Tag Archives: Unemployment

For the next recession

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.

Senate passes jobs bill

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.

So the job picture didn’t work out as hoped

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.

A Case for the Investment Tax Credit

Obama has recently sparked debate about a proposal to spark job creation.  He wants the proposal to include incentives for small businesses to hire more workers, spend more money for infrastructure projects and offer rebates for homeowners who update their homes with energy efficient durable goods and weatherization renovations — that has come to be known as “cash for caulkers.”  The debate around the blog world has included some interesting ideas, including the “cash for caulkers” idea itself and a cut in the minimum wage, which has spurred tremendous uproar in the blogging community for and against it.

One proposal that has caught my eye is the Investment Tax Credit. (ITC) Mankiw has made several good points about the ITC that is well worth looking at.  First, a temporary ITC could help act as a similar mechanism to create negative real interest rates, much like what inflation could do, even though quantitative easing is now out of the question given Bernanke’s recent remarks. Second, like cash-for-clunkers, it would help stimulate AD in the short-run and move AS rightward in the long-run, but broadly so as to not favor a specific industry. And lastly, tax credits usually are a good idea if you want more of something.  Considering how low investment growth is, it would only make sense to target tax credits on something like investment.  If businesses focus on investing, it will help stimulate demand for capital goods, increasing the need for more labor to supply it.

If opponents want to say that this may just stimulate demand for investment in foreign capital goods, I would say that most investment worthy capital goods would be created here in the U.S.  Less value added products that usually come from abroad, if do happen to be purchased, still doesn’t mean that the products wouldn’t go toward future productivity and lower unit costs.  For what its worth, the economics out rightly support the ITC.

To drive the point further, Obama should really listen to what small businesses actually want.  Yes, America wants jobs, but small businesses are not going to hire unless they get what they want first.  While the blogosphere argues over lowering labor costs with the minimum wage, small businesses are asking for something different.   From Peter Crabb:

The latest reading of the National Federation of Independent Business (NFIB) Index of Small Business Optimism was down, but business owners don’t see a lack of bank loans as a problem.Twenty-nine percent of all respondents to the NFIB survey reported they have met their borrowing needs. Nine percent reported problems obtaining financing, which is one point lower than the previous period.

Why are small businesses not desperately seeking more financing? Because they have little reason to invest in their companies. In the survey, only 16 percent said they are making capital-expenditure plans for the next few months. Only 8 percent said the current period is a good time to expand facilities, and only 3 percent think the economy will improve.

Small businesses are not concerned about getting loans for making investment into their companies. In fact, among their chief concerns are:

[From the NFIB report] …we find that when asked to identify the most important problem small-business owners face at this time, poor sales are cited most frequently, high taxes second and government requirements third.

It seems that their chief concern is with demand. Small-businesses don’t necessarily care about making investments right now as they need revenues to catch up first. However, whether or not small business are enticed by an ITC, larger businesses would be. I am sure many companies would be willing to take advantage of it. And the downside? No one takes advantage of it and the treasury account stays the same.

Some more cases for the ITC can be found here and here.

So close…November’s employment figures

The employment and unemployment numbers came out today.  Unemployment inched downward to 10% and almost eked out a positive employment figure with a loss of 11,000 jobs.   These numbers are highly optimistic.  Although preliminary, it is a stark contrast from the consensus estimates of -116,000 and IHS Global Insight’s glum prediction of -175,000.  This may signify an early turning point in economic recovery.  Just look how close those payrolls almost reach 0.

I would expect the preliminary numbers to be revised downward, and that employment growth will stagnate over the holiday season as employers take a breather from either hiring or firing. I think we will be able to have positive employment growth well into early 2010, say, for the month of January?

Productivity hits a whopping 9.8%

While job losses are hampering down optimism for recovery in the near-term, productivity numbers released today was a whopping 9.8%.  Makes sense considering the large number of job losses mounting while output had increased 3.5%.   Although job losses are bad in the near-term, in the long-term, higher productivity leads to more income.  So while some people are feeling the pain with one of the worst labor markets since the great depression, businesses are handling the recession most effectively by creating value and income growth for the mid-to-upper echelon of the American public.

This unfortunately leaves many in the bottom quin-tiles of the economic ladder left behind.  The BLS’s “Alternative Measures of Labor Under-utilization” (basically underemployment) clocking in at 15.2% illustrates how poor the labor market really is.  I have recently posted my thoughts on what I call the “new unemployed,” which is going to drastically shape the economic environment for the future of America unless important structural changes happen such as making investments in technical and vocational education that will help yield a more specialized workforce.

WANTED Analytics: Oct 09 Job Forecast -224,000

WANTED: Analytics posted their October 09 Job Forecast for the BLS numbers coming out on November 6th.   WANTED predicts that there will be a job loss of -224,000.  An upward trend since the previous month due to higher Unemployment Insurance claims.  Not as high as they wanted to forecast given marginal increases in the amount of online job ads.