Who Cares About the Unemployed…
…it seems that way, at least, when I listen to much of the rhetoric coming out of Washington.
But it’s not just Washington, it’s Wall Street, too. In my line of work, finance, market participants grapple with the monthly economic data flow, eyeing each release as if it’s telling a new story about the current prospect for US economic growth – that it isn’t just treading water. ‘Consensus’ economists forecast their expectations for the economic release of the day, the market then trades based on the surprise to which the data beat or disappointed expectations. Day in, day out, that’s what we do.
I have a problem with this automated way of viewing the world. It’s tough to hear Wall Street economists defend their forecasts, stating that ‘oil’ or ‘Europe’ are the primary risks to the outlook; or that the structural unemployment rate has risen markedly so that harmful inflation is right around the corner. Step back, take a look at where 2.7% annual growth (current Consensus for 2011) actually gets the US labor market (see chart below).
The biggest risk to the outlook is not oil, it’s unemployment. The longer that the labor market remains idle – in fact, the labor force is now trending downward – the lower will the average skill level will go. Then you’re going to get something much more structural, the so-called positive feedback loop.
People move to the US for the American Dream – I wonder where they’ll go now…. Germany?
The chart above illustrates the harmonized G7 unemployment rates indexed to 2007 for comparability. The latest readings (June mostly) are listed in the legend.
The US labor market, as measured by the unemployment rate, deteriorated much more precipitously than that in any other G7 country. Germany stands out as the sole labor market that’s shown any marked improvement, furthering a trend that started with the the Hartz Concept. (I just did a Google search of the Hartz commission and came across this Economist article written in 2002 – remarkable.)
Policy drives the structural level of unemployment, not the other way around. In the US, there are currently no true boundaries to the supply of labor, rather it’s demand. Congress should be targeting job creation and aggregate demand, not the 2012 elections.
Stephen Gandel is right: there is no upside to high unemployment, just downside. You want to drop the deficit? Create jobs and aggregate demand so that the population ‘can’ pay taxes.
This post originally appeared at Angry Bear and is reproduced here with permission.
2 Responses to “Who Cares About the Unemployed…”
neven strmski • June 14th, 2011 at 6:25 pm
Very good post here !! I would also add that the residential housing market and health care policy issues DIRECTLY effect the unemployment / underemployment rate.
Health care, for most individuals and their dependents, is directly correlated to employment, i.e. … most people get their health care through their employer. With many domestic US companies ( especially small businesses that historically speaking, are responsible for most of the growth in employment growth in the U.S. ) still somewhat unsure how much added cost they are taking on when providing benefits to employees. Domestic health care policy needs to be more thoroughly articulated for business owners to understand the TRUE costs of providing some level of health care insurance to employees.
The sorry state of the domestic residential housing market is yet another even more important matter that, in my opinion, is directly correlated to the general anemic recovery in unemployment ( as well as 'under-employment' in the United States ). How is someone able to easily relocate to a job in a different city, if they can't sell their house / condo … or if they are 'underwater' on their mortgage? Granted residential housing is probably a more important and relavent issue than health care policy.
If you add the current health care policy cost uncertainty for employers ( especially small businesses ) to the anemic recovery and uncertainty in residential housing, I do not personally see how the U.S. can have a sustained recovery in unemployment and 'underemployment'. I'm not sure what the answers are, but I do know what, arguably, the two biggest problems affecting employment growth are. We will see what happens.
Lachelle Villarruel • September 17th, 2011 at 6:47 pm
I’m a long time watcher and I just imagined I’d stop by and say hello there for the very first time. I truly enjoy your posts. Cheers
