Unemployment’s here to stay

By Felix Salmon
October 7, 2011
these numbers.

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There’s no particularly good news in these numbers. For every glimmer of good news, like the upward revisions to previous reports totaling 100,000 new jobs or so, there’s an offsetting piece of bad news, like the broad U6 unemployment rate jumping up to 16.5% from 16.2%.

And the number of people unemployed for more than six months is now 6.24 million — up by 208,000. The long-term unemployed — the least employable of the unemployed, and the most intractable problem in terms of getting America back to work — are now 44.6% of the total, up from 42.9% last month, and 41.8% a year ago.

It’s always a bit dangerous to try to meld the two surveys which make up the payrolls report, but I’m detecting a trend here: insofar as employers are hiring new people, they’re hiring new entrants into the labor force, rather than people making up the ranks of the unemployed. Maybe it’s recent graduates, maybe it’s former stay-at-home moms who were never claiming unemployment but who are now getting jobs. Maybe it’s immigrants. But the big picture is that employment growth is more or less keeping track with population growth, leaving no new jobs for the 14 million unemployed Americans.

It’s worth asking, in this context, whether Obama’s jobs bill would actually change that dynamic at all. It might help at the margin — if you’re working hard enough to burn through the fat reserves of highly-qualified graduates and moms and immigrants, you might eventually start cutting into the hard muscle mass of the long-term unemployed. But my gut feeling is that the effect of the jobs bill will be much bigger on employment figures than on unemployment figures.

Is there anything the government can do to bring unemployment down? Or is it now too late? If we are indeed in the early months of a double-dip recession, than I think it is too late: unemployment is more likely to go up than it is down from here. And even if the economy’s still managing to eke out modest growth, I don’t see much hope that the unemployment rate will come down to a remotely acceptable level any time soon. Realistically, America’s unemployed are here to stay. And we’re only just beginning to understand how that’s going to affect the political economy of the nation.

62 comments

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Good points on inflation, KenG. That is unfortunate, in a way, because falling nominal wages may be even nastier than stagnant nominal wages and falling real wages.

Increased demand could come from an improvement in the trade deficit. If we export more, or import less, then there is greater interest in what we produce at home.

Increased demand could come from investment, perhaps in developing shale oil/gas resources.

Otherwise increased demand must necessarily wait for the banks (and households) to clean their books. At the present rate of repair, that could be a decade or more.

The valuation of the renminbi could come to a currency war soon. China (and some here?) believes that is not in our best interest, however exporting jobs isn’t in our best interest either. If trade with China were shut down, it would be incredibly disruptive — but it would absolutely lead to new jobs (and higher prices) in the US. Am puzzled why you believe our imports from China are “mostly luxuries”?

Even absent inflation (and we’ve been seeing 3%-5% inflation recently), even in a union shop, there are various ways that wages can be renegotiated downward. The least painful is to “add steps” to the bottom of the salary scale, in which new hires begin at a lower salary. Doesn’t affect current employees (so the unions offer limited opposition). Does reduce the cost of new hires by $1k/year for ~15 years for each step added.

I’ve also seen “step freezes” in which the usual step raises don’t occur. That can happen in conjunction with adding an additional step at the bottom.

The top of the salary scale can also be pulled in. The savings on that are more immediate — but also faces greater opposition. Alternatively, the “extras” (longevity bonuses, sick day buybacks, coaching stipends) can be pulled back while leaving the nominal salary the same.

Or you can lay off veterans, then (a couple years later) rehire college graduates at half the cost.

Or you can close schools and reopen them as “charter schools” (non-union shops). Or out source activities that are presently held in house.

Or you can freeze salaries and watch them erode by 3% to 5% annually.

Union contracts can be contentious, but they aren’t a guarantee of infinite raises.

Posted by TFF | Report as abusive

“Otherwise increased demand must necessarily wait for the banks (and households) to clean their books. At the present rate of repair, that could be a decade or more.”

This is exactly what concerns me most.

I was broad with my use of the word “luxuries”, but I meant anything beyond housing, food, transportation, health care, education, communication (ok, we do get cell phones made there), etc. – the basic true needs for life. We don’t import energy or much food from China (the small amount of the latter shouldn’t be imported anyway), and we can’t live there, so they mostly would impact discretionary spending, which is primarily the cause of our over-consumption (i.e., trade deficit).

Your points on various ways wages have declined are well taken. I feel the U.S. has been like a lobster in a pot of boiling water – most people haven’t been aware that the standard of living has been declining for a majority of Americans for some time. It’s been masked by cheap imports from China, financed by debt from China, and only now are people realizing they are in real hot water. Beyond the lower wages many have seen, there is also a decline in value received – schools with increased class sizes and less classes offered; airline flights that don’t include luggage or meals; fewer services provided by towns and counties, really crappy, lower quality processed food in restaurants (I wish they would just reduce portion sizes, that might help with the obesity problem); closed state parks; more exclusions on health insurance; and so on.

OK, I have digressed enough.

Posted by KenG_CA | Report as abusive

Since a part of the discussion turned to education, I would love to understant how come so many problems with education, quantity and quality and something like this guy is doing ! Khan academy : library of over 2,600 educational videos
http://tinyurl.com/672flc

This is the work of ONE single person, for fun and for the love of sharing. Got math, sciences, economy and event political lessons and he can even offert it for FREE !!

And I’m certain we can find many examples like that all over!

Posted by Wildnfree | Report as abusive

An enjoyable discussion, KenG, if a depressing topic.

I’ve noticed the trend in restaurant ingredients myself, as well as the rest of the value cuts you mention. Fifteen years ago, Bertucci’s used similar quality ingredients to what I would use in my own kitchen… These days they cover up the cheap ingredients with salt and heavy seasoning.

You’ve brought up a lot of points to ponder…

Posted by TFF | Report as abusive

“This is the work of ONE single person, for fun and for the love of sharing.”

It has expanded beyond Khan himself, but it is still a VERY cheap operation to run. I recommend it myself to students as a study aid.

Posted by TFF | Report as abusive

TFF, yes, I enjoyed it also, despite the nature of the topic, it was heavy on information and light on adjectives and insults.

Salt and heavy seasoning… you just about got me started on another tangent, but I’ll wait for Felix to bring it up.

Posted by KenG_CA | Report as abusive

“Realistically, America’s unemployed are here to stay.”

No.
If history teaches us anything, it’s that nothing lasts forever: Not the Great Depression, not Hitler’s “Thousand Year Reich,” not the Soviet Union, not the thermonuclear “balance of terror,” not the stagflation of the 1970s, not the dictatorships of the Middle East. Every one of these, in its time, was regarded as “the new normal.” And every one is now just pages in history books.

And as we see from these examples, when things change, they often change quite quickly and unexpectedly.

We do have one thing going for us, just like we did in these earlier times: Americans are never satisfied to accept parlous conditions as “the new normal.” We’ll keep looking for new leaders and new ideas till we find a solution.

That’s what has kept America great: A pragmatic striving for success.

Posted by sinz54 | Report as abusive

High UNEMPLOYMENT will be here to stay as long as Obama is with his corrupt wasted spending, Solyndras, “Son of Stimulous, war against American business, and nation destroying debt. When Obama is on his way out the recovery will be able to start, not until then!

Posted by valwayne | Report as abusive

Without intending to minimize the seriousness of our unemployment numbers, it is worth remembering that we are dealing with unemployment from a population of people who want to be employed which is a larger percentage of the total population than was the case 40 years ago as a consequence of the entry of a far larger part of the female population into the workforce. We are also dealing with an economy in which the “service” sector is much larger than it was 40 years ago. These changes are not unrelated to each other. Much of our increased consumption is reflected in an increase in purchased services — purchasing the services of people to do things that we could do for ourselves if we had the time.

It can be argued that the increase in the percentage of women in the labor force and the increase in the extent to which we purchased services are related paradigm shifts. It is reasonable to consider that current high levels of unemployment may signal the beginning of another paradigm shift where people who have time as a consequence of being unemployed replace purchased services with self-performed services. This might not be the end of the world.

Posted by mrdon | Report as abusive

A good point, mrdon, but 40 years ago each household (to a first approximation) had one employed spouse and one unemployed spouse. I fear the employment/unemployment is less evenly distributed today, and there are likely more single-parent households than in the past as well.

Posted by TFF | Report as abusive

Wow, that’s very pessimistic! Even when good news hits the media takes the stance: “there must be some bad news in here…let’s find it and emphasize it!”.

Some would even call all of these down articles self-fulfilling prophecies. Felix…cheer up man…it’s gonna be alright…

Posted by sma1 | Report as abusive

it seems to me that the “paradigm”of being an american is taking a much needed shift from self-gratification to creating change for the next generations. unsustainable world supply and demand has begun to be visible even to the most uninformed. that and taking away the intrinsic american “reality”that you can start with nothing and retire comfortably has been sold to the highest 5% of the land,the rest of us are no longer the working class but the new slave class.No political party can change what has been bought and sold,the 99% will have to bring back HOPE for a future.

Posted by latefordinner | Report as abusive