The employment emergency is over

By Felix Salmon
December 7, 2012

 

This is the US unemployment rate, from Calculated Risk. Today’s jobs report was a very positive one: not only did job creation exceed all expectations, but unemployment fell too, to 7.7%. For the first time, the unemployment rate is lower than it was when Barack Obama took office, in January 2009.

The employment recovery is now 33 months old, and as strong as it’s ever been. We’re still a long way from achieving pre-recession levels of employment, but the fact is that it’s hard to maintain a sense of crisis and emergency for this much time: if you live with anything for more than a couple of years it becomes normal. (Which is one reason why Europe, which has a structurally much higher unemployment rate than the US, doesn’t consider itself to be in a permanent jobs crisis.)

The levels in the employment report are still scary. 7.7% is high in absolute terms, and both the employment-to-population ratio and the labor force participation rate are much lower than they should be. America should have millions more people at work than it does, and there’s a very strong case, looking at levels alone, for further economic stimulus to help us further in the right direction.

But there’s something oxymoronic about the concept of a permanent state of emergency. And in terms of how strong the recovery feels, first derivatives are just as important as levels: if unemployment has fallen from 8.7% to 7.7% in the past year, that feels better than an economy where unemployment has risen from, say, 6.1% to 7.1%. When the temporary payroll tax cut was passed, unemployment was higher than it is now, and it was rising; clearly we’re in a much better spot now than we were then.

The best-case outcome from the fiscal negotiations now taking place between Barack Obama and John Boehner is that they move us out of the “permanent temporary” tax code and into a world where everybody knows what tax rates are and what they will be. Putting expiry dates on tax cuts is a gimmick, and while there’s a case for doing that kind of thing in the middle of a major crisis, we’re really not in the middle of a major crisis any more. It took far too long for the unemployment rate to start falling, and it has been falling far too slowly. But “unemployment should be falling faster” is not a crisis.

With any luck, then, the resolution to the fiscal-cliff debate will be a set of tax policies that both sides agree on, along with a clear date when they will be fully in force. I’m thinking January 1, 2014. The key number to look at will be total federal taxes as a percentage of GDP: it needs to be high enough to be able to run a mature modern democracy. Then, once you have a clear and permanent tax code as your primed canvas, you can start having a sensible conversation about government expenditures: where they need to come down, and which areas of the economy need some stimulus. Even if spending-related stimulus is no more effective than tax-cut-related stimulus, it’s still a better option, because it allows you to leave the tax code alone.

If Obama’s first term was about doing whatever was necessary to get us out of the biggest crisis in living memory, his second term should be dedicated to building strong and permanent foundations for the economy going forward. America’s fiscal architecture is a key part of that — indeed, it’s the key part. So if the payroll cut disappears, along with all other temporary bells and whistles, that’s fine. What’s good for the economy now will also be good for the economy next year, and the year after, and the year after that. Let’s structure any a deal so that it can work forever. And then, if there are temporary political and economic issues which need addressing, let’s tackle them through means other than the tax code.

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Comments
13 comments so far

If this site wasn’t quite so stone-age one could easily go back just a few months and find several pieces in which FS et.al. gave virtuoso, hand-wringing, emotive pleas for ‘anything’ that might help solve this employment ‘crisis’. Now, with unempl down like just 1% it’s – ‘What crisis?’. What crisis, indeed! About this -

“I’m thinking January 1, 2014… you can start having a sensible conversation about government expenditures ….”

You sayin’ we should even TALK about spending restraint for at least a full year?! (You do know that our debt is rising like almost 10% of GDP each year, right?)

Posted by MrRFox | Report as abusive

I get the sense FS does not know very many unemployed or greatly underemplyed people in his circle, perhpaps giving a survivors bias to his grasp of where we are.

Posted by MSM-Reuters | Report as abusive

@MrRFox, I think the ideal scenario would be to let the various Bush tax cuts expire January 1 (on both the wealthy and the middle class), and have a plan in place to pull back the spending over the course of 2-3 years.

Tax increases likely don’t have as immediate an impact on the economy as spending cuts, so it makes sense to address the tax increases first and the spending cuts down the road.

But politically, that’s a non-starter. Republicans won’t even be able to agree to significant tax increases with IMMEDIATE spending cuts. Is why going off the fiscal cliff might ultimately be the best solution. Negotiating an answer to the ongoing deficits isn’t politically possible, either now or in 2014.

Posted by TFF17 | Report as abusive

Looking through the charts…

What “should” the labor force participation rate be? And is the drop we’ve seen due to the recession and “discouraged” workers, or due to larger trends?

Seems that labor force participation has been dropping since 2001. More retirees? More years spent in college and as unpaid interns? More stay-at-home parents by choice? Rising obesity and ill health forcing more onto disability? I don’t know, but to me the graph suggests a trend reaching back long before the credit bubble burst.

And the scale of the chart obscures that employment is down just 6% from the all-time peak, just 4% from the norm of the last two decades. Not hard to imagine a change of that magnitude resulting from a decade of demographic shift.

Posted by TFF17 | Report as abusive

It’s a sad and scary thing when one observes, “if you live with anything for more than a couple of years it becomes normal.”

This is exactly the Liberals goal; numb people to the potential of what could be so they’ll be dependent on bigger and bigger government for handouts which they won’t question where they come from or how their paid for.

It’s especially sad when we’re sitting on one of the world’s largest reserves of ridiculously cheap and accessible energy that would provide very high paying jobs, significantly reduce unemployment immediately (not even talking about all those who aren’t counted in the numbers above because they fell off the govt. stats that give the illusion of a marginally better situation), contribute by paying taxes and reducing the need for government payouts/help and actually reducing the national debt without Congress doing a thing (i.e. reach a negotiated deal and/or even more “economic stimulus”) while unleashing this economy’s economic potential.

No, this neutered USofA is what the liberals want and now own; dependent, mediocre and miserable. Reminds me of the book “1984,” now leave me alone with my gin as I watch Big Brother watching me.

Posted by Twinkbait | Report as abusive

Calm down, Felix-there’s something oxymoronic about celebrating employment growth when over half of these positions are low wage dead end jobs:

http://www.ritholtz.com/blog/2012/12/low -wage-sectors-drive-employment-growth/

Fortunately, here’s Toys ‘R Us* to the rescue (startin’ ‘em young):

http://dangerousminds.net/comments/no_fu ture_for_you_mcdonalds_cash_register_pla yset_a_toysrus_exclusive

* owner: Bain Capital

Posted by crocodilechuck | Report as abusive

Ok time to raise interest rates.

Posted by ekaneti | Report as abusive

This is more confusing than Elliott vs. Argentina and ‘The London Whale Trade’ – combined. About TFF & TFF17 -

Is it like troll-’n-sockpuppet, or Tarzan-’n-Boy (or Tarzan-’n-Cheetah), or Dr. Evil-’n-’Mini-Me’, or Dr. Frankenstein-’n- ….

Posted by MrRFox | Report as abusive

All good choices, MrRFox, I can’t choose!

Posted by TFF | Report as abusive

Pulling up charts from the 2012 census, I see the following strong trends in labor force participation (focusing on the change from 2000 to 2010):

Labor force participation is down sharply among the young, ages 16-24, from 65.8% in 2000 to 55.2% in 2010. Best guess here is that high school graduates are finding few opportunities and are seeking college degrees instead. (College graduates also may need to pursue internships for a couple years before finding real employment.) Parents, get ready to support your adult children for a few years!

Labor force participation is down marginally for people between the ages of 25 and 54, falling from 84.2% in 2000 to 82.2% in 2010. This drop is broadly distributed across gender and age within this segment. This is likely the core of the “discouraged worker” meme.

Labor force participation is UP among those age 55+, especially among women (as the women who broke ground in the 1970s work their way up the demographic scale) but also among men. I would suggest that fewer jobs are physically demanding, allowing people to work longer than in the past, yet labor force participation for men age 55-64 was higher in 1980 than it is today, and for those age 65+ it dropped before it jumped again. I might suggest that economic uncertainty and weak investment markets (almost as high in 1980 as today) make it difficult for people to afford retirement?

To summarize:
* Young are staying in school or unpaid positions longer (a trend that seems unlikely to change).

* Middle-aged are having trouble finding worthwhile employment (which might improve as the economy slowly rebounds, and might already be a bit better than in 2010).

* Elderly are continuing to work well into “retirement” (again, a trend that seems unlikely to change).

So what *is* the natural rate of labor force participation today?

Posted by TFF | Report as abusive

By: Paul Craig Roberts| December 8, 2012 | John Williams (shadowstats.com) calls the government’s latest jobs and unemployment reports “nonsense numbers.”

There are a number of ongoing problems with the released numbers. For example, the concurrent-seasonal factor adjustments are unstable. The birth-death model adds non-existent jobs each month that are then taken out in the annual downward benchmark revisions. Williams calculates that the job overstatement through November averages 45,000 monthly. In other words, employment gains during 2012 have been overstated by about 500,000 jobs. Another problem is that each month’s jobs number is boosted by downside revision of the previous month’s jobs number. Williams reports that the 146,000 new jobs reported for November “was after a significant downside revision to October’s reporting. Net of prior-period revisions, November’s seasonally-adjusted monthly gain was 97,000.”

Even if we believe the government that 146,000 new jobs materialized during November, that is the amount necessary to stay even with population growth and therefore could not be responsible for reducing the unemployment rate from 7.9% to 7.7%. The reduction is due to how the unemployed are counted.

The 7.7% rate is known as the “headline rate.” It is the rate you hear in the news. Its official designation is U.3.

The Bureau of Labor Statistics has another official unemployment rate known as U.6.
The difference is that U.3 does not include discouraged workers who are not currently actively seeking a job. (A discouraged worker is a person who has given up looking for a job because there are no jobs to be found.) The U.6 measure includes workers who have been discouraged for less than one year. The U.6 rate of unemployment is 14.4%, about double the headline rate.

The U.6 rate does not include long-term discouraged workers, those who have been discouraged for more than one year. John Williams estimates this rate and reports the actual rate of unemployment (known as SGS) in November to be 22.9%.

In other words, the headline rate of unemployment is one-third the actual rate.

The drop in the November headline rate of unemployment from 7.9 to 7.7 is due to a 20.4% increase in the number of short-term discouraged workers in November. In other words, unemployed people rolled out of the U.3 measure into the U.6 measure.
Similarly, a number of short-term discouraged workers roll out of the U.6 measure into John Williams’ measure that includes all of the unemployed. Williams reports that “with the continual rollover, the flow of headline workers continues into the short-term discouraged workers (U.6), and from U.6 into long term discouraged worker status (a ShadowStats.com measure), at what has been an accelerating pace. The aggregate November data show an increasing rate of individuals dropping out of the headline (U.3) labor force.” In other words, the headline rate of unemployment can drop even though the unemployed are having a harder time finding jobs.

The U.S. government simply lowers the unemployment rate by not counting all of the unemployed. We owe this innovation to the Clinton administration. In 1994 the Clinton administration redefined “discouraged workers” and limited this group to those who are discouraged for less than one year. Those discouraged for more than one year are no longer considered to be in the labor force and ceased to be counted as unemployed.

If the U.S. government will mislead the public about unemployment, it will also
mislead about Syria, Iran, Iraq, Afghanistan, Libya, Somalia, Pakistan, Yemen, Lebanon, Palestine, Russia, China, and 9/11. The government fits its story to its agenda.

A government that wants to cut the social safety net doesn’t want you to know that the unemployment rate is 22.9%. A government that wants to cut the social safety net when between one-fifth and one-fourth of the work force is out of work looks hard-hearted, mean-spirited, and foolish. But if the government reports only one-third of the unemployed and presents that rate as falling, then the government can present its cuts as prudent to avoid falling over a “fiscal cliff.”

If the “free and democratic” Americans cannot even find out what the unemployment rate is, how do they expect to find out about anything?

Posted by jk8588 | Report as abusive

By: Paul Craig Roberts| December 8, 2012 | Categories: Articles & Columns | Tags: Jobs, Shadowstats, Unemployment, Williams, | Print This Article
Statistician John Williams (shadowstats.com) calls the government’s latest jobs and unemployment reports “nonsense numbers.”

There are a number of ongoing problems with the released numbers. For example, the concurrent-seasonal factor adjustments are unstable. The birth-death model adds non-existent jobs each month that are then taken out in the annual downward benchmark revisions. Williams calculates that the job overstatement through November averages 45,000 monthly. In other words, employment gains during 2012 have been overstated by about 500,000 jobs. Another problem is that each month’s jobs number is boosted by downside revision of the previous month’s jobs number. Williams reports that the 146,000 new jobs reported for November “was after a significant downside revision to October’s reporting. Net of prior-period revisions, November’s seasonally-adjusted monthly gain was 97,000.”

Even if we believe the government that 146,000 new jobs materialized during November, that is the amount necessary to stay even with population growth and therefore could not be responsible for reducing the unemployment rate from 7.9% to 7.7%. The reduction is due to how the unemployed are counted.

The 7.7% rate is known as the “headline rate.” It is the rate you hear in the news. Its official designation is U.3.

The Bureau of Labor Statistics has another official unemployment rate known as U.6.
The difference is that U.3 does not include discouraged workers who are not currently actively seeking a job. (A discouraged worker is a person who has given up looking for a job because there are no jobs to be found.) The U.6 measure includes workers who have been discouraged for less than one year. The U.6 rate of unemployment is 14.4%, about double the headline rate.

The U.6 rate does not include long-term discouraged workers, those who have been discouraged for more than one year. John Williams estimates this rate and reports the actual rate of unemployment (known as SGS) in November to be 22.9%.

In other words, the headline rate of unemployment is one-third the actual rate.

The drop in the November headline rate of unemployment from 7.9 to 7.7 is due to a 20.4% increase in the number of short-term discouraged workers in November. In other words, unemployed people rolled out of the U.3 measure into the U.6 measure.
Similarly, a number of short-term discouraged workers roll out of the U.6 measure into John Williams’ measure that includes all of the unemployed. Williams reports that “with the continual rollover, the flow of headline workers continues into the short-term discouraged workers (U.6), and from U.6 into long term discouraged worker status (a ShadowStats.com measure), at what has been an accelerating pace. The aggregate November data show an increasing rate of individuals dropping out of the headline (U.3) labor force.” In other words, the headline rate of unemployment can drop even though the unemployed are having a harder time finding jobs.

The U.S. government simply lowers the unemployment rate by not counting all of the unemployed. We owe this innovation to the Clinton administration. In 1994 the Clinton administration redefined “discouraged workers” and limited this group to those who are discouraged for less than one year. Those discouraged for more than one year are no longer considered to be in the labor force and ceased to be counted as unemployed.

If the U.S. government will mislead the public about unemployment, it will also
mislead about Syria, Iran, Iraq, Afghanistan, Libya, Somalia, Pakistan, Yemen, Lebanon, Palestine, Russia, China, and 9/11. The government fits its story to its agenda.

A government that wants to cut the social safety net doesn’t want you to know that the unemployment rate is 22.9%. A government that wants to cut the social safety net when between one-fifth and one-fourth of the work force is out of work looks hard-hearted, mean-spirited, and foolish. But if the government reports only one-third of the unemployed and presents that rate as falling, then the government can present its cuts as prudent to avoid falling over a “fiscal cliff.”

If the “free and democratic” Americans cannot even find out what the unemployment rate is, how do they expect to find out about anything?

Posted by jk8588 | Report as abusive

Please, sir – send me a pair of the rose-colored glasses you are wearing. The ACTUAL unemployment rate when factoring in the under-employed and those who have stopped looking for work is about 14%.

Recovery? Most of the jobs now touted are part-time or temporary or seasonal, minimum wage with no benefits. The employment always is greater during the holidary season when stores need more employees – TEMPORARY employees who will not be kept on after the holidays.

It is a “wait and see” time – when you wait and see what the numbers will be in January, February and March. Plus, more companies are cutting hours for employees – even Walmart is doing this. Not pessimistic – just realistic in my views of the “wonderful” employment numbers.

Posted by AZreb | Report as abusive
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