Commentaries

Reasons to be cheerful

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Doing more with less is a corporate mantra that some say bodes ill for job growth. Data last week showed that productivity at non-farm business jumped at an extraordinary 9.5 percent annual rate in the third quarter.

Yet the sharp gains in efficiency are helping drive corporate profits and that could be just what’s needed to convince employers that it’s safe to begin hiring again. (more…)

The danger of a lost generation

– Christopher Swann is a Reuters columnist. The views expressed are his own —

NEW YORK, July 24 (Reuters) – For the first time in three generations, Americans across the nation are facing the threat of long-term unemployment. Already more than one in four jobless Americans have now been out of work for more than six months, the highest level since records began in 1948.

For both individuals and national economies, long-term joblessness has proved to be extremely corrosive. Skills atrophy after extended periods of enforced indolence. Then, when an economy recovers, these workers are no longer in a position to fill new jobs.

As a result the potential maximum speed at which the economy can grow declines, and the workers themselves come to be seen as “damaged goods.” Those unlucky enough to be graduating in 2009 may find that their salaries never match those of similarly qualified peers who finished in 2006. To his great credit, President Obama has been quick to spot the danger. Under the administration’s stimulus package, the unemployed can now claim benefits well beyond the standard six months. In some badly afflicted states, insurance will last up to a year and a half.

The government is also offering $4 billion in funds to retrain workers. Tax breaks in the package aim to make it more affordable for young people to sit out the recession in school. Another $12 billion for community colleges has the same goal.

Yet even this heroic effort may be too little, too late for many Americans. The closest analogy to America’s current unemployment crisis is probably Japan. Here too was a nation accustomed to minimal long-term joblessness. In Japan the lost decade produced a lost generation.

Faced with a “hiring ice age,” graduates settled for lower status or temporary jobs. By the time companies were in the mood to hire again in bulk around 2007, they chose fresh graduates. Many of Japan’s thirtysomethings never caught up.

Gloomy employment milestones

There is normally something for both optimists and pessimists in the monthly employment report.

When the payroll figures are disappointing, the unemployment rate is frequently better than expected. This month is no exception. While payrolls plunged by nearly half a million, unemployment barely budged.

On closer inspection there is little comfort in this report even for the most dogged optimist. The fact that unemployment only rose slightly was chiefly a result of a 155,000 decline in the size of the labor force. This could be noise, or a sign that discouraged workers are abandoning their search.

For statistical connoisseurs there were two alarming milestones. Since the start of the recession in December 2007, 6.5 million jobs have been lost – more jobs than were created during the previous business cycle. According to Heidi Shierholz at the Economic Policy Institute, this is the first recession since the 1930s to erase all of the employment creation from the preceding cycle.

The second discouraging sign is that the proportion of those out of work for more than six months is at its highest level since 1948, when records begin. Almost a third of the jobless are now classified as long-term unemployed – up from about 19 percent last year. This is bad news for U.S. productivity. As people stew on benefits their skills tend to atrophy. With more highly educated workers losing their jobs, this problem could get worse.

The figures are bound to be used as evidence that Obama’s costly stimulus package has been a dud. This is unfair. The time lags in fiscal stimulus are long. Payroll deductions were scaled back only a few months ago and much of the infrastructure spending will take many months to filter through. In addition the president’s package was never likely to halt the rise in unemployment, merely to slow it.

The figures should send the loudest signal to the Federal Reserve, which is still on the front line. Its credit easing program has always offered the best hope of economic stabilization. Recently the Fed has become less active.