Why the Obama admin miscalculated the unemployment rate?

DWKB · July 8th, 2009, 06:34 AM

http://econlog.econlib.org/archives/...s_recover.html

Quote:

The Economist's blogger (the magazine has a policy against signed articles, and they have stupidly decided that the same policy has to apply to their blog) writes,

Quote:

there is every indication that recovery from this recession, when it arrives, will do little for many of the unemployed for years to come. Time to start thinking about why this is the case, and what can be done about it.

I want to emphasize once again that the structure of the economy has changed over the last fifty years. We have gone from over two-thirds of the labor force having no more than a high-school education to over two-thirds having at least some college education.

Up through the early 1980's, many of the unemployed in a recession were low-skilled workers on temporary layoff, in many cases concentrated among large industrial firms. Once demand recovered, they were called back--end of story.

The Dotcom recession was different. The people who were laid off by Webvan and Pets.com and Worldcom were not going to be called back. The companies were not viable. From late 2000 onward, a lot of the labor force simply disappeared. There was a recovery in productivity, as firms slashed marginal workers. The unemployment rate did not get terribly high, in part because fewer people looked for work. The employment-to-population ratio never recovered. Maybe it's a Tyler Cowen story--leisure got cheaper because of the Internet, and so people consumed more of it. (Just kidding)

My thesis is that unemployment is more persistent when the layoffs come from structural change rather than from excess inventories. With excess inventories, once the excess has been absorbed you can go back to work at your exact same job. On the other hand, when firms and industries permanently shrink, you have to find a new job, and possibly even an entirely new occupation. It is rare for people to have the capacity to do that, and it takes quite a bit of time when they do.

Part of the problem is credentialism. The demand for health care workers is high, but if state regulations say that you need a doctorate to be a physical therapist (a real example, in my state of Maryland), then shifting into health care is not going to be easy.

Most of the structural adjustments in the labor force consist of a cohort of young workers joining and a cohort of older workers leaving. This changes the mix of skills and occupations.

No economist knows how to deal with structural unemployment on the scale that we are seeing nowadays. Fiscal stimulus is not a proven remedy, and it may not be a remedy at all. Worker retraining programs are a logical idea and an empirical failure.

It seems many people are now identifying the American workforce problem (late as always), but the solutions are non-existent.

Southpaw · July 8th, 2009, 06:47 AM

Quote:

Originally Posted by DWKB

http://econlog.econlib.org/archives/...s_recover.html

It seems many people are now identifying the American workforce problem (late as always), but the solutions are non-existent.

Makes me wonder if that wasn't the plan all along. Blow it up and see where it goes. Very sad and we let it happen.

Gizmo Williams · July 8th, 2009, 07:42 AM

My thesis is that unemployment is more persistent when the layoffs come from structural change rather than from excess inventories. With excess inventories, once the excess has been absorbed you can go back to work at your exact same job. On the other hand, when firms and industries permanently shrink, you have to find a new job, and possibly even an entirely new occupation. It is rare for people to have the capacity to do that, and it takes quite a bit of time when they do.

I am not so sure I completely buy this. It was amazing how quickly all the Dot.com and day traders switched over to the real estate and mortgage industry. If there is money to be made...then workers will adopt to make money in the new industry fairly quickly.

Our economy is no longer driven by cycles but relies more on bubbles. Eventually the alt energy or biotech bubble will take off and create all the ancillary jobs that go along with it and we will quickly forget about the Dot.com or the real estate bubble.

RedStorm · July 8th, 2009, 07:44 AM

Quote:

Originally Posted by Gizmo Williams

My thesis is that unemployment is more persistent when the layoffs come from structural change rather than from excess inventories. With excess inventories, once the excess has been absorbed you can go back to work at your exact same job. On the other hand, when firms and industries permanently shrink, you have to find a new job, and possibly even an entirely new occupation. It is rare for people to have the capacity to do that, and it takes quite a bit of time when they do.

I am not so sure I completely buy this. It was amazing how quickly all the Dot.com and day traders switched over to the real estate and mortgage industry. If there is money to be made...then workers will adopt to make money in the new industry fairly quickly.

Our economy is no longer driven by cycles but relies more on bubbles. Eventually the alt energy or biotech bubble will take off and create all the ancillary jobs that go along with it and we will quickly forget about the Dot.com or the real estate bubble.

I agree with you. The bubble people just move around and do the same thing.

conraddobler · July 8th, 2009, 07:55 AM

Quote:

Originally Posted by RedStorm

I agree with you. The bubble people just move around and do the same thing.

Well I'm glad they are out of the mortgage business.

It was like a plauge of locusts.

RugbyMuffin · July 8th, 2009, 07:59 AM

Everyone has a hand in it.

The government is at the top of the list. A government has one simple job, and that is to govern said people that live on said land. This means these people are meant to lead and guide its people. Our government is inept of any leaders, and has no clue on how to guide its people. Mostly because they have to lie and sell sweet nothings to get votes, and also because we have an ologarchy in the US and have no idea how the common man lives and his challenges.

Thus you have a government saying, "Go to school, go to college, get a good job, and everything will be alright." The system revolves around this theory (like it or not it does) and many rules, laws, regulations, and programs are made off of this theory.

Yet, the problem is that in this modern day world the ol' theory doesn't work. The system that they preach upon is broken. Colleges no longer provide you with such an advantage that it justifies going into $40,000.00 in debt. As for jobs ? There is no loyalty in the coorperate world. Just the almighty dollar. You can work as hard and as long as you want but that doesn't make you safe. Everyone is expendable these days. You can cash in for a few years but eventually you will be out of work looking for a new job. Not to mention the salary freeze that has gone on for 10 years (so now I guess it is a salary recession) isn't making it any easier to save money towards said rainy day when you are thrown out on your butt.

On top of all that a lot of jobs are not only shipped over seas, but workers are shipped to the US to take over jobs for less money.

And when you are laid off you are stuck with a house, family, and bills to take care of. What happens when you cannot find a job to take care of those bills ? Thus there might be a part time job at Wallmart but that is a waste of time cause it doesn't provide the needed abilty to support ones life.

And it goes on, and on, and on. I could write about this stuff for hours.

The as a whole is broken. From the minute you stepped into a under-funded public school, to the moment you foreclose on your house at age 65 you are pretty much screwed.

I have no answer for any of it. The motivation I use these days is "Enjoy it while it lasts." because I know it is not a matter of "if" anymore, it is a matter of "when".

DWKB · July 8th, 2009, 07:59 AM

Quote:

Originally Posted by Gizmo Williams

I am not so sure I completely buy this. It was amazing how quickly all the Dot.com and day traders switched over to the real estate and mortgage industry. If there is money to be made...then workers will adopt to make money in the new industry fairly quickly.

Our economy is no longer driven by cycles but relies more on bubbles. Eventually the alt energy or biotech bubble will take off and create all the ancillary jobs that go along with it and we will quickly forget about the Dot.com or the real estate bubble.

A couple of things regarding your statement:

1) According to the Economist blog linked in the article

Quote:

IT'S not unusual for employment statistics to lag other economic indicators, particularly output, as an economy emerges from recession, but usually the lag is fairly short. Unemployment may rise for a month or two after the economy has begun expanding again, but typically new growth means new jobs. In recent recessions, however, this pattern has broken down. In the last downturn, in 2001, job growth finally returned some two years after the economy bottomed. This is the jobless recovery; an upturn that looks like an upturn, but sure doesn't feel like one.

If true, "amazingly quick" seems like a mis-statement. It seems like you are referring to investors instead of workers.

2) These graphs:

Hires

Fires

show that a comparison to the 2001 recession is underestimating the problem. The hiring is much lower now than in 2001 showing a serious effect of structural change.

RugbyMuffin · July 8th, 2009, 08:00 AM

Quote:

Originally Posted by Gizmo Williams

Our economy is no longer driven by cycles but relies more on bubbles. Eventually the alt energy or biotech bubble will take off and create all the ancillary jobs that go along with it and we will quickly forget about the Dot.com or the real estate bubble.

Yeah well good luck finding just one job in the alt. energy bubble. Cause as an electrical engineer, I can't find any in the state of NJ.

82CardsGrad · July 8th, 2009, 08:09 AM

There are permanent structural changes occuring now that will continue to wreak havoc on employment for years to come... Companies have learned, or are learning, the errs of their excess ways. They're learning to do more with less.
I posted this in a separate thread, but watch the Capacity Utilization data closely... It essentially measures the slack in the system... We are at present at the lowest levels since they began measuring this data-point back in the 60's. I believe the figure was at 67 or 68. The 30-plus year average is around 80.
Of course, I contend that even if we ever get close to 80 again, that won't necessarily equate to a rash if hiring as, like I said earlier, companies have changed... They will continue to find ways to do more with less.
Then again, Obama claims that his massive spending, Cap & Tax (Trade), etc., etc., etc... will offset all of the negative data indicators...

DWKB · July 8th, 2009, 08:26 AM

Quote:

Originally Posted by 82CardsGrad

Then again, Obama claims that his massive spending, Cap & Tax (Trade), etc., etc., etc... will offset all of the negative data indicators...

The eternal US citizens choice between the "wrong" option and no option at all.

82CardsGrad · July 8th, 2009, 08:46 AM

Quote:

Originally Posted by DWKB

The eternal US citizens choice between the "wrong" option and no option at all.

Stop the spending madness...
Provide tax relief to corporations and individuals...
Focus any incentives/stimulus on nothing else but job creation.

There ya go... those are my options...

Russ Smith · July 8th, 2009, 08:56 AM

Quote:

Originally Posted by 82CardsGrad

There are permanent structural changes occuring now that will continue to wreak havoc on employment for years to come... Companies have learned, or are learning, the errs of their excess ways. They're learning to do more with less.
I posted this in a separate thread, but watch the Capacity Utilization data closely... It essentially measures the slack in the system... We are at present at the lowest levels since they began measuring this data-point back in the 60's. I believe the figure was at 67 or 68. The 30-plus year average is around 80.
Of course, I contend that even if we ever get close to 80 again, that won't necessarily equate to a rash if hiring as, like I said earlier, companies have changed... They will continue to find ways to do more with less.
Then again, Obama claims that his massive spending, Cap & Tax (Trade), etc., etc., etc... will offset all of the negative data indicators...

My take is that a large part of the claims of productivity increases are just BS. What happened is that more and more jobs became salaried, but the definition of salaried changed. Salaried used to mean you got paid for 8 hours whether you worked less or more, but in my experience less or 8 hours was the norm. Now the norm is more than 8, 10 or even 12 in many cases is the norm. So the company has essentially cut your hourly wage and 2 salaried workers are doing the work that 3 hourly workers did before. So even if you pay the salaried workers a higher based pay, you cut spending because their 2 salaries are lower than the 3 hourly salaries were.

I see this everywhere. I am applying for jobs that are basically in the field I've done for years, but they all have these "add ons" that are new. It's like when Congress votes on a bill about workers rights and tacks on a rider giving themselves a raise. I'm applying for facilities manager/supervisor positions but they're also asking for administrative assistant experience, or supervise administrative functions, mailroom, shipping/receiving etc. Where supervisory or management positions used to be mostly hands off, they now want you to manage 10 people AND fix the HVAC and plumbing. I talked to someone who openly told me the position was 75% hands on, I remember when HR used to say supervisor or management positions can't be more than 25% hands on to meet the definition.

I think this is why hiring is slower, companies are creating job descriptions that are very hard to meet. An example, I applied for a job at Synopsys in Mountain View in May. I have never been called, the job is still be advertised in early July. They have reposted it at least 4 times, each time they've added more to it, all somewhat unrelated to "normal" facilities. I tried to re-apply and their system says "you have already applied for this job." I tried to call to talk to HR, and was told if you don't have a name, I can't put your call through.

I am sure Synopsis really wants someone to do this job, but I'm betting the hiring manager was told to save money we're combining it with another job and that's why they haven't filled the job in 6 weeks. The original job fit me to a T, but 2 days after I applied they changed the description. I'd say now 30% of the description is things I've never done so I went from an ideal candidate to just so so.

In the past I never had problems getting a job, even if I didn't meet all the criteria they were willing to let me learn on the job. Now it seems they aren't, and the problem is they're combining dissimilar jobs making it less likely they will find someone to meet all their criteria.

I also think job req's are being pulled much quicker than I've ever seen before. My sister has applied for several stock admin positions where she knows someone who works there or had the job before etc. There are professional organizations that stock admins belong to so she can usually find out info about positions. At least 6 times in the last 2 months a job she's applied for has had the req pulled, they no longer are hiring that position it's not filled, it's just closed now. Companies are very quick to change their mind on hiring now, any little blip on the radar and they panic and pull job reqs.

I also really wonder what impact offshoring has had on the unemployment rate? I think companies that cut back did so locally first, and then overseas. So when they're hiring back, they start overseas because the salaries are still lower? So even when US companies are hiring, it has no impact on US workers because they're hiring in India?

I'm in a position now I didn't really expect and frankly frustrates the hell out of me. the only jobs I know I can get right now, pay less than I make on unemployment, and don't offer insurance. So if I take the job I cut my income and ability to make my COBRA payments. There's no incentive for me to take a job at a grocery store. Iv'e looked at Starbucks and Target becaues they offer insurance over 20 hours per week, but the salaries are much lower and they can't guarantee hours, and Starbucks is actually laying off and closing stores. So it's actually financially better for me to continue on unemployment and try to get a job more similar to what I did before. I've never been on unemployment in my life, I used to think it was a negative thing but now I am very thankful it's there. I think that's a big reason why the unemployment rate is so high, people are not taking lower paid jobs(if theyr'e available) because they actually lose money by doing so.

CaptTurbo · July 8th, 2009, 09:07 AM

About 2 years ago I was bashed unbelievably hard for stating what I thought to be an obvious fact.

With the emergence of a global economy the haves will have less and the have nots will have more. This cycle will continue until the entire world comes to the same level. Since we were at the very top and there are hundreds of countries at the very bottom (third world) we have a long fall to go.

Gizmo Williams · July 8th, 2009, 09:14 AM

Quote:

Originally Posted by DWKB

A couple of things regarding your statement:

1) According to the Economist blog linked in the article

If true, "amazingly quick" seems like a mis-statement. It seems like you are referring to investors instead of workers.

2) These graphs:

.

According to his hypothesis....he says that it is rare for people to switch industries when one goes away. The graphs contradict this....otherwise the rate of hires would have stayed down in around the 3.5 area.

Also, when discussing structural shifts...2 years is hardly a long time frame.

This one is definitely much worse than 2001 and will take considerable time to recover...but to think that people will not move to new industries is absurd. I am fairly confident that the typewriter repair man or the fax machine salesperson quickly retooled for a new industry when the PC and Internet took off.

DWKB · July 8th, 2009, 10:19 AM

Quote:

Originally Posted by 82CardsGrad

Stop the spending madness...

All spending? A more specific answer?

Quote:

Originally Posted by 82CardsGrad

Provide tax relief to corporations and individuals...

We already pull in less revenue from corporations than the majority of industrialized nations. Goldman Sachs paid 1% in income tax last year. At what point do we expect to see an ROI from the corporations for all this saved money?

Quote:

Originally Posted by 82CardsGrad

Focus any incentives/stimulus on nothing else but job creation.

What specifically, though? How will jobs get created?