Felix Salmon

The Gallup global employment data are out, and there’s a huge amount of meat here, including this unemployment map:

US unemployment, on this measure, is in the double-digit range — significantly above the global average of 7%. Meanwhile, Germany, with a much stronger social safety net, has unemployment of less than 5%. (Remember, these aren’t official national statistics, they’re Gallup’s attempt to apply the same yardstick to all countries.)

Zoom in on Europe, and the you can see where all the current tensions are coming from, especially in the stark contrast between Germany and Spain, and in general the difference between a relatively prosperous north and a struggling south which is also much closer to the hardships of north Africa.

David Leonhardt has a smart take on this data: essentially, the US is doing well by its corporates and its full-time employees (Caroline Baum notes that fourth-quarter withheld income tax receipts rose 17 percent from a year earlier), and is letting the unemployed fall through the cracks; Europe and Canada, by contrast, have attempted to spread the pain more widely.

I fear, however, that even if the US adopts the kind of job-boosting policies Leonhardt is extolling, ultimately Tyler Cowen and Jayme Lemke are right, and it’s going to take years of hard-won economic growth before we make a significant dent in the US unemployment rate. In the interim, it’s important for society to look after the unhappy minority which has found itself to all intents and purposes unemployable. When the median period of unemployment exceeds the maximum duration of unemployment checks, that’s a sign of a country which has simply given up on its neediest.

The December jobs report turns recent history on its head. We’ve been used to healthy increases in employment making no dent in the unemployment rate, but this time a mediocre jobs figure—just 103,000 new jobs were created—coincides with a gratifyingly large fall in unemployment, to 9.4% from 9.8%. For those keeping track at home, that’s employment up by 103,000 and unemployment down by a whopping 556,000.

There’s no doubt that the headline payrolls number is a disappointment. The economy just doesn’t seem to be creating jobs: we need to see 150,000 new jobs a month just to keep pace with population growth. But is there some good news, at least, on the unemployment front?

I’m not sure. While unemployment is down from both December 2009 and December 2010, it’s down only for those who have been out of work for less than 26 weeks. The ranks of the long-term unemployed are still rising:

Meanwhile, the numbers of “discouraged” people continue to rise very fast indeed: these are the people who’d love a job but have given up looking for one and therefore don’t count as unemployed.

Among the marginally attached, there were 1.3 million discouraged workers in December, an increase of 389,000 from December 2009. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.

The headline unemployment rate is important, and it’s great that it’s coming down. But if you’ve been out of work a long time, there’s little hope in these figures for you.

This chart comes from a Working Families Project report, and it underscores how the Great Recession has hit the working classes just as much as it has the unemployed. The baseline here — 200% of the poverty level — might sound high enough to be comfortable, but it isn’t: we’re talking a total household income of $36,620 for a family of three, or $44,100 for a family of four. (I’ve put the full chart, taken from here, over to the right.)

As the report says,

Nearly 1 in 3 working families in the United States, despite their hard work, are struggling to meet basic needs. The plight of these families now challenges a fundamental assumption that in america, work pays.

The workers in these families have a much greater risk of becoming unemployed than the population as a whole, and of course they’re financially much less prepared for any period of unemployment than most of the rest of us.

Michael Fletcher has a good write-up of the report, describing the working poor starkly as “people who earn wages so paltry that they are struggling to survive”, and showing that they’re unlikely to get much help from the government:

With a spate of fiscal conservatives poised to enter Congress and with policymakers more tightly focused on the nation’s huge budget deficit, the prospects of maintaining past spending levels on programs that help enable social mobility are dimming.

Many states also are reeling, causing them to raise college tuitions and, in some cases, consider cuts in public school funding.

If the unemployment problem risks becoming politically invisible, then the plight of the working poor was never visible in the first place. But looking at this chart, it’s easy to see why large swathes of America are angry at their government. If Barack Obama wants to understand and fight back against the fundamental drivers of Tea Party sentiment, he should concentrate on precisely these numbers.

Last week, when I wrote my post on how to boost employment, the list started off unambiguously:

The first—and this can’t be stressed enough—is simply extending the federal unemployment extensions. As Menzie Chinn notes, the CEA has scored this, and the numbers are enormous: already, the program has increased the level of employment by 793,000 jobs. If the extensions are kept dead, there will be 593,000 fewer jobs in a year’s time than there would be if they were resuscitated, including more than 46,000 jobs in Florida and more than 26,000 jobs in Michigan.

This is not intuitive, especially to economist types who think that incentives matter and that at the margin, paying people to remain unemployed is not going to increase their chances of getting a job. But the fact is that those unemployment benefits are spent, and the extra economic activity naturally creates employment.

There is of course some effect by which paying people to stay unemployed will increase their chances of doing so. Rob Valletta and Katherine Kuang, of the San Francisco Fed, did the math back in April, concluding that the effect is “relatively modest”:

The question arises whether this extended availability of UI benefits has contributed to a lengthening of unemployment spells because jobless workers are staying in the labor force longer in order to continue collecting benefits. Such a dynamic could raise the unemployment rate. However, analysis of data on unemployed individuals decomposed by their reason for unemployment, which affects their eligibility for UI, suggests that extended UI benefits have had a relatively modest effect. We calculate that, in the absence of extended benefits, the unemployment rate would have been about 0.4 percentage point lower at the end of 2009, or about 9.6% rather than 10.0%.

Peter Coy has taken a detailed look at the interplay between the two effects:

Do the extra checks make unemployment higher than it would otherwise be by paying people to sit at home? Or do the checks sustain growth by supporting the spending power of households with out-of-work breadwinners?

In truth, unemployment benefit extensions do both—they raise the jobless rate a bit, and they make the economy grow faster. What’s clear is that extending jobless benefits makes more sense when the unemployment rate is exceptionally high, as it is now, at 9.8 percent in November… Because aid to the jobless is almost immediately spent (as opposed to tax refunds for the wealthy), it is the most effective means of stimulating demand.

Coy’s “bottom line” is clear: “Although the Obama-GOP tax deal extends unemployment benefits, it probably will not dissuade many jobless from seeking work.”

This all adds up to something reasonably clear. Unemployment insurance isn’t only just from a fairness perspective, it’s also extremely effective as stimulus. Any effect whereby it encourages people to stay unemployed is, in comparison, modest.

Which is why it’s very odd to find Kelly Evans, in the WSJ, writing the exact opposite.

More jobless benefits, more unemployment.

A likely rise in the U.S. jobless rate is the unfortunate reality of the government’s move to fund extended unemployment benefits for another 13 months.

The effect probably won’t be huge, but it will be significant. And it may well hamper any recovery in investor and business confidence.

Evans isn’t very good at math*:

Individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate.

Well yes, the labor force is indeed used to determine the unemployment rate, but it’s the denominator in that calculation. If the denominator goes up, the rate goes down. The problem is rather that in any ratio less than 100%, if you increase the numerator and the denominator by the same amount, then the ratio goes up.

Evans concludes:

Policy makers are hoping that extending benefits—along with other tax breaks—will generate enough short-term strength in spending and growth to overshadow any rise in the unemployment rate.

That may prove wishful thinking. The late rapper Notorious B.I.G. probably put it best: “mo’ money, mo’ problems.”

Evans’s piece elicited a smart smackdown from Zack Roth, who actually went to the trouble of phoning up the SF Fed’s Rob Valletta:

“These separate effects act in opposition to one another,” said Valletta. So the question becomes: Which effect is greater, in our current situation?

On this, Valletta was clear. In the current weak labor market, he said, the micro effect is relatively small. “I think the macro economic effects, in terms of reducing the unemployment rate, outweigh the micro effects that increase the unemployment rate,” he said.

This makes perfect intuitive sense, since the macro effects right now are huge, on the order of $60 billion being spent, and 600,000 extra jobs created. It really doesn’t seem plausible, in this economy, that more than 600,000 people will stay out of work and live on their unemployment checks rather than accept a job they would have taken in the absence of those checks; neither does it seem plausible that injecting $60 billion into the economy would send the unemployment rate up.

After Roth’s piece appeared, Evans responded, saying that “we’re all making the same point re: jobless benefits.” (It’s fantastic, by the way, that she’s happy and willing to join the public debate over her stories.) Roth was not convinced, replying that “your point was jobless benefits boost unemployment. everyone else’s is that they cut unemployment. seem like different points.” And so Evans clarified, here and here:

The disagreement is over net effect; will extending UI do enough for growth to overcome the rise in unemployment?

I’m not that optimistic about growth. Extending UI helps growth; but enough to overcome upward pressure on UR?

This misses the point: extending UI would be a good idea even — especially — if growth were sluggish. It’s when the economy isn’t growing that you need to apply stimulus, if only to prevent it backsliding into a double-dip recession. Growth doesn’t need to be high in order for UI to create employment; it just needs to be higher than it would have been absent the extra benefits. If you’re “not that optimistic about growth”, that’s all the more reason to want the fiscal stimulus of extending UI.

Evans might be right that the US unemployment rate is going to rise rather than fall. But if the unemployment rate does rise, the reasons for that rise will be found in the macroeconomy as a whole. Blaming any such rise on the extension of unemployment insurance will be silly.

*Update: This passage was ill-written, or ill-advised, or both. When I reposted this at CJR, I changed it to say that “Evans isn’t very good at explaining the math of why more unemployed people add to the unemployment rate”. I probably shouldn’t have included it at all, though, it’s not central to my point.

Michael Linden and Michael Ettlinger have a good overview of the cost in dollars of the tax-cut compromise, and its benefit when it comes to employment numbers:

David Leonhardt then boils their numbers down even further:

Of its estimated $900 billion-plus cost over two years, roughly $120 billion covers the high-end tax cuts and the estate tax cut, $450 billion covers Mr. Obama’s wish list and $360 billion covers the tax cut extensions both parties favored.

Both in terms of dollars and in terms of jobs, then, this deal is heavily weighted towards progressive options. Yes, the tax cuts for the rich are expensive, at $60 billion a year. But the payroll cut as proposed will cost $120 billion a year, and it does look as though the Obama administration has found its second stimulus.

As Catherine Rampell reports, cutting taxes is almost never the first-best form of stimulus. But it’s the only form of stimulus which is politically feasible—and what’s more, there are diminishing marginal returns to extra spending-related stimulus, in terms of jobs created, since the first stimulus more than covered the low-hanging fruit.

Incidentally, Leonhardt disagrees with my take on payroll-tax cuts. I reckon it makes perfect sense to give them to employees rather than employers, but he says no:

The ideal package would have been larger than the current one, and it would have been better tailored. The $120 billion cut in the payroll tax, for example, will apply to the portion paid by workers, not companies. The Congressional Budget Office and other analysts have said that cutting the workers’ portion provides less bang for the buck because individuals are likely to save some portion of the money. Cutting the employers’ portion subsidizes hiring.

But politics prevented the best kind of payroll tax cut. Republicans did not want one larger than the $120 billion, one-year cut in the package. Administration officials wanted the political benefit of having that whole sum apply to individual workers. The resulting compromise will help the economy, but not as much as it could have.

John Carney made a similar point yesterday:

Temporary tax relief tends not to increase consumer spending by very much. What’s more, tax relief that comes in the form of a temporary payroll tax cut is even less likely to stimulate spending.

Carney has a certain amount of academic literature on his side, especially a recent paper based on a poll of consumers, asking them how much of any tax cut they would save rather than spend.

Here’s the more detailed testimony of CBO director Douglas Elmendorf. He calculates that reducing employers’ payroll taxes would increase GDP by between 40 cents and $1.20 for every dollar spent, while reducing employees’ payroll taxes would boost GDP by somewhere between 30 cents and 90 cents. On the jobs front, every million dollars spent on the employer side would create between 5 and 13 jobs in the first year; if the cuts were applied to employees, the range is between 3 and 9 jobs.

Elmendorf writes that reducing employees’ payroll taxes “would have effects similar to those of reducing other taxes for those workers”; he doesn’t go into any detail about the behavioral economics of quietly reducing withholding versus sending out splashy rebate checks.

So, let me apologize to Greg Mankiw for calling him disingenuous yesterday: there’s clearly much more of a consensus here than I thought.

I’m not yet persuaded that employer-side tax cuts are better: I still think that for three main reasons, employee-side cuts make sense right now. The experience of the last cuts shows how invisible they are and therefore how likely they are to be spent; the size of corporate cash piles shows how unwilling companies are to reinvest extra temporary cashflow; and in general employers are richer than employees, so giving the tax cut to them seems regressive. But it’s clearly credible and intellectually honest to believe otherwise.

That said, I love Elmendorf’s idea of cutting employer-side payroll taxes only for those employers who increase their payrolls. That policy would surely have a very large bang-to-buck ratio.

Given the urgency of boosting employment and reducing unemployment, we need much more than vague ideas about training and apprenticeship. The good news is that there are at least two very good ideas which could be implemented quite easily and which would have a direct effect on employment.

The first—and this can’t be stressed enough—is simply extending the federal unemployment extensions. As Menzie Chinn notes, the CEA has scored this, and the numbers are enormous: already, the program has increased the level of employment by 793,000 jobs. If the extensions are kept dead, there will be 593,000 fewer jobs in a year’s time than there would be if they were resuscitated, including more than 46,000 jobs in Florida and more than 26,000 jobs in Michigan.

This is not intuitive, especially to economist types who think that incentives matter and that at the margin, paying people to remain unemployed is not going to increase their chances of getting a job. But the fact is that those unemployment benefits are spent, and the extra economic activity naturally creates employment.

These jobs aren’t cheap: spending $65 billion to create 593,000 jobs works out at about $110,000 per job created. But remember this is just a second-order effect of a policy which makes a lot of sense on its own. (And the net cost is less than $65 billion, thanks to the extra taxes generated by all that new economic activity.)

Cornelius Hurley has a much cheaper idea: using the Federal Home Loan Bank System to try to create jobs rather than homes. He has three specific proposals:

This paper provides three suggestions that utilize the existing system of the FHLB to promote job creation and promotion: 1. making small business and other job-creation loans a more viable and readily accessible source of collateral for advances; 2. expanding the membership of the FHLB System to include firms that are lending to small businesses; and, 3. creating an AHP-like jobs-creation program with the support of funding that formerly went to pay down REFCORP obligations. Changing the mission of the FHLB System to make job creation a primary goal would allow for the use of a pre-existing structure with a channel directly into over 8,000 community banks to increase the amount of credit available to small businesses and thus allow those businesses to immediately create new jobs and the preservation of others.

This I think is a great idea: we’ve learned the hard way that homeownership can cause more harm than good, while employment is a pretty unalloyed Good Thing.

Under Hurley’s plan, the FHLB system would be much more willing than it is now to accept small-business loans as collateral against its own bank lending. Yes, those loans are inherently quite risky, but so in one way it’s much safer to lend against small-business loans than it is to lend against mortgages: souring small-business loans don’t destroy local banks in the way that souring mortgages do.

It’s impossible to know in advance exactly how much these ideas would boost employment. But at the margin they would surely help, and the mechanisms by which they would do so are far more obvious than the mechanisms by which the Fed hopes that quantitative easing will increase employment. So let’s do it: as Hurley notes, some of his ideas could be implemented by presidential fiat, and not even need Congress to pass any laws. What are we waiting for?

The unemployment rate has long been called Obama’s Katrina, but at this point it’s clear that it’s much worse than that: its political toll is surely worse for the president than a bungled hurricane response could ever be. Its human toll too, probably. And while it’s never a good idea to read too much into a single datapoint, the fact that it rose, unexpectedly, to 9.8% in November is undeniably bad news.

Catherine Rampell has a great piece in today’s NYT about the long-term unemployed, complete with a new parsing of data from the Labor Department:

People out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.

She also reprints a familiar and damning chart: the average duration of unemployment is now significantly longer than the 26-week maximum duration of unemployment benefits.

Rampell does a good job of explaining what the sensible policy responses might be for a government looking to bring these numbers down. The list of possibilities includes tax breaks for hiring the unemployed; direct employment of the unemployed, as in the New Deal; and programs devoted to retraining and apprenticeship. Notably absent from the list is the idea of getting the Federal Reserve to buy long-dated Treasury bonds, which seems to be the only thing the government is actually doing.

Indeed, the elected branches of government are making things worse rather than better: 2 million of the long-term unemployed lost their federal emergency unemployment aid on Tuesday, and Republicans in Congress are much more interested in a $700 billion scheme to extend tax cuts for people earning more than $250,000 a year than they are in providing some kind of social safety net for people who have been out of work for more than six months.

Rampell ends her piece with a resonant point:

“After a while, a lot of European countries just got used to having 8 or 9 percent unemployment, where they just said, ‘Hey, that’s about good enough,’ ” said Gary Burtless, a senior fellow at the Brookings Institution. “If the unemployment rates here stay high but remain relatively stable, people may not worry so much that that’ll be their fate this month or next year. And all these unemployed people will fall from the front of their mind, and that’s it for them.”

European countries, of course, don’t cut off benefits after six months, just when the unemployed need them most. But Burtless’s point is well taken. Right now, the unemployment rate is rising and therefore news, which means that people are at least paying attention to it. If it just bogs down, over the long term, somewhere north of 8%, then at that point the policy debate loses all urgency, and unemployment gets added to the long-term fiscal outlook as something which really ought to be addressed but never is.

The mathematics of the monthly payroll report don’t always make sense, since it’s actually two reports: the household report, covering employment and unemployment status, and the establishment report, showing the number of people being paid in various sectors of the economy.

The November report released this morning shows a clear divergence between the two: while the establishment report did well, with a healthy rise of 151,000 in total payrolls and upward revisions to previous months, the household report went nowhere, with the unemployment rate stubbornly unchanged at 9.6% and other key indicators, like the labor force participation rate and the employment-population ratio, actually heading in the wrong direction.

Overall, the private sector has now added more than a million new jobs over the past year — a good start, in the wake of the 8 million job losses we saw over the course of the recession. And 400,000 of those new jobs have come in the past three months. For people with jobs, wages and hours are rising, too. Over the past 12 months, average hourly earnings are up 1.7%, while average hours worked are up 1.8%, resulting in a rise in average weekly earnings from $753.20 to $779.64. That’s a raise of $1,375 per year — pretty healthy, given the state of the economy and the large number of people out of work.

But government employment is down, and the extra hiring simply isn’t making any kind of a dent on the unemployment figures. After all, the economy needs to add 100,000 jobs a month or so just to keep up with population growth. Today, just 64.5% of the people in the labor force — a mere 58.3% of the total population — actually have a job. Both of those figures represent a new all-time low. And that now-famous U6 measure — the number of people who want more work than they have — is still insanely high at 17%.

Overall, it’s the same story we’ve been seeing for a while: good news for the employed, bad news for the unemployed. That’s what happens when you’re reliant on monetary policy rather than fiscal policy to boost the economy.

There’s absolutely nothing to get excited about in the September payrolls report. America has substantially fewer jobs than it did a month ago, in what is meant to be a growing economy. Even the uptick in private-sector employment (+64,000) is pretty pathetic: it’s not enough even to keep up with population growth, let alone to make a dent in the unemployment rate, which stays at 9.6%.

Meanwhile, as the school year begins, we have this:

Employment in local government decreased by 76,000 in September with job losses in both education and noneducation.

As states and municipalities around the nation start running out of money, they’re going to fire people; this is only the beginning. And if October is any indication, the job losses in the local government sector are going to be at least as big as the job gains in the private sector. No wonder the number of discouraged workers is up a whopping 71 percent even from the grim days of September 2009:

Among the marginally attached, there were 1.2 million discouraged workers in September, an increase of 503,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.

The U.S. does not have the luxury of waiting indefinitely for job growth to resume. Already we’re at the absolute limit: any longer, and most of the unemployed will be long-term unemployed and, to a first approximation, unemployable. This country simply can’t afford an unemployable underclass of the long-term unemployed — not morally, not economically, and not fiscally, either.

I’m a month late to the debate about paid and unpaid leave, but I think there are a couple of points worth making which seem to have been missed. In general, I’m with Ezra on this one: paid leave is a good thing, and we should have more of it. And on a personal level I also agree with Reihan when he says that “unpaid vacation is a valuable perk”. Reuters has a mechanism for letting its employees take unpaid vacation when they run out of paid vacation days, and that was something I was very happy about when I joined.

On the other hand, the unpaid vacation at Reuters is not sold as a valuable perk — quite the opposite, in fact. When I was talking to Reuters about the possibility of taking more vacation than they were offering, the response was basically “you can’t do that, because if you do, you’ll have your pay docked for the extra days you’re on vacation”. It’s a very different way of spinning “yes, you can do that if your boss is OK with it; once you run out of paid vacation days then at that point your vacation days become unpaid”.

But there are good reasons why HR types might assume that employees would consider unpaid leave to be something other than a perk. For one thing, it can easily double the cost of a vacation: it’s a great way of making concrete the notion of “opportunity cost”. When I was a freelancer, there was little if any opportunity cost to taking a vacation: I just did all my work when I wasn’t on holiday. But my wife, who was paid by the hour, had a substantial opportunity cost: every day she spent on vacation meant lost income. For people on payroll, unpaid leave is a real disincentive to take vacations, which are normally expensive enough to begin with. Matthew Rognlie puts this well:

Paid leave makes leisure time more enjoyable, since you’re not incessantly bothered by the fact that you’re losing money by being away from work. Employees are willing to sacrifice wages and flexibility for this psychological comfort.

On top of that, our lifestyles are very much based around regular payments. Rent, or mortgage payments; car payments; credit-card payments; utility and phone bills: they all come around with distressing regularity, and they can be very hard to pay if you suddenly find yourself sans a paycheck, even temporarily.

More generally, having employees take time off from work is a good thing for employers — to the point at which most financial-services companies have compulsory-leave policies. It’s worth remembering that almost all workers in the US get 104 days of paid leave per year just from getting weekends off alone: those two days are hugely valuable and necessary to prevent burnout. And it’s important for companies to have constant real-world stress tests, ensuring that they can function well in the absence of any given employee.

As the wired world sucks people in to work weekends, a Netflix-style vacation anti-policy starts to look like the only sensible response. Although that kind of thing can only realistically be applied to people in the knowledge economy — the workers that Robert Reich calls symbolic analysts.

Rognlie offers a thought experiment:

Suppose that two otherwise identical companies, A and Z, differ in their vacation policy: company A offers higher wages but no paid vacation, while Z has slightly lower salaries and paid leave. In general, who will choose to work at company Z instead of A? People who like to take time off! To the extent that this is correlated with general laziness (not easily detectable in other ways at the hiring stage), it will make company Z’s labor pool less effective, discouraging it from offering paid leave in the first place.

I’m not at all sure that a desire to take paid leave is correlated with general laziness. If anything, the opposite might be true. If A and Z were truly identical but for their vacation policy, I’d be inclined to go long Z and short A. Company A might outperform a little in the short term. (Or, it might not.) Either way, it would be much more prone to the tail risk of a catastrophic blow-up.

My feeling is that the less paid vacation you have, the less vacation you’ll take. And the less vacation a company’s employees take, the higher the risk of that company falling apart through burnout or blowup.

Now, if you’ll excuse me, I need to take some time off from blogging on a Sunday to plan my upcoming holiday in South Africa.

There was a reasonably interesting call today between various bloggers and Jason Furman, an economic policy wonk at the White House. The main message was that the Obama administration’s new economic-stimulus proposals were essentially ways of front-loading attempts to create long-term economic growth, and that unemployment would come down as and when that growth arrived.

I wasn’t particularly convinced. There’s a colorable case — made today by Brad DeLong — that all of these proposals, coming as they do halfway into Obama’s four-year term in office, are too little too late, compared to the messages that Larry Summers and others were sending at the beginning of 2009.

On the call, Furman valiantly tried to paint policies like cash-for-clunkers and the extension of unemployment insurance as being all about creating jobs, but the fact is that it’s hard for any government to create jobs, beyond simply hiring more people, and the effect of those policies on the unemployment rate was surely minimal at best.

Mike Konczal honed in, with his question, on one of the key vicious cycles in the economy: the high unemployment rate is making the housing market worse, and then in turn the weak housing market is exacerbating the unemployment rate, by making it much harder for people to move to where the jobs are.

Furman waffled a bit, saying that while a couple of years ago it was the housing market which was instrumental in causing the broader economic crisis, now the “direction of causation” is in many cases the other way around, with the weak economy hurting the housing market. Well, yes. But that doesn’t really say much about jobs.

So I asked him again, about jobs in particular, and Furman started talking about the drivers of economic recovery, and how this time around it’s not going to be housing. He did eventually manage to bring jobs in, saying that the infrastructure bill and the R&D credit and the small business bill “taken together would have a meaningful impact on unemployment today”.

But they wouldn’t, would they. Of the three, only the small business bill looks like it’s really targeted at creating jobs, as opposed to stimulating the economy more broadly and hoping that somehow higher GDP is going to feed through into lower unemployment. But the unemployment problem is tough, and sticky, and I’d much rather see proposals really aimed at tackling it head-on, rather than just trying to get there through big-picture macroeconomic effects. Make it easy for people to move out of their underwater houses, for instance.

On the other hand, maybe what we’re seeing here is a White House economic team which is fully cognizant of what government economic policy can and can’t achieve. And while keeping the economy from slipping back into recession is something doable, bringing unemployment back down, even to where it was when Obama first took office, isn’t. They’re not going to admit that in public, but neither are they going to expend too much effort tilting at windmills.

Everybody was so nervous going in to this morning’s payrolls report that even though employment fell and unemployment rose, markets are looking extremely exuberant.

There’s definitely reason here for a small sigh of relief. The private sector added jobs in August — not enough to keep up with population growth, and not even enough to counteract the effects of census workers being laid off. But hey, the private-sector employment number was positive rather than negative, that’s gotta count for something.

The big picture here is, as Tony Fratto says, that the job market is basically flat. The official release generally has a pretty good take on things, and the language there is clear: the unemployment rate and the 14.9 million number of unemployed are “little changed in August”. Break it down by race or age, you still see “little change”. The labor force participation rate and the proportion of the population with jobs? “Essentially unchanged.” The number of people who want a job but didn’t actively look for one in the previous four weeks? Again, “little changed”.

The big number, total nonfarm payrolls, “was little changed”. Retail employment “was about unchanged over the month”. Elsewhere, employment “showed little change in August”. You get the picture.

Flat, then, is the new up — which only goes to demonstrate just how worried the markets are about a double-dip recession. The syllogism is easy. This payrolls report would never be good news in a growing economy; this payrolls report is good news; therefore, the economy isn’t growing. So don’t get too excited about bond yields rising today. We’re not remotely in full-bore recovery mode yet.

Brad DeLong places himself squarely in the camp of the Cycs rather than the Strucs when it comes to Jim Ledbetter’s distinction between economic unemployment theorists. The Cycs think that unemployment is cyclical and will fall as demand grows; the Strucs think it’s structural, and the result of a mismatch between the jobs available and the unemployed workers looking for employment.

DeLong reckons that there can’t be much of a mismatch, because there’s precious little evidence of excess demand for labor in any industry. But this ignores, I think, globalization: companies which can’t fill jobs domestically simply outsource them, or set up shop abroad. Rather than looking just at U.S. employment figures, it would be helpful to look also at the total number of people employed by U.S. companies, and see whether that’s showing a different trend.

I also think it makes sense to break the Struc argument down into its component parts: the inability of the unemployed to find work, on the one hand, and the inability of employers to find good employees, on the other. The first part seems to be undeniable, and it’s surely getting worse as the length of time that people have been looking for work rises inexorably. The longer you’ve been without a job, the harder it becomes to get one, until you become unemployable.

Meanwhile, just because it’s hard to find good employees doesn’t mean that your business is booming and that there are lots of incentives for the unemployed to join your industry. The Cycs could well have a point here — if we get an uptick in total demand, then that might help increase employment in the parts of the economy with tight labor markets. But for the time being, employers who can’t find the employees they want seem to be resigned to simply keeping on going with the employees they’ve got: dreams of expansion have given way to grim survival and a refusal to take on extra debt or risk. And they certainly don’t want to risk raising their prices in this economy, even if they suspect they could get away with doing so.

And then there are all the stickinesses in the labor market: people like to stay where they are, rather than moving to where the jobs are. (This fact is only exacerbated by high homeownership rates.) They tend, certainly in the first instance, not to even look for jobs which pay much less than they were last earning: if you used to be a high-producing subprime mortgage originator, it’ll take a while before you consider training to be a yoga instructor. And then, by the time that you capitulate to the new economic reality, you’ve been unemployed for so long that your chances of getting any job at all have dissipated significantly.

Empirically, there’s no doubt that the Cycs have been proved wrong in their forecasts: unemployment now is significantly worse than the Obama administration forecast even without the benefit of the stimulus package.

Yes, at the margin, government stimulus can create jobs. Especially if its carefully targeted towards things like small-business lending and arts subsidies. But job creation is more of an art than a science, and there’s always a chance it’ll fail. Especially if you attempt it in the face of full-bore Republican obstructionism in Congress. So the political reality is that high unemployment is going to be with us for the foreseeable future. Which is something that I’d guess both the Cycs and the Strucs would agree with.

(Via, and for, Heidi)

The most important and most difficult task facing the Obama administration is making a dent in the unemployment situation. There aren’t many things that the government can do to try to boost the number of jobs in the U.S., but at the top of the list has to be attempts to boost lending to small and medium-sized businesses. These companies are a huge driver of employment growth — they account for two of every three jobs created in the past decade — but they never find it easy to get loans even in good times: all too often they have to resort to borrowing on credit cards, which can be lethally expensive.

This morning, a Treasury announcement showed one way that this can and should be done. Treasury’s CDFI Fund has awarded just over $100 million to 180 local financial institutions, including $750,000 to my own credit union. That kind of money, leveraged and lent out to small businesses, can do more for creating jobs than just about any other government program.

The CDFI initiative is small beer, however, compared to the Small Business Jobs and Credit Act, which would create a $30 billion fund to be used to encourage small banks to lend to small businesses. Combined with standard bank leverage, that could mean $300 billion in new, job-creating loans.

Where does the $30 billion come from? A significant chunk of it would come from five big oil companies:

[The Democrats' plan] would repeal Section 199 of the tax code, which currently allows these corporations to deduct six percent of their income from oil and gas production from their tax liability, effective December 31, 2010. This repeal would only apply to the five largest corporations with more than $1 billion of before-tax income.

The five major integrated oil companies, which include BP, had a combined profit of $25 billion in the first quarter of 2010. And, in the five years since enactment of the Section 199 deduction, these major integrated oil companies have posted $521 billion in profits. The profitability of these companies has been so robust that in the first quarter of 2009, when the U.S. GDP shrank by 6.4 percent and corporate profits decreased by 5.25 percent, these companies still earned more than $13 billion in profits. Furthermore, it is not clear the goal of this deduction, which is to improve America’s energy security by promoting domestic production, has been reached. When the Section 199 deduction took effect in 2005, domestic oil production averaged about 5.5 million barrels per day. Now, five years after the deduction took effect, domestic oil production has actually fallen slightly, to 5.48 million barrels per day.

Section 199 was always a barely-defensible boondoggle, designed to get around a World Trade Organization ruling saying that the U.S. couldn’t subsidize its domestic oil industry through something called the “extraterritorial income exclusion”. Its effect is to allow Big Oil to pay less in corporate taxes than most other companies: 31.85% rather than 35%. Does Big Oil really need this tax break? Of course not.

Repealing Section 199 would make sense on a purely fiscal level, even if it wasn’t linked to the Small Business Jobs and Credit Act. Repealing Section 199 in order to create new jobs just makes it more of a no-brainer.

Big Oil, of course, isn’t happy about this. And so one of its hired representatives sent me some talking points saying that repealing Section 199 would actually cost jobs. And a lot of them:

The White House’s proposed 2011 budget and measures under consideration in both the Senate and House aim to repeal this job-creating policy only for oil and gas companies. Such a move would levy an incredible burden on American businesses, workers, and households.

A 2008 study found such a repeal would trigger nationwide job loss of 637,000 workers and decrease total economic output by $185.9 billion over 10 years.

This was a study I had to see. It can be found here, or in slightly more detailed PDF form here. It’s 28 pages long, which is more than enough space, one would think, to explain exactly how the 637,000 number was derived. But instead it just teases. “Overall, the proposed changes are estimated to reduce U.S. employment by approximately 637,000 jobs over 10 years,” it says. But how was that number derived? Look at the relevant table, and it just says “author’s calculations”.

But the paper does give a broad indication of where the number came from. It starts with this:

In a 2006 working paper from the Congressional Budget Office, William C. Randolph estimated, based on an open-economy model with reasonable parameters for the U.S. economy, that roughly 70 percent of the U.S. corporate tax burden is borne by domestic workers…

Following the results from Randolph (2006), we allocate 70 percent of the burden of corporate tax changes to domestic workers in the form of lower earnings.

In other words, the paper simply assumes that for every extra dollar that a company pays in taxes, its workers will lose 70 cents in earnings. It would then follow that if the bill raises $13.57 billion over 10 years, workers would lose $9.5 billion in earnings. Which seems extremely dubious to me. But the paper doesn’t stop there. It then takes that $9.5 billion and magnifies it using something called “input-output multipliers” to come to the conclusion that total reduced household earnings, across all industries (rather than just in the oil industry directly) would be not $9.5 billion but rather $35 billion.

Finally, the report’s intrepid author, Andrew Chamberlain, decides that for every $54,881 in reduced household earnings, a job magically disappears. It’s not remotely clear where that number comes from, but using it, Chamberlain manages to conclude that the $35 billion in reduced earnings means that total employment would shrink by 637,195 jobs.

All of this is profoundly silly. The report doesn’t even make an attempt to work through the effects of higher corporate taxes on oil-industry employment: instead, it basically assumes its conclusion, by starting from the assumption that there’s a simple and direct correlation between any kind of oil-industry tax hike, on the one hand, and job losses, on the other. Is there any particular reason to believe that repealing Section 199 “would trigger nationwide job loss of 637,000 workers”? Of course not. There is good reason to believe, however, that passing the Small Business Jobs and Credit Act would help create millions of jobs.

So let’s not let Big Oil, or anybody else, try to get away with saying that passing this act would cost jobs rather than save them. It’s a ridiculous argument, which deserves to go nowhere.

David Leonhardt’s latest column is full of interesting employment datapoints. Among them:

• In 2008, only 13.2% of the labor force was unemployed at some point. That compares to 18.1% in 1980, and 22% in 1982.
• Real wages, which normally fall during recessions, have risen in this one. Even nominal wages are up.
• The mancession is over: “male employment has risen by almost one million this year, while female employment has fallen by 300,000″.

The overriding impression is of most Americans actually doing OK, with an unemployable underclass bearing the brunt of the recession. Maybe we really are all middle class now: there’s the unemployed at the bottom of the pile, and the plutocratic elite at the top, with the overwhelming majority sitting in between, doing OK but hardly great.

The problem is that persistent unemployment at or around 10% is unacceptable in the U.S., especially with the social safety net being much weaker here than it is in Europe. Leonhardt is right that Euro-style safety nets aren’t particularly innovative, but they do at least keep people housed and clothed and fed and living outside poverty — reasonable expectations for anybody to have, I think, in the richest country in the world. If David Leonhardt can’t think of any bright ideas for solving the persistent-unemployment problem, then the chances are such solutions aren’t going to magically appear. Which means we need to help the long-term unemployed, rather than simply ignore and forget about them.