Opinion

Felix Salmon

Thought experiment of the day, job-creation edition

Felix Salmon
Sep 15, 2011 13:16 UTC

Note to “job creators” out there: With $2 billion, you could employ 40,000 people for a full year at $50,000 each. #roguetradeless than a minute ago via web Favorite Retweet Reply

My colleague Pedro da Costa has this intriguing tweet this morning, and I thought I’d throw it out there for bloggers and commenters: let’s say I gave you 40,000 people earning $50,000 apiece, and asked you to put them to work for one full year. Could you create a business worth more than $2 billion? How would you do that? And how many people would that business employ going forwards?

(Small print: yes, you can spend $X over and above the cost of labor, but then the business has to be worth $X+$2 billion. And you can pay some people more than $50,000, so long as you still employ 40,000 people in all. And for the purpose of this thought experiment, let’s ignore things like payroll taxes and the like.)

I’m sure that Andrew Mason would have some ideas here: he’s one of the few entrepreneurs who isn’t shy about hiring a lot of people.

My idea: outsourced mortgage servicing. Create a mortgage servicer from scratch, where everybody who calls in is given a single point of contact — a unique individual who owns their problems and is charged with finding solutions to any problem, including refinancing and loan modification. There’s got to be a way of building up enough trust with both banks and homeowners, over the course of a year, to build a $2 billion business somehow.

COMMENT

“My idea: outsourced mortgage servicing. Create a mortgage servicer from scratch, where everybody who calls in is given a single point of contact — a unique individual who owns their problems and is charged with finding solutions to any problem, including refinancing and loan modification.”

That’s assuming you can find enough qualified people to do the job well.

If you offer health insurance benefits as well, I’d gladly sign documents (with my own name, or someone else’s…your choice) for $30K/yr. As long as I don’t have to read any of ‘em.

Posted by NedStark | Report as abusive

Charts of the day, CBO testimony edition

Felix Salmon
Sep 14, 2011 14:05 UTC

Two charts jump out at me from Doug Elmendorf’s presentation to the Joint Select Committee on Deficit Reduction. The first is the sheer size of various loopholes in the tax code:

loopholes.jpg

If you want to make a serious dent in long-term deficit reduction, this is a good place to start. Everybody knows that Social Security and Medicare — pensions and healthcare — comprise a massive part of the government’s future spending. What’s less well known is that pensions and healthcare are also the two biggest tax expenditures in the tax code: the deductibility of healthcare premiums will cost the government about $650 billion over five years, with the deductibility of pension contributions running it a close second. That’s over a trillion dollars in lost revenue right there. Add in the mortgage-interest deduction and the lower rates on long-term capital gains, and you get to $2 trillion pretty quickly. Double that to get a ballpark ten-year figure.

This is something that proponents of private health insurance don’t often grok: that it’s heavily subsidized by the federal government already, due to its tax-exempt status. And it stands to reason that if the government is going to spend hundreds of billions of dollars a year subsidizing private health insurance, then it ought at the very least to get some kind of control over the healthcare industry in return. If you want to keep the system fully private, then fine, but don’t ask the government for massive subsidies at the same time.

As for the tax deductibility of pension contributions, Mark Miller wrote a great post on the subject in June, in which Teresa Ghilarducci makes a very strong point.

Ghilarducci argues that retirement saving wouldn’t decline if the deduction disappeared. “There’s no evidence that it increases saving; much of the academic literature shows that higher income people are simply moving investments they would have made anyway [in taxable accounts] to a tax-preferred account. And there are 25 million taxpayers in the bottom two quartiles who don’t take deductions, so they’re getting no subsidy at all from the federal government on their contributions.”

Everybody’s talking about the necessity of making hard choices: there are lot of hard choices here which could have an enormous effect on government revenues while at the same time simplifying the tax code and even maybe allowing a reduction of the headline rate of income tax. I’m in favor of taking a whack at all of the bars on this chart, with the exception of the EITC. Doing so would make the tax system more progressive, simpler, and more lucrative. Which is exactly what we need.

So, that’s one opportunity facing the deficit committee. But here’s something scarier:

unemployment.jpg

This is the official CBO unemployment projection, on which all of its economic forecasts are based. And it shows unemployment plunging to 5% after 2015. That’s considered the long-term unemployment rate, and I guess that 2015 is considered the long term, or something. In any case, it ain’t gonna happen — there’s absolutely no reason to believe that the economy will suddenly add an enormous number of jobs in four years’ time.

As a result, actual tax revenues are going to be lower than the CBO is projecting, since the CBO is anticipating revenues from millions of people who won’t in fact be employed. And government expenditures on unemployment insurance, Medicaid, and the like will be substantially higher than the CBO is projecting.

So when we get to work on the deficit, it’s important to remember that the problem is bigger than the official CBO numbers would have you believe. Partly because the CBO is assuming things like a 30% reduction in Medicare payments for physicians’ services after 2011, which simply isn’t going to happen. And partly because the CBO is being incredibly overoptimistic on the unemployment rate. So let’s get to work on reducing the size of those loopholes. It’s the only way we can credibly free up enough money to provide the stimulus the economy needs right now.

COMMENT

“Offer to pay the college educations for all doctors and nurses that stay in the profession for ten years, to limit expected future shortages of these professionals.”

Are trained doctors leaving the profession? I know that many are reluctant to enter general practice, due to income disparities between the specialties, but I haven’t heard of any leaving for other fields.

And isn’t the supply constrained primarily by medical school acceptances? There are many more hopeful applicants than seats. Those denied admission may be weaker students, perhaps, but are still generally very bright people.

Posted by TFF | Report as abusive

The jobs plan

Felix Salmon
Sep 9, 2011 13:33 UTC

I’m not a fan of the kind of political rhetoric that Barack Obama employed for much of his speech last night. “Pass this jobs bill” is not exactly “tear down this wall.” And at the risk of getting nitpicky, it’s difficult to say that “America can be number one again” and “America will be number one again” towards the end of the speech, only to finish with the assertion that “America remains the greatest nation on Earth”: my reaction was “wow, that was quick.”

But, as Paul Krugman says, there’s a lot to like in the nitty-gritty of the proposals, even if most of it was hard to discern in the speech itself. This, in particular, comes close to something I’ve been advocating for a while:

The President’s plan will completely eliminate payroll taxes for firms that increase their payroll by adding new workers or increasing the wages of their current worker (the benefit is capped at the first $50 million in payroll increases).

There are two things I’m less than ecstatic about here. First is the $50 million cap; second is the elimination of payroll taxes just for handing out pay rises, rather than for actually hiring people. But maybe there are logistical reasons why it’s hard to measure the number of employees, rather than just the total payroll in dollars.

But the idea of this bill, I think, is to attack the jobs crisis on multiple fronts, rather than placing a lot of faith in any one tax cut or similar. There’s the tax credit for hiring unemployed veterans, which is a great idea, along with another tax credit for hiring anybody who’s been unemployed for more than six months. There’s infrastructure investment, concentrated on schools, along with the return of our old friend the National Infrastructure Bank. That was a great idea when Obama first proposed it during the presidential election campaign, and it will remain a great idea when it’s proposed again every few years or so.

And! The wholesale mortgage refinance proposal managed to make it into the bill as well. That’s a great little stimulus program, which will cost the government little or nothing. It probably won’t create much in the way of jobs, but we need growth as well as jobs, and it will help, at the margin, on the growth front.

My least favorite part of the bill is probably the conceit that, as Obama put it, “everything in this bill will be paid for. Everything.” This is a particularly obvious symptom of the virulent disease which has long reached pandemic proportions in Washington — taking a headline from George Magnus, I call it Deficit Attention Disorder.

This is a stimulus bill; stimulus bills, by their nature, can’t be revenue-neutral or fully paid-for. And this one isn’t. Instead, it seems like Obama is going to tot up the cost of the bill — $447 billion is the number doing the rounds — and add it to the $1.5 trillion that the deficit supercommittee is being charged with cutting from the budget over a decade-long period. That’s not paying for a bill, it’s passing the buck to someone else.

And it’s pretty sad commentary on the state of American politics — and the way that the horrible personal-finance metaphor seems to have become embedded in the national psyche — that Obama considers this both necessary and a good idea.

The bottom line here, I fear, is that the best we can hope for is that this second stimulus will manage to keep the economy slightly above stall speed, and thereby help us avoid the job losses associated with a nasty double-dip recession. Avoided job losses are very good things, but they’re not new jobs. And they don’t get you re-elected.

COMMENT

If I need to hire anyone it will be based on the growth of my business. As soon as I need another employee, I’ll hire a qualified vet since there is a tax advantage. However, since I’m a doctor and medicare is scheduling a 29% cut while my malpractice rates are going up 25%, I doubt I’ll have the revenue to hire any new people next year. All these projections are fantasy and I hope in 2012 we get someone in charge who has a basic understanding of business priciples. The first stimulus money was used in my home town for “walk, don’t walk” signs at a crosswalk on State hwy 441. On one side of the 4 lane highway is a poultry plant, on the other side is some woods. This type of spending on bogus shovel ready projects does not encourage me as a business man that the govt programs are doing any good. The govt needs to back off and let the economy recover itself!!!!!!!!!

Posted by zotdoc | Report as abusive

Zero. Nothing. Nilch.

Felix Salmon
Sep 2, 2011 13:00 UTC

The symbolism of today’s payrolls report — ZERO — would be bad enough even if it wasn’t coming out in advance of the Labor Day weekend. There’s a pattern here: no matter how bad Wall Street thinks the employment report is going to be, it always seems to be worse, these days. It’s like GE’s earnings circa Jack Welch, but in reverse.

It’s increasingly looking as though the government is utterly incapable of creating jobs, but is actually pretty effective at destroying them. It’s doing so in a direct, literal way — there were 17,000 fewer government employees in August than there were the previous month, and local government has lost more than half a million jobs since September 2008. And it’s also doing so in an indirect way — there can’t be much doubt that a significant part of the jobs weakness is a function of the anger and uncertainty caused by the utter dysfunction of the legislative branch of government.

Hiring and firing decisions, of course, happen slowly — and they often happen after the summer. The jobs situation, which is always cyclical, now seems to be in a downturn rather than an upturn, which raises the prospect of a negative payrolls figure in September and further gruesome news over most of the 2012 election year. President Obama can speechify all he wants on Thursday, but I can’t imagine that he’s going to be able to get anything substantive through the House — not when Eric Cantor is demanding that even emergency hurricane relief be paid for with spending cuts.

You can call this a double dip, if you like, or you can view it as a kind of aftershock of the financial crisis. Either way, the economy is clearly now below its stall speed, and we don’t have access to the mechanisms necessary to get it moving again. That is going to make for poisonous politics, Washington gridlock, and untold human misery among millions of new and long-term unemployed across the land. Happy Labor Day, people.

COMMENT

Not everybody is in debt, remember, somebody’s debt is somebody else’s income. The problem is the paradox of thrift, everybody scared and saving at the same time, the mirror image of the “irrational exuberance” during the boom times. Typical of capitalist business cycles. Financial crises precipitated by uncontrolled speculative behavior by the private sector is as old as Adam Smith and without government intervention, will continue ad eternum. The question is how long are we willing to let the recession go on and how many lives will be sacrificed in the process. The commentaries regarding the inherent positive aspects of private sector intervention versus the
self-defeating public sector have been proven wrong over and over the past 100 plus years. Those ideologues always focus on the fallen brown leaf and forget the rest of the tree.

Posted by Soiza | Report as abusive

It’s time to get working on labor mobility

Felix Salmon
Aug 20, 2011 16:05 UTC

One of the problems with the news cycle is that perennial issues — problems and solutions both — tend to get ignored in favor of things which have changed in the last few hours or days or weeks. As a result, when it comes to the global economic crisis — the thing which came to the world’s attention in 2008 and which no amount of Panglossian dreaming of V-shaped recoveries can wish away — one of the key potential solutions has been left all but ignored from the outset of the crisis through the present day.

So it’s worth taking a big step back, and looking at the global economy from 30,000 feet. When you do that, you see a lot of wasted resources — in food, in energy, in water, and of course in war. But add them all together and they still don’t come close to the human resources that are wasted every day. This is the 21st Century — the age of information technology and service-sector value-addition. The two most valuable companies in the world, Apple, and Exxon Mobil, both have fewer employees than the population of Moses Lake, WA. The right people in the right place are worth more now than at any point in history — even as the total population of the planet, and therefore its gross human potential, has never been higher.

At the same time, however, the universe of people with the potential to really change the world is vastly smaller than it ought to be. Silicon Valley entrepreneur Marc Andreessen, writing in the WSJ on Saturday, complains with good reason:

Many people in the U.S. and around the world lack the education and skills required to participate in the great new companies coming out of the software revolution. This is a tragedy since every company I work with is absolutely starved for talent. Qualified software engineers, managers, marketers and salespeople in Silicon Valley can rack up dozens of high-paying, high-upside job offers any time they want, while national unemployment and underemployment is sky high.

Does the world have a shortage of good software engineers? Yes. Does Silicon Valley have an artificial shortage of good software engineers? Yes. There are lots of highly-qualified software engineers from India, Russia, and elsewhere — even Canada — who would love to work in Silicon Valley but can’t, for visa reasons. Even if you got your qualification at Stanford University, right in the heart of Silicon Valley, it’s decidedly non-trivial to get a job in Palo Alto or Cupertino upon graduation. You know the companies, you know the people, they know you, they would love to hire you — but the Bureau of Citizenship and Immigration Services gets in the way, and forces you out of the country instead.

If you’re more ambitious than that, of course, the situation gets even worse. There are at least ways of getting a work visa in the US; they’re far too onerous, and leave far too much to chance, but it’s possible. If you want to become an entrepreneur, on the other hand, there’s really no point in even trying. Recent graduates are perfectly positioned to build the great companies of the future: they’re bright, they’re hard-working, they’re up to speed on the state of the art, and they generally don’t yet have families which require job security and a steady income. But if they’re not US citizens, it’s almost impossible for them to build the economy of the future in this way.

And Silicon Valley has historically been a very good place for immigrants — think Intel’s Andy Grove, or Google’s Sergei Brin. It’s no coincidence that the most vibrant areas of the economy are also the places with the highest immigration. Immigrants — especially rich and well-educated immigrants — work hard, create jobs, pay much more in taxes than they take out in benefits, and tend to have overachieving children: they’re a recipe for economic growth and prosperity. The US is a nation of immigrants; from the Statue of Liberty’s beaconed hand glows world-wide welcome, at least in theory. In practice, the US has shot itself in the foot in this regard, especially when compared to its Anglophone competitors like Canada and England. America would have an all but insurmountable competitive advantage in the fight for talented immigrants, were it only to bother competing.

Take another step back, and the lack of mobility of the skilled global elite is a microcosm of a much larger problem, which is the lack of labor mobility more generally, both between and also within countries. Detroit, for instance, has painfully high levels of unemployment just because there aren’t nearly enough jobs in the city, any more, to support its population. The solution is for people in Detroit to move to where jobs are more plentiful. Similarly across the US: one of the reasons why a single currency works well across 50 disparate states is precisely because there’s a decent amount of labor mobility between those states. But as a rule, the more labor mobility the better, and one way of ensuring that jobs get filled by the best-qualified people is to maximize the ease of moving geographically from one job to another.

Moving is always painful, of course, especially for families, but this is one area where homeownership is very much a bad thing. Selling a house is difficult, expensive, and time-consuming — all the more so in today’s depressed market, when millions of homeowners are underwater on their mortgages. In the short term, the government should be doing everything it can to bring liquidity back to the real-estate market — and that means forcing banks to do principal reductions on underwater mortgages. In the long term, it should phase out the mortgage-interest tax deduction, which artificially increases homeownership and decreases labor mobility.

Improving labor mobility is not easy. Italy, for instance, has been a unified country with a single language and a single currency for 150 years, but it still has minimal labor mobility from the south to the north. The lack of labor mobility has been one of the biggest macroeconomic problems facing the Eurozone; again, the millions of unemployed people in the south are not filling jobs in the north. (There’s a bit more mobility from east to west, but not much more.) And globally, discrimination on the basis of one’s country of nationality is the one universally-condoned form of discrimination still in existence: every country in the world puts up significant barriers to prevent foreign nationals from living and working within its borders.

This is not a problem which can or even should be fixed overnight. But it’s a huge problem all the same, and the world’s policymakers should be working on it rather than ignoring or exacerbating it, as they’re doing at the moment. If we want to maximize long-term growth, eradicate global poverty, and give everybody in the world the opportunity to achieve their potential, then a vast improvement in global labor mobility is top of the list of prescriptions.

COMMENT

The right people in the right place at the right time are indeed valuable. With this confluence, businesses will have people working for $1 a day. America will be a 3rd world country – actually all countries will be 3rd world with a very few rich spread out in a few world wide affluent cities.

I was a boy scout, straight A student through college (engineering), and I don’t buy this “free trade” “no borders” guff for a second. I believe in the American dream and of human rights. Everything that businesses want is antithetical to this.

Wake up and stop parroting industry talking points. There never has been a shortage of high tech workers. Do your homework and research. You’ll find that visas like the H1-B were designed solely to undercut the wages of high educated workers.

Man you are pedestrian.

Posted by allanc | Report as abusive

Perry’s employment record in Texas

Felix Salmon
Aug 15, 2011 20:03 UTC

Paul Krugman has an important column today about Rick Perry’s record of job creation in Texas:

So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth…

Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.

The unemployment numbers are interesting, but I thought it would be interesting to look at the employment numbers instead — and to see how employment in Texas compares to employment in the rest of the country. So Nick Rizzo collated the data for this chart, taking employment figures from Google’s Public Data Explorer, and filling it out with population data from the Census Bureau and — for the 2011 population of Texas — the Texas Department of State Health Services. Here’s the result:

txpop.jpg

The employment-to-population ratio in this chart is lower than the employment-to-population ratio we normally see, because it includes everyone, from infants to convicted felons. According to the figures we have for 2011, 44.7% of the total US population has a job, compared to 43.5% of the Texas population.

And Perry’s record is pretty bad, here: he inherited a ratio of more than 47% in Texas from George W Bush, and has presided over a steady decline ever since — including every year of the Bush presidency bar 2005.

The single most important task facing the US is to turn the employment numbers around and get the employment-to-population ratio rising again. Obama has been bad on this front. But Perry’s decade-long record in Texas is no better.

COMMENT

The chart doesnt take into account the large Hispanic pop which has a higher birthrate and therefor a larger percentage of children who are not in the work force at all but are counted as unemployed for this survey had to look hard to find something to get on perry nice try but no cigar

Posted by Dogman11 | Report as abusive

Does John Boehner know what paychecks are made of?

Felix Salmon
Jul 8, 2011 13:25 UTC

It’s incredibly difficult to work out what is the most depressing part of today’s truly gruesome jobs report. The shrinking number of people in the labor force? The rise in U-6, broad underemployment, to 16.2%? The sharp spike in the newly unemployed? The downward revisions to April and May? The downtick in total hours worked? Maybe it’s the way that people leaving government jobs, for whatever reason, are finding it impossible to find new jobs in the private sector.

For me, it’s none of these things — it’s not, in fact, anything inside the report at all. Instead, it’s the reaction to the report from John Boehner:

“The American people are still asking the question: where are the jobs? Today’s report is more evidence that the misguided ‘stimulus’ spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country. Legislation that raises taxes on small business job creators, fails to cut spending by a larger amount than a debt limit hike, or fails to restrain future spending will only make things worse – and won’t pass the House. Republicans are focused on jobs, and are ready to stop Washington from spending money it doesn’t have and make serious changes to the way we spend taxpayer dollars. We hope our Democratic counterparts will join us and seize this opportunity to do something big for our economy and our future, and help get Americans back to work.”

Opinions of the budget deficit and the national debt differ — some people think they’re a huge and important issue which needs to be dealt with in an urgent and serious way, while others think that the whole issue is overblown and that the debt is doing little if any harm at all to the US economy. But whichever side you stand on that debate, it’s downright bonkers to think that, at the margin, government spending reduces job creation, while pushing for ever-larger spending cuts is the way to be “focused on jobs”.

As Paul Krugman has explained extremely well, the economics of the deficit are not entirely obvious, and the president is no natural Keynsian.

The president just doesn’t like the kind of people who tell him counterintuitive things, who say that the government is not like a family, that it’s not right for the government to tighten its belt when Americans are tightening theirs, that unemployment is not caused by lack of the right skills. Certainly just about all the people who might have tried to make that argument have left the administration or are leaving soon…

To commenters saying that I need to have dinner with the president, or vice versa — been there, done that, didn’t help.

But if Krugman’s Keynsianism is unintuitive, the Republican stance on jobs is downright incomprehensible. Paychecks are made of money: they’re spending. If you spend less, you get fewer and smaller paychecks.

“Spend less money, create more jobs” is the kind of world one normally finds only in Woody Allen movies, and it’s a profoundly unserious stance for any politician to take. Spending cuts, whether they’re implemented by the public sector or the private sector, are never going to create jobs. And there’s simply no magical ju-jitsu whereby government spending cuts get reversed and amplified, becoming larger private-sector spending increases.

Boehner’s rhetoric, here, is a cynical play on our nation’s economic illiteracy. But the jobs crisis is far too big and too important to become a tactical political football. Now more than ever, it’s the job of government to come together and to do something constructive to create high-quality, long-term employment. Fast. Instead, the House majority is giving us aggressively harmful stupidity. Today’s a bad day in the annals of job statistics. But it’s equally bad in the annals of public service.

COMMENT

@hsvkitty,

BP and fracking and the enviroment are of concern to everyone, myself included, that’s why oil drilling and shale gas exploration are heavily regulated. I’m not for one instant saying that they should be unregulated.

I was challenging the obvious fallacy that regulations don’t affect investment and employment.

In some instances regulation might actually increase employment. In my state they have reduced the number of lobster traps allowed per lobster licence several times. This has allowed more people to make a living in the lobster business at the expense of the really ambitious hard working lobstermen that use to fish 16 hours a day 6 days a week.

@DanHess total kudos to your ideas. I agree with your assessment that energy scarcity will dwarf all current issues much sooner than many expect. Lets change some regulations and put wind turbines up in all but the most critical envriomental areas of my state and solar farms in all but the most critical areas of the arid southwest.

Posted by y2kurtus | Report as abusive

Can employment ever catch up with productivity?

Felix Salmon
Jun 22, 2011 18:19 UTC

I moderated a panel on financial innovation yesterday, about which more when I get the video. But there was a lot of talk of leverage, which is the hidden turbo-charger in a lot of financial innovations, from credit default swaps to structured investment vehicles. And there was a general consensus that if you want to create prosperity and jobs, then leverage is in principle a good thing: more debt means more growth which means more prosperity. For a prime example, see this post from Gregory White, who reckons that whenever household debt is going down rather than up, “the economy will stink.”

In reality, however, things are rather more complicated. And Jared Bernstein has a great post up explaining one of the big problems: Over the past 30 years or so, unemployment has been high, compared to the previous 30 years, when unemployment was low. When unemployment is low, productivity gains go to labor; when unemployment is high, they go to capital. And that’s a big reason why median family incomes have been massively lagging productivity growth since 1979, even though the two moved pretty much in lockstep during the postwar period.

The challenge I put to the panel yesterday was to come up with an innovation which produces more growth with less leverage, after an entire generation in which debt has been growing much faster than GDP. Better yet, come up with an innovation which produces more jobs with less leverage. We still have healthy productivity growth. How do we channel that into employment, rather than dividends for plutocrats? The fund managers and CEOs on my panel weren’t much help on that front. But that’s the real challenge facing developed economies today, and I suspect that if we look at Germany, we might be able to find a few clues.

COMMENT

Having moved from Australia to Germany almost 2 years ago the main differences that Felix might be referring to:

- a strong school education system with equivalent quality universities (that don’t leave students with crippling debts) or pervasive apprenticeships (in all industries, not just traditional “hand work” ones)

- a distaste for debt. People here prefer cash (or the electronic version thereof) and it’s quite common to be unable to use a credit card. A modest mortgage is the limit most people undertake and unmanageable credit card debts are a rarity. This seems to extend to companies too which leads me to…

- a preference for organic growth. The Mittelstand are mentioned so often because these are small-medium companies who punch above their weight in their respective markets but still maintain a focus on longevity all the while compensating all employees generously. In most cases they avoid taking on debt which allows them to ride out cyclical events better although they do get some help from…

- government initiatives like “kürzarbeit” (literally “short work”) helps to smooth out the impact of the business cycle on employment. Businesses reduce hours instead of laying people off and employees get some assistance from the government. The business wins by retaining skilled staff, the employees win by not being laid off and the government wins by spending less than full unemployment benefits.

Posted by MartinBarry | Report as abusive

Charts of the day: The rise in structural unemployment

Felix Salmon
Jun 20, 2011 18:28 UTC

Is this jobless recovery a peculiarly American phenomenon? This chart, from a new paper seeking to unentangle cyclical from structural unemployment, would suggest that it possibly is:

change.tiff

I find these numbers quite shocking: after all, it’s hardly as though countries like the UK and Portugal have emerged from the recession unscathed. But the US increase in unemployment over the course of the recession was more than double the increase anywhere else.

That said, the US has historically has a much lower rate of structural unemployment than most of these other countries: the level of unemployment which is baked in to economic reality, before cyclical factors move it temporarily up and down. And what I fear is that the Great Recession has moved the US towards European levels of structural employment, without any kind of Euro-style social safety net.

Here are the charts for what’s happened to structural unemployment in the US. The red lines are the official employment rate; the blue lines are the structural employment rate. The first chart shows the unemployment rate overall; the next four break it down into people unemployed for less than five weeks; people unemployed for between five and 14 weeks; people unemployed for between 15 and 26 weeks; and the long-term unemployed who have been out of work for more than six months.

structural.tiff

What’s going on here is pretty clear. For short-term unemployment, little has changed: the structural rate has been around 2% for decades. But look at any of these charts and they show structural unemployment at an all-time high, with the situation getting much worse the longer the duration of unemployment. Overall, the structural rate of unemployment is now more than 8%, which means that we’ll only dip below that level temporarily, during cyclical upturns.

Measuring structural unemployment is, of course, more of an art than a science, and I’d be astonished if any economist agreed with all of the figures in this paper. That said, it’s entirely intuitive to believe that structural unemployment rose significantly over the course of the recession, and that it’s now painfully high. And that the Obama Administration is, to a first approximation, doing absolutely nothing to address this crisis head-on.

COMMENT

“America no longer has much work for someone who hasn’t gone to college, but has a strong back and strong muscles and is willing to work hard.”

Unless you’re an illegal alien, in which case you are one of the Chosen People.

By the way, America no longer has much work for people in a lot of white collar professions as well.

Posted by lsjogren | Report as abusive
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