing market recovery, and substantial downward revisions of GDP data. The author concludes that the Riksbank’s decision to tighten policy is difficult to justify, while the Federal Reserve’s decision not to tighten was appropriate, although there is also a case to be made that they should have eased more.

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.)

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.)