From Calculated Risk, a graph including today’s release of unemployment insurance claims:
Everyone thinks that this is terrible news, that unemployment insurance claims are not letting up. But take a look back during the tech boom recession, claims didn’t let up for a long time either. Given the severe magnitude of this recession, we won’t see any easing of unemployment insurance claims back to pre-recession levels for a very long time. Some structural employment issues at play may even cause claims to bottom out much higher than had previously in the boom times. A more dynamic labor market may be in order if hiring rates peak at a point that would offset claims, and that would mean that with a little more context, the issue isn’t as bad as we see it. Ups and downs should be expected. This is really an issue of scale, and the severity of our recession has skewed our benchmark.
Work share programs that have been implemented in 17 states have been successful in limiting the burden born by employers who need to cut spending that unfortunately results in layoffs and the burden taken by states coffers to help those unemployed.* From Stateline:
Here’s how it works. When a business enters a slump and needs to cut payroll, it can seek state approval for a plan to reduce employees’ hours instead of cutting jobs. For example, a 20 percent reduction in the workforce could translate to a 20 percent reduction in hours, or a four-day workweek. To help employees stay afloat, the state would pay workers about half of their lost wages through the federal-state unemployment insurance program, which temporarily provides laid-off workers with a portion of their paychecks.
Maybe for the next recession, whenever that may be, all states should be ready to work with employers when it comes time to look towards job cuts. Company’s win, worker’s win, and the state wins; a Pareto efficient outcome. Doesn’t get any better than that.
*I forgot to mention those that benefit the most from this are those who don’t have to go unemployed. They are able to retain a higher amount of job security (at the unfortunate loss of wages) and continue to retain job skills that could save themselves and companies in the long-run money.
So the Senate just voted on the jobs bill and it is now going to Obama. I predict with a 99.87% certainty that Obama will pass it, only so that he can push it aside to get political points while getting to bigger business for the next session of congress. Here is what the bill will offer: (bullet points added, from NYT)
- …businesses that hire workers who have been jobless for at least 60 days will be exempt from paying the 6.2 percent payroll tax on those employees’ earnings until the end of the year. If those workers stay on for a full year, businesses will also get a $1,000 tax credit. (The employee’s pay would still be subject to the usual personal income taxes.) The business tax breaks would add up to about $15 billion in all.
- It also provides an extra $20 billion for road and bridge construction and extends the federal highway program through year-end.
And that’s it. $30 billion in corporate tax breaks is soon to follow, which is probably being pushed by Dems in order to compliment the oddly restrictive, albeit mildly effective hiring incentive.
But where is the investment tax credit Obama said he would like to see when he gave his State of the Union address? This bill won’t do much for employment as much as we hope. Construction spending is only expected to ease some of the pain for construction workers on federal contracts. Of course I can’t quantify what this will do. (I will look out for it) I know that at this turning point in the economy, with productivity up and a lot of pent up need for hiring, an investment tax credit would definitely stimulate demand. Weak demand is the reason that’s keeping employment from taking off.
Posted in Economy, Policy Analysis
Tagged Congress, Economic Growth, Economy, Employment, Investment Tax Credit, Macroeconomics, Obama, Tax rates, U.S., Unemployment
It’s a bit late, but I want to comment on it considering it is relatively good news above the surface. For those who didn’t see, the advanced release for GDP in 4th quarter clocked growth at around 5.7%. (here) Considering that this is an advanced release, it will most likely get revised downward later to a more conservative estimate. Why so high? Inventories, mostly, and it is expected that such a growth rate can’t be maintained. ( IHS Global Insight sees growth in 2010 to be around 2.5% – 3.0%)
Beneath the surface there is a nugget of optimism that I want to point out, and that Obama should pay attention to, since timing is critical. From the BEA release:
Real nonresidential fixed investment increased 2.9 percent in the fourth quarter, in contrast to a decrease of 5.9 percent in the third. Nonresidential structures decreased 15.4 percent, compared with a decrease of 18.4 percent. Equipment and software increased 13.3 percent, compared with an increase of
1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9 percent.
If you haven’t read previously, I pointed out Greg Mankiw’s belief that an investment tax credit is a great way to spur growth in the economy. I made my case here on Mankiw’s point. Already businesses are seeing that it is profitable in some sectors, notably software, to decide to invest. As you can see it has spurred tremendous growth for output, which means that demand can only follow. This in turn will create jobs. Obama has already indicated an attempt in his State of the Union speech (here) to try and pass a job bill to include an investment tax credit. Smart move. However, Obama continues to supplant the focus on small businesses when he should be focusing on all sizes. I am sure not many populists will even notice in order to gain steam against it, because after all, it helps everyone, not just small businesses. But Obama needs to act quickly if he is going to want to keep growth like this for 2010. Let’s hope, for something like this at least, that politics don’t get in the way again.
A little nugget from U.S. Regional at IHS Global Insight: (this is from our internal database but this particular data can be found from the BLS)
The last time employment was as low as it was now in the U.S. was in March 2004. During the decade, 17 states have had fewer jobs now than they did a decade ago.
Here they are with the date for when their employment was as low as it was now. Quite incredible. Michigan hasn’t added any new jobs for over 22 years!
U.S. nonfarm payroll employment decreased by 85,000 jobs in December. (here) However, the previous month was revised upward from 11,000 jobs lost to 4,000 jobs gained, so we were able to eke out some positive job growth after all. My previous posted hoped for some positive job growth, given the prior enthusiasm and I’ll take some at least in the revisions. It is interesting that the ADP numbers was only off by a 1,000 given the usual disparity, but that is mostly due to a decreases in the government employment. Professional business services and health and education services happened to add a total of 85,000 jobs while every other sector dragged down the total number. Overall, not good but not that bad either. At least the unemployment rate didn’t budge. No one really hires during the holidays and will only fire given necessity. In times like these necessity holds out more than usual since the environment for demand is poor. This only leads me to believe that 2010 should be a good year for jobs and January will be the month to start.
Could December be the month for some unexpected job growth? After November’s BLS numbers hitting a -11,000 jobs lost and two previous periods revised upwards, optimism for the next month is certainly high. WANTED Analytics thinks that there will be over 75,000 jobs added when the employment report comes out Friday.
The reasons? Fewer unemployment insurance claims, growing hiring demand and milestones in employment gains. With the ADP numbers now out, even Real Time Economics is teetering on the idea that December may be a moment for positive job growth, since there is always a certain gap between the employment growth numbers of ADP and BLS. How nice it would be to bring the in the new year with some positive employment growth!