Felix Salmon

Chart of the day comes from Derek Thompson:

The dynamics here are terrible, of course, because there are five unemployed people for every job opening. In that kind of context the only way that this chart is going to start reverting to the mean is if millions of Americans simply give up looking for work at all, and therefore stop counting as unemployed for the purposes of these statistics. The ranks of the demoralized are growing fast — but, clearly, not enough to stop the median period of unemployment rising inexorably past the 6-month mark.

All of which provides perfect context for the latest piece of claptrap to emanate from Ben Stein:

The people who have been laid off and cannot find work are generally people with poor work habits and poor personalities. I say “generally” because there are exceptions. But in general, as I survey the ranks of those who are unemployed, I see people who have overbearing and unpleasant personalities and/or who do not know how to do a day’s work. They are people who create either little utility or negative utility on the job.

How does Stein know this? Because, believe it or not, he’s been friends with these people for decades:

I get letters and e-mails from friends of decades standing asking for money every single day. Their common denominator is that they lacked prudence and lived in a dream world.

What kind of dream world would that be, Ben? One where they believed that they could time the market? Or maybe just one where they believed in the value of a decades-long friendship? Silly them.

Cardiff Garcia pushes back a little at my contention that raising the minimum wage might help the problems of unemployment, underemployment, and bad employment:

How do we know that with a higher minimum wage, employers will “compete on who has the best employees” and “invest significantly in those employees”?

It seems just as possible that employers would react by doing one of the following, or some combination thereof:

• Hiring fewer workers and asking existing workers to do more (a tactic employers are more likely to get away with in an environment of sustained unemployment)

• Investing more in capital (whose price relative to labor obviously declines as the minimum wage increases) to help the company do the same work with fewer people

• Simply continuing to compete on price, even if the prices will be higher across the board as the increased minimum wage affects all employers in the same industry…

I’ve never seen the argument that employers react to higher minimum wages by increasing their investment in human capital.

To Cardiff’s last point first: pretty much by definition, an increase in the minimum wage forces an increase in employers’ investment in human capital. And my point is, at heart, the idea that the more employers spend on human capital, the more they think about it as an investment, as opposed to merely an expense.

To Cardiff’s other points, yes, it’s entirely possible that employers will hire fewer workers to do the same job, if those workers become more expensive. That’s called improving labor productivity, and it’s a good thing, especially when labor is rewarded for its improved productivity in the form of higher wages. Going back to Rich Florida’s original point, America doesn’t just need more jobs, it needs better jobs — especially in the service sector. And in the long term, more productive companies are more successful, and grow more, and end up hiring more people. Higher-productivity jobs are precisely the ones we most want to create.

Finally, Cardiff seems to worry that an increase in the minimum wage would cause price inflation. We should be so lucky. Right now, a bit of wage-driven inflation is exactly what the doctor is ordering. I just don’t see it happening, unfortunately.

Unemployment is tragically, stubbornly high — and that’s going to prove devastating not only for the millions of long-term unemployed but also for the USA as a whole, if it continues indefinitely. And it’s not just the Americans without jobs who need a way out: it’s the ones in bad, underpaid service-industry jobs as well.

I wrote about that problem on Wednesday and got some fantastic comments in response. And a lot of other people are making similar points these days. Mark Thoma picked up on the same Richard Florida piece that I did and noted that improving productivity is not certain to help: since the early 1980s, productivity has fed through into improved pay only once, briefly, during the dot-com boom.

Chrystia Freeland has been attending similar discussions in Aspen:

What frightened me most about today’s discussion was a possibility endorsed by Ron Brownstein, political director of Atlantic Media, that America’s two-speed economy may not be anyone’s fault (as [Arianna] Huffington insisted it was) but might, instead, be the inevitable consequence of the twin revolutions of globalization and technological change.

[Allstate CEO Tom] Wilson was certainly right about one thing: one of the great success stories of our age is how dynamically American companies have adapted to globalization and the technology revolution. But, as Huffington pointed out, the political consequences of a two-speed America might not be pretty: “America cannot be America without a middle class … we will become Brazil and all live behind gates to protect our children.”

There’s a real risk that American companies will thrive on foreign labor, leaving their home nation to slowly devolve into a land of chronic unemployment and widespread lack of skills.

Andy Grove reckons that the solution is for American companies, at the urging of the government, to become more protectionist, putting up trade barriers to create domestic jobs. Like Reihan Salam, I’m unconvinced. But Reihan isn’t particularly constructive himself, saying only that we need “a wrenching series of labor market and entitlement and tax reforms designed to improve work incentives, most of which will prove far less popular than simply bashing China”, which will somehow both raise taxes and foster lots of new employment at the same time. I’ll believe it when I see it.

Michael Hudson is a bit more inventive: he’d like to see a move away from income taxes and towards property taxes. That would help bring property prices down, making housing more affordable, and leaving more money left over for consumption. But that’s a plan designed to work in Eastern Europe, not in the U.S.

Mohamed El-Erian, meanwhile, has a whole laundry list of things he reckons need to be done with some urgency:

Instead of simply debating the case for further government stimulus, policy makers should also come up with a comprehensive strategy that focuses on improving human capital, particularly through a greater emphasis on education and training; expanding infrastructure and technology investments, in part by creating a more friendly tax system; encouraging a bigger translation of scientific advances into economy-wide productivity gains; and better protecting the most vulnerable segments of society.

This is all well and good, but none of it is likely to bear fruit during the presidency of Barack Obama, even if he gets re-elected. And I think it’s fair to say that if he leaves office with unemployment significantly higher than he inherited it, that will be a major blemish on his administration.

But maybe unemployment is simply a problem to which there is no good medium-term solution, let alone any short-term fix. Certainly the government can’t directly employ the unemployed, and although I’m a big fan of arts subsidies as a way of creating jobs, that kind of thing is only ever going to have a marginal effect.

I do think that my first commenter, Harrington, is right that it’s high time to start giving labor unions more recognition and power. That might seem a bit counterintuitive — unions have never been very good at improving employment numbers, as opposed to improving the plight of the employed. But if workers at places like Wal-Mart start being paid a decent living wage, that is surely a significant improvement on where we are now. And if we raise the minimum wage to a point where employees are less likely to quit and more likely to learn reasonably high-level skills, that will help get us to Richard Florida’s promised land. Without unions and minimum-wage laws, corporations compete on who can pay the least. With them, they compete on who has the best employees and they invest significantly in those employees. Which is exactly what we want, especially since raising the minimum wage is unlikely in and of itself to increase unemployment visibly.

My third commenter, billyjoerob, depressingly reckons that reduced immigration will do the trick. It won’t. But immigration is important: if it’s sensibly structured, it can create more jobs more quickly than just about any other low-cost government intervention. Just allow lots of rich and high-skilled immigrants into the country and they will rapidly create businesses which will employ millions. (One prime example: Andy Grove.)

And Dollared notes another important tack: fixing the national health care system so that employers aren’t burdened with enormous healthcare costs and can concentrate instead on what they do best.

But I like HBC’s comment the best:

The prevailing epidemic of bad jobs (formerly known as careers) American workers are having to get used to can be directly attributed to protracted periods of really awful American management, for which there can be no tolerable excuse.

America invented the concept of management as a profession and course of study and in doing so helped to cement the victory of capital over labor. That works until the workforce becomes so demoralized as to be useless — at which point the jolly capitalists just decide to hire foreign workers instead. This is good for investors in the short term, but it’s very bad for the economy in the long term. And I don’t think that anybody believes that the U.S. stock market can rise steadily if the U.S. economy is in a slow and inexorable decline.

At the same time, however, it’s hard to imagine capital giving up its hard-fought gains and becoming much more paternalistic and generous to its employees, hiring more people and paying them better. Which is one reason why I’m a pessimist when it comes to the long-term employment situation.

The problem of falling wages for people without a high-school diploma is well presented by Richard Florida, in an op-ed headlined “America needs to make its bad jobs better”:

The problem is that on average, service workers earn only half of what factory workers make – and only a third of what professional, technical and knowledge workers are paid. The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.

I’m less impressed with Florida’s proposed solutions, such as they are.

He first points to a handful of companies (Whole Foods, Zappos) which pay more than average for hourly workers, although they don’t pay anything like the sort of money that blue-collar factory workers can command. But it’s simply a statistical certainty that some companies will pay high wages and be successful, just as others (like Wal-Mart or most hotels) will pay low wages and be successful, and others still will fail no matter what they pay. Demanding that the entire service sector should gravitate to one particular quadrant is, I think, unhelpful and unrealistic.

Florida also reckons we can apply some smart technology here:

Service jobs are the last frontier of inefficiency, providing abundant low-hanging fruit for the innovation and productivity improvements that can undergird higher wages.

Florida wants a service-sector equivalent to the kind of technical assistance that the government has long provided in manufacturing and agriculture. It’s not a bad idea, but it’s harder to implement in the service sector, because employers tend to be smaller and more heterogeneous, and because technical assistance aimed at a broad range of service-sector employers risks becoming a series of bland management mantras rather than anything specific and actionable.

What’s more, productivity improvements don’t necessarily result in higher wages for the less-skilled: they’re just as likely to result in greater returns to capital, as owners extract more profits from the business, or else to result in the jobs going to better-educated workers instead.

So while it’s undeniable that America needs to make its bad jobs better, it’s also, I fear, something which is too difficult to succeed at — certainly for any government bureaucracy. If it’s going to happen at all, it will happen from the bottom up, rather than from the top down. And so far there’s zero evidence that’s happening.

Catherine Rampell features this chart today, showing how wage inequality has increased over the past 30 years, especially for men. But in fact what we’re seeing here understates how bad things have been for most men over the past generation. If you go to the source, this chart only shows data for people working full time. And, at least when it comes to men, that’s much less common now than it was in 1979.

The labor force participation rate for men 20 years and older was 79.8% in 1979; today, it’s just 74.4%. And I don’t think that most of that drop can be explained in terms of a larger number of students: the rate was as high as 77% as recently as August 2000, and then dropped to a low of 73.9% in December 2009.

You can be sure that most of the drop in labor force participation is coming from the less well educated Americans. Which means that if you’re a man with less than a high school diploma, your real wages have fallen by 28% over the past 30 years if you’re lucky enough to have a job at all. At the same time, the number of such men without a job has been growing steadily. It’s a depressing set of data, and there’s no sign of it turning around in the foreseeable future.

It’s never good when employment falls during what’s meant to be an economic recovery. It’s worth remembering that, if people start getting excited about today’s drop of 125,000 in the total-employment number. Yes, private-sector hiring was marginally positive, by 83,000, but we’d all like to see much bigger numbers than that.

Unemployment dropped sharply, to 9.5%. But why? It doesn’t seem to be thanks to people getting jobs: after all, employment fell. And the labor force participation rate — the number of employed people divided by the total number of people capable of working — hit another new low today, of 64.7%. If people are just giving up and removing themselves from the workforce, then a falling unemployment rate only serves to hide the bad news. What’s more, the only important statistical decline in the unemployment rate was among white women, who already have lower unemployment than just about anybody else. The rest of the country — including, crucially, men overall — was pretty much unchanged.

As far as markets are concerned, however, this report had better be good. Shrinking employment and 9.5% unemployment are nobody’s idea of a healthy economy, but as Barry Ritholtz notes, “whisper numbers” for today’s payrolls report have been extremely gruesome and have contributed to the big sell-off in recent days. If the bearishness continues in the wake of these payrolls numbers, the message from the markets is that there’s still really nobody out there looking for an excuse to spend money — either on equities or on employees.

No single datapoint — not even the monthly payrolls report — can in and of itself mark the beginning of the end of the recovery. But this month’s numbers are still depressing, coming in well below lofty expectations, and having no silver lining: there were no upward revisions to previous months, there was no big fall in the unemployment rate, there was no obvious reason to believe that the 411,000 temporary employees hired in May to work on Census 2010 would otherwise have found private-sector employment.

The really recalcitrant number here is the unemployment rate, which is staying stubbornly near 10% no matter what payrolls do: when they’re healthy, more people start looking for work. But if you want a hint of a glimmer of hope, at least the broad U6 underemployment rate is heading in the right direction: it was 16.6% in May, down from a whopping 17.1% in April. (But it’s still higher than it was at the beginning of the year.) And more generally, of course, this degree of labor-market weakness is yet more reason to believe that inflation simply isn’t an issue for the foreseeable future, especially given the strength of the dollar. So the Fed is going to be happy keeping rates at zero for the time being: remember it has a dual mandate, and that Ben Bernanke should care just as much about bringing the unemployment rate down as Barack Obama does.

My feeling, however, is that both of them are going to be disappointed. Expect unemployment to remain over 9% through the midterm elections — compared to a rate of just 6.9% in November 2008, when Obama was elected. It’s that number, rather than anything going on right now in the Gulf of Mexico, which is really “Obama’s Katrina”.

Mark Beauchamp, following up from yesterday, provides some eye-popping numbers:

In the U.S. finance and insurance sector, we estimate that in 2008, 34% of the workers are not covered by unemployment insurance…

Sub-sectors like Central Banks, Commercial Banks, Savings Institutions all had low, single-digit percentages of non-covered workers. However, when we get into sub-sectors like Securities, Commodity contracts and Investments, the majority of workers in the field (66%) are not covered by unemployment insurance.

The further we push into more esoteric forms of finance, the higher the percentage of non-covered workers: Miscellaneous Intermediation (84%); Portfolio Management (80%); Trust, Fiduciary, and Custody activities (81%), and so on. We’ve included the full breakout in .xls here.

So our theory runs like this — in the finance and insurance industry, there was likely a widespread use of the 1099 status, evidenced by the high rate of non-covered employees in the sector nationally. When the financial crisis hit, independent contractors were “laid off” from companies, but because they weren’t employees of the firms, they would not show up as a decline in the Quarterly Census of Employment and Wages.

This is a bit like the way in which construction-sector employment didn’t fall nearly as much as everybody thought it would when the housing bubble burst: because a large proportion of the people working in that sector were undocumented all along, they weren’t counted when they lost their jobs.

The financiers aren’t necessarily illegal, of course, although paying people on a freelance/1099 basis is of dubious legality when they’re working for you full time. But this does help to explain a large chunk of Mike Mandel’s chart, I think.

Many thanks to Mark Beauchamp of EMSI, who has provided a very granular breakdown (Excel file) of exactly where the job losses are in the finance and insurance industries. The numbers cover 2007, 2008, and 2009: so far the data for 2010 are too inaccurate to be useful. And interestingly the peak of the finance-and-insurance jobs market was 2008, with 8.88 million jobs, which then fell to 8.56 million in 2009: a fall of 3.6%.

If Mike Mandel’s theory is right, we ought to be seeing an uptick in the credit-related jobs. But “credit intermediation and related activities” saw job losses of 8% between 2007 and 2009. The gains were in things like commodity contracts dealing, which saw 7% more jobs; “trusts, estates, and agency accounts”, which saw 11% more jobs; and of course “miscellaneous financial investment activities”.

The insurance industry in general was flat from 2007 to 2009, while investment banking generally (“securities, commodity contracts, investments”) saw its total employment rise by 1% over that time.

In fact, the biggest job losses of all are exactly where Mandel expected to see gains. ” Nondepository credit intermediation” saw total jobs fall by 18%, while “Real estate credit” fell by 31%. “International trade financing” was exactly flat.

Beauchamp also broke out New York jobs — the investment banking world has been harder hit here, down 7% between 2007 and 2009, and even “Monetary authorities – central bank”, which I take to mean the New York Fed, saw its headcount fall by 8%.

In any case, enjoy playing with the spreadsheet yourself. But one part of Mandel’s theory does seem to have held up: Finance in general does seem to have lost many fewer jobs than manufacturing.

Update: Beauchamp adds, via email:

I just remembered a story that ties with this subject from New Jersey during the crash – I was working with their Department of Labor, and they told me that the unemployment offices in the north part of the state were reporting lots of financial products sales guys showing up in their offices, but because the sales guys were 1099′ers (on full commission as opposed to salary- W2′s) they were caught off guard with how many had been working in their area.

This is because the Quarterly Census of Employment and Wages derives its employment estimates off of unemployment insurance data.  Therefore, if you were on the sales side of the financial industry, you aren’t covered by unemp. data, and don’t show up in the employment estimates.

Numbers on this coming tomorrow!

Update 2: Here they are!

Mike Mandel has the chart of the day, asking why the finance industry has lost so many fewer jobs than much of the rest of the private-sector economy:

I don’t agree with Mandel’s theory, which is this:

As long as the U.S. is running a big trade deficit, financial sector jobs are going to do very well. The rest of the world has to lend large amounts of money to the U.S. to keep the global economy going, and all of that money has to be funnelled through Wall Street, which creates well paid jobs.

The US twin deficit is more weighted than ever towards the public sector these days, rather than the private sector, and the number of jobs on Wall Street involved in dealing in Treasury bonds is pretty constant, and pretty small. More generally, while Wall Street does do quite a lot of debt finance, I don’t think that activity explains big headcount trends nearly as well as Mandel thinks it does.

So what’s my theory? If you look at the chart, it turns out that the job losses in finance are put into two buckets. There’s “commercial banking”, on the one hand, which has had very small job losses: people have just as many checking accounts and bank loans as they always did. And then there’s “finance and insurance”, which is what we generally think of as Wall Street, but which also includes the enormous number of employees in the insurance industry. And just like commercial banking, the insurance industry is pretty steady, and is going to have seen very few job losses indeed. What’s more, it’s probably bigger, in terms of total headcount, than the investment-banking industry.

So assume that insurance has seen even fewer job losses than commercial banking, and that it accounts for most of the jobs in “finance and insurance” — in that case, the job losses on Wall Street alone could be very large indeed to get to that final 7.3% figure.

Before reading too much into these numbers, then, I’d like to see a bit more disaggregation. It might be true that Wall Street hasn’t seen condign punishment in terms of job losses. But on the other hand, it might not.

Meredith Whitney is trying to make an updated case that we can’t pass financial reform because it would cost jobs. I don’t buy it, partly because I simply don’t believe her numbers, which kick off with two interlinked claims:

States will approach their June fiscal year-ends and, as a result of staggering budget gaps, soon announce austerity measures that by my estimates will cost between one million to two million jobs for state and local government workers over the next 12 months.

Typically, government hiring provides a nice tailwind at this point in an economic recovery. Governments have employed this tool through most downturns since 1955, so much so that state and local government jobs have ballooned to 15% of total U.S. employment.

First, there hasn’t been much ballooning going on. Let’s look at the numbers here: there were 17.3 million state and local government workers counted in the latest jobs report. That’s down from 17.6 million a year ago. In terms of percentages, state and local government now accounts for 13.3% of total nonfarm employment, unchanged from a year ago.

Does Whitney really believe that these very stable numbers are suddenly going to be upended over the next 12 months? Yes, many states have announced job cuts — but announcing job cuts is vastly easier than actually implementing them. To get a good idea of how difficult it is to shrink a mammoth bureaucracy, look at Citigroup, which has a storied history of announcing enormous job cuts only to see its total headcount rise: it took a good five or six attempts before it actually managed to shrink its total payroll. It’s simply not credible that state and local governments are going to reduce their total job count by between 6% and 11% over the next year.

Whitney then goes on to say, quite rightly, that small businesses are the best engine of job creation. But then her logic goes a bit skewy again:

Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines. Over the past two years, more than $1.5 trillion in credit-card lines have been cut, and those cuts are increasing by the day. Due to dramatic declines in home values, home-equity lines as a funding option are effectively off the table. Proposed regulatory reform—specifically interest-rate caps and interchange fees—will merely exacerbate the cycle of credit contraction plaguing small businesses.

If banks are not allowed to effectively price for risk, they will not take the risk. Right now we need banks, and particularly community banks, more than ever to step in and provide liquidity to small businesses. Interest-rate caps and interchange fees will more likely drive consumer credit out of the market and many community banks out of business.

Essentially, Whitney is saying that small businesses fund themselves with credit cards; that financial regulation will reduce the amount of credit-card credit; and that therefore financial regulation is bad for small businesses. What’s more, she applies this argument specifically to community banks.

It’s true that small businesses fund themselves with credit cards. But it’s not true that exorbitant interest rates of 30% or more are a result of “effectively pricing for risk” — instead, they’re a way of trying to extract as much profit as possible out of every cardholder. And it’s trivially true that a small business funding itself at an interest rate of something over 30%, where the proposed caps are going to kick in, is not going to be doing a lot of new hiring.

And while it’s also true that we need community banks to provide funding to small businesses, the fact is that the overwhelming majority of credit cards come from the giant too-big-to-fail banks. If a small business wants to get a loan from a community bank, it can and should do so the old-fashioned way, by getting a loan from its local community bank. Local banks have very little dependence on small-business credit-card revenue, and in fact if the big banks cut their credit card lines further, that might serve only to drive ever more small businesses to get loans from their local institutions. Community banks, in other words, have nothing to fear from financial reform: in fact, they have quite a lot to gain. And small businesses, too, should welcome anything which keeps their funding costs down and stops them being ripped off by their banks.

Manhattan incomes rose by 35.5%, in real terms, between 2000 and 2008. Manhattan, Kansas, that is. Meanwhile, in much more educated and vibrant cities like Raleigh and Austin, real incomes fell substantially. What’s going on here? Mike Mandel looks at the numbers:

Brains and education did not seem to count too much in success in the last business cycle. Overall, the top ten cities, measured by growth in per capita income, had an average college graduate rate of 17.7% The bottom ten cities had a college graduate rate of 31.8%.

My feeling is that this is a historical anomaly, and largely a product of the beginning and end points that Mandel used: 2000 was the peak of the dot-com bubble, which artificially inflated tech salaries, while 2008 came at the end of a commodity boom which helped oil-rich states. The long-term trend is inescapable: the returns to education are large and growing, and if you’re not a college graduate and you don’t own your own company, it’s becoming increasingly difficult to maintain a middle-class lifestyle.

What’s more, Mandel’s outliers have to bee seen in the context of the bigger story about real wages, which he noted back in April: real wages in general have been falling, for the first time since the Great Depression. And with unemployment still at 10%, there’s not much hope that they’ll start rising again any time soon. If you want to see incomes go up in your city or region, your best hope is frankly just to get lucky, like Manhattan did. Because wages in the U.S. as a whole aren’t going anywhere.

(HT: Cowen)

Update: I had lunch today with Allison Schrager of the Economist, and she asked a good question: how did the percentage of college graduates in these cities change from 2000 to 2008? And what happened to the student population in Austin?

Update 2: Mark Beauchamp of EMSI makes some excellent points via email:

Mr. Mandel’s lead example of Metro Areas with the Biggest Real Per-Capita Income Gains was Houma-Bayou Cane- Thibodaux, LA — a metropolitan area that had 11% of the population of the San Jose MSA in 2002.

Between 2002 and 2009, its population grew 5.08% while its total employment grew 19%.  You have to have an income-per-capita increase in jobs like that.  An income-per-capita ratio favors regions that have explosive income growth (especially jobs that pay above the previous average), and population growth that lags behind the job growth. Conversely, the ratio will not favor areas that have a high amount of population growth with concurrent losses in total income.

The  biggest “loser” by this metric is the San Jose MSA, and during the same time period  its population grew by 86,269 people (5.16% growth) and lost 43,314 jobs (a 5% loss).  For purposes of scale, the San Jose MSA added the equivalent of half of the population of the Houma MSA and lost the equivalent of half Houma MSA’s workforce between 2002 and 2009.

Tying this in to education level is pretty silly — these are boom towns (oil and military), and likely with a high amount of young workers, early in their careers who didn’t bring spouses or children (extra, non-income-producing population, thus dampening the ratio).  This is like comparing the boom towns of the Western US with the established cities of the Eastern US during the Long Depression at the end of the 1800’s.

He also has some numbers for college graduates in Austin: they were 46% of the population in 2002, and 44% in 2009. So that doesn’t explain very much.

The payrolls report this morning was good: it feels churlish to throw cold water on the news that 290,000 more people are working now than a month ago.

But. Keep an eye on those unemployment rates. The headline figure is back up at 9.9%, the highest it’s been this year. The U-6 underemployment rate is a gruesome 17.1%. And U-4, which is total unemployed plus discouraged workers, has hit a new high of 10.6%.

If we’re going to have sustained GDP growth, it’s going to have to come from those figures falling back to acceptable levels: without that happening, we can have a little bit of a rebound, but none of the long-term consumer demand that’s necessary. And yet they’re all going the wrong way: up, rather than down. That’s devastating for the economy, and not only because rising unemployment is a sure-fire way to increase mortgage delinquencies, with all the ugly financial and fiscal consequences that entails.

Underneath it all, there’s a glimmer of a silver lining to the unemployment figures: they come from an increase in the labor force, which means that people are actually bothering to look for work again. Remember though that 6.7 million people have now been unemployed for more than six months — 46% of the total unemployment figure. We’ll literally never find jobs for all of them: many will never be employed again. Which is the real underlying tragedy of this recession, and of the jobless recovery.

Lending to small businesses is often a spectacularly good way of creating jobs — and almost always creates more jobs per dollar spent than any kind of infrastructure investment. One can argue at length about just how many dollars it costs to create one job in the infrastructure field, but whatever numbers you come up with, they’re going to be much higher than, say, the numbers that Linda Levy, the CEO of Lower East Side People’s Federal Credit Union, gave me for our small-business lending. (I’m on the board there.)

We’ve made 25 small-business loans of late, averaging $17,000 apiece. Linda reckons that on average each loan means the retention of one job, since someone with a job would lose it were it not for the loan. But put that to one side; she also says that the 25 loans, between them, have resulted in 10 brand-new full-time jobs as well. That’s $42,500 per job created, which is a pretty good number.

The insight here is that small businesses don’t tend to hire people who don’t pay for themselves: the small-business loan just gives the necessary push to make that job possible in the first place. And small businesses tend to be more labor-intensive than capital-intensive, so new loans are likely to be transformed into new employment.

Of course, if you look at poorer countries, the dollars-per-job-created figures are more impressive still. Here’s the latest press release from the Sustainable Preservation Initiative, about a new project it’s funding in Peru. With a single grant of $48,000, the SPI is helping to turn an important archeological site into a source of tourism-related cash for a poor local community, thereby creating an enormous incentive to protect that site rather than looting it or building on it. And, of course, creating jobs, too:

Together, the workshop, store and tourism activities are expected to create more than twenty additional jobs during the construction period and ten or more new permanent jobs thereafter.

That’s less than $5,000 per permanent job created — plus 20 construction jobs thrown in, as it were, for free.

In general, if you want to create the maximum number of jobs for the smallest amount of money, the best way of doing so is to provide catalytic capital which helps to give a small business the step-up it needs to sustain new jobs on a permanent basis. The problem is that finding such businesses, and underwriting loans to them if you’re giving out loans rather than grants, is expensive and time-consuming, and it’s hard to scale on a national basis. But when it works, it can work spectacularly well.

Ouch. From Catherine Rampell: