Questions and answers on unemployment
Posted on February 2, 2011 by dcampbell1
Questions and Answers about Unemployment and the US Economy
On the first Friday of every month the Bureau of Labor Statistics (BLS) releases information on the US labor force that covers the preceding month. The number that often gets the most attention is the unemployment rate. In organizing around jobs and unemployment, it is important to understand what the unemployment rate measures, what it omits, and what other information is contained in the BLS release.
Q: How bad is the employment situation in the U.S? What do the different numbers mean?
A: The answer to the first question is: very bad – by far the worst since the Great Depression of the 1930s. This is true even though the Great Recession was declared over in June 2009. Here are the key numbers that demonstrate just how bad things are for working people. Let’s begin with the unemployment rate as reported by the BLS. This rate is the number of people unemployed and looking for work in the four weeks prior to the report divided by the people working plus those looking for work (in the prior 4 weeks). It is important to note two things about this rate. First, the only people counted as unemployed are those who report seeking a job in the prior four weeks. If someone has been out of work but has given up looking or did not look in the previous 4 weeks, they are not counted among the unemployed. Thus, if people drop out of the actively looking for work category, the unemployment rate may decline, even though as many or more people are unemployed. This is part of what happened between November 2010 and December 2010 when the unemployment rate dropped from 9.8% to 9.4%: about half of the decline was the result of individuals no longer looking for work. In December 2010 there were officially 14.5 million unemployed people.
That number is large but is at best half the story of unemployment. In addition to the officially unemployed, the BLS also reports a number for people who report that that they want jobs but did not look in the 4 weeks covered by the report. In December 2010 there were 6.5 million of these individuals, another 4.2% of the labor force. Finally, the BLS also reports the number of people who are working part time but want to work full time. There were 8.9 million such people in December 2010, accounting for another 5.7% of the labor force. Adding these three categories together, there were 29.9 million un- or under- employed people in December 2010.
Q: What has been the trend in unemployment during the Great Recession?
The Great Recession officially began in Dec 2007 and ended in June 2009. During those 18 months, the number of employed people in the US dropped by about 5.5 million. If the unemployment rate had remained unchanged from the Dec 2007 level, the number of employed would have grown by about 2 million. Thus by June 2009 we were down about 7 million jobs, with a total official unemployed population of 14.2 million. In the following six months, the number of employed fell by another 2 million (December 2009) and 18 months after the official end of the Great Recession we have not yet returned to the number of jobs the existed in June 2009.
There is another other catastrophic development in unemployment during the Great Recession. As of December 2010, over 44% of the unemployed were classified as long term unemployed, out of work for 27 weeks or more. This measure has been at all time record levels. Even in the 1983 recession, when unemployment last reached 10%, only about 1 in 4 of the unemployed was out of work for that long.
Q: Why didn’t the stimulus work to create jobs?
A: It did, over 3 million of them. However, the stimulus bill (the American Reinvestment and Recovery Act, ARRA) had several weaknesses. First, it was too small, representing less than 6% of US GDP. Second, a larger portion of ARRA was poorly designed to create jobs, relying on tax cuts rather than direct spending for job creation. Tax cuts have only a weak impact on demand for labor, goods and services, particularly when compared to direct government spending, either for jobs, e.g. infrastructure, or to boost consumer demand, e.g. food stamps or unemployment insurance. As economists describe it, tax cuts have a multiplier of only 0.5 while food stamps have a multiplier of over 1.5.
A: Who are the unemployed?
Q: The hardest hit sector of the labor force has been construction, accounting for about 25% of the jobs lost. This is not surprising since the housing boom of 2002 – 2006 can be thought of as a WPA for the construction sector. By 2005, housing and its associated industries (e.g. furnishings, finance, building materials, etc.) represented almost 25% of US GDP. Manufacturing, especially durable goods, had also lost jobs. By demographic characteristics, both the young labor force entrants and the old, people facing but often delaying retirement, have suffered – and continue to suffer – the most form the failure in job growth.
Q: Can the private sector labor market restore employment?
A: Left by itself it would take an extremely long time, and in fact might never reach the pre-Great Recession employment levels. During 2010 private sector job creation averaged 94,000 jobs/month. This sounds ok until you realize that the labor force grows by about 110,000 – 120,000/month – so we have actually lost ground. In the past 50 years the best that private sector job growth achieved was 500,000 new jobs/month for a short time during the Ford/Carter presidencies. However, even this may be overoptimistic. Over the past 25 years, the US economy has demonstrated a declining ability to bounce back from recessions considerably milder than the Great Recession. From 1948–1980 the average number of post recession months required to return to pre-recession employment levels was 9; during this 32 year period, the maximum number of months to get back to pre-cession employment levels was 12. In contrast, after the 1990 downturn it took 23 months before employment returned to pre-recession level, and it took 39 months after the 2001 recession. Today we are already 18 months beyond the end of the Great Recession and, as noted above, have not even begun the task of growing fast enough to return to pre-recession employment numbers.
Of course, even prior to the onset of the Great Recession in December 2007, there were already 7.3 million unemployed. Consider the best job creation rate in the past 50 years (500,000/month – which means a net of less than 400,000 after subtracting new labor forced entrants). Even at that rate, it would take more than 3 years to absorb the 14.2 million officially unemployed and another 3 years to provide jobs for the part time/want full time work plus discouraged workers. The private sector has never sustained that rate or anything near it for the period of time necessary to return us to full employment.
Q: What can be done about the lack of jobs?
A: With the failure of the private sector labor market, the alternative – and most efficient approach – is for the federal government, in cooperation with states and municipalities, to undertake a job creation program. The program must meet several criteria: (i) it must be large enough in scope to provide jobs for the millions without them; (ii) it must be more than make work, targeted to jobs that meet social needs and jobs that provide career paths; (iii) the wages earned should be sufficient to support the worker and his/her dependents; (iv) jobs should go first to people suffering from long term unemployment; and (v) the jobs that are created should not require a long time for training and/or preparation – we need to put people to work quickly, much as the WPA did in the 1930s.
Q: What about the deficit problem? Can we afford a jobs program?
A: Yes – a job creation program can pay for itself and also help us move our political economy away from over dependence on banks and other financial businesses. With regards to the impact on the deficit, there are significant budget gains from a jobs creation program, Robert Pollin (UMass – Amherst) has calculated that for every 1% decline in the unemployment rate, the federal government saves and/or receives $90 billion. This is a combination of reduced spending for UI, food stamps, etc and increased tax revenues.
Perhaps of greater appeal, a jobs program could be designed to be deficit neutral. One example of such an approach is the legislation proposed in 2010 by Rep. John Conyers (D – Detroit). The 21st Century Full Employment and Training Act (HR 5204) would fund jobs by imposing a very small tax on the trading of financial assets: stocks, bonds or currencies. Even a tax at the rate of 0.25% ($1 on every $400 dollars worth of stock, debt or currencies traded) as suggested in the bill would generate more than $500 billion annually, enough to fund a very large jobs program – more than 5 million jobs.
The Conyers bill has several other strengths. First, it is focused on community needs with projects to be selected with input from non-profits, unions, and community groups. Second, it targets long term unemployed for hiring priority. Third, it guarantees employment for a minimum of twelve months. Finally, it remains in effect until the unemployment rate declines below 4%.
Organizing around the Conyers proposal (it will have to be reintroduced in the 112thCongress) gives DSA and YDS an opportunity to work with a wide range of progressive organizations and provides a substantive counter to the conservative mantra of deficit reduction and hoping the economy will right itself of its own accord.
Bill Barclay. Chicago. Chicago Political Economy Group www.cpegonline.org
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