Those dreadful new unemployment numbers are even worse than they look.

Commentary about business and finance.
Dec. 3 2010 7:05 PM

A Joyless Jobless Report

Those dreadful new unemployment numbers are even worse than they look.

The latest unemployment numbers are less than encouraging.
The latest unemployment numbers are less than encouraging

Unemployment clocked in at 9.8 percent in November, according to the Bureau of Labor Statistics, up from 9.6 percent in October. More than 15 million Americans remain jobless. And 6.8 million Americans report being out of work for more than six months. These are terrible statistics no matter how you look at them. But in some ways, the headline numbers do not go far enough in capturing just how bad the labor market is.

1.      It isn't just the headline number that's crummy.

The banner unemployment numbers in the report are no good, of course. Though the overall rate of unemployment has descended from its recession-era peak of 10.1 percent, it remains woefully high. The unemployment rate has clocked in at 9.8 percent or higher in just six of the last 120 months. Indeed, it has come in that high in just six months in the last 25 years, judging by BLS numbers.

Digging deeper into the report, the numbers do not get any better. It's miserable job growth, more so than a flood of re-entrants into the labor market, that accounts for the rising rate. The economy added a measly 39,000 jobs in November, down from 172,000 in October. It needs to add about 125,000 jobs a month just to keep up with new entrants to the labor market (recent graduates, for instance). Excluding workers hired for the decennial census, the economy has done so in only one month in the last three years. The private sector did add jobs for the 11th straight month. But it added just 50,000 positions, the worst number since January.

Plus, the report showed that many segments of the population already disproportionately hit by the recession got smacked again. The number of Americans out of work for more than six months increased as a percentage of all jobless, to 41.9 percent. Unemployment among college graduates, whose degrees often insulate them from jobs woes, hit its highest level in 40 years, at 5.1 percent. Moreover, the employment-to-population ratio—a broad measure of how economically productive the population is—fell back to its recession-era low.

2.      It bucks a good trend. 

Of late, a variety of economic reports have indicated that the American workers would be in for good news—perhaps with the added effect of bolstering confidence leading into the important holiday shopping season. A much-watched monthly report from payroll firm ADP suggested private employers added more than 90,000 jobs in November, more than in October: The report "shows an acceleration of employment and suggests the nation's employment situation is brightening somewhat. November's gain in private-sector employment is the largest in three years," the company said. Other market indicators—manufacturing and Federal Reserve surveys, for instance—also came in rosier than expected, indicating growth might gin up jobs.

But the official government jobs report contradicts those numbers and came in far worse than even the most pessimistic economists' projections. Economists surveyed by Bloomberg News, for instance, forecast that payrolls would climb by 150,000, with guesses ranging from 75,000 new jobs to 200,000. Instead, the economy added about half of the lowest estimate.

3.      It's going to take us longer to dig out of this hole.

The pace of the recovery is obviously not yet speeding up—in fact, the recovery has stalled out for the past nine months, with employers hesitant to hire, consumers hesitant to spend, and the government running out of bullets. Each month of bad data digs the hole left by the recession a bit deeper and increases the time it will take for the economy to return to normal. The difference between how many workers the economy should employ (given a lower, more normal unemployment rate) and how many it does employ stands at about 11.8 million workers.

Policy scholars and economists often ask two questions related to that so-called jobs gap: Given a certain rate of job growth, how long will it take for employment to return to normal? Or, for employment to return to normal by a certain date, how robust does job growth need to be?

Answering that first question with recent data proves a depressing exercise. At November's rate of job growth, unemployment would hypothetically never come down—with job growth never catching up with labor-force growth. So maybe we should look at October's rate of job growth. Extrapolating from that, unemployment would return to its pre-recession rate of 5 percent in perhaps two decades. (That's 2030, for those of you scoring at home.) So maybe we should take the longer view and assume that the economy adds jobs at the average pace of the last decade. Then the picture improves only slightly: It will take something like 12 years.

Answering the second question doesn't give you the warm and fuzzies, either. The economy would need to add more than 320,000 jobs a month, every month, to bring the rate down to 5 percent in five years. We last saw that kind of growth in the mid- to late 1990s.

4.      We could do something about it, but the government won't.

There is no shortage of ways that the federal government, if it wanted to, could juice employment. To name a few: It could tax corporations hoarding cash to encourage them to invest or hire workers. It could slash payroll taxes. It could directly hire workers. It could offer vouchers for state and local governments to rehire the workers they have recently let go or positions they have left unfilled. It could offer cash bonuses for the unemployed who find work. It could implement tax incentives for work-sharing programs, so successful in Germany. It could offer companies cash awards for hiring workers who have been out of a job for more than six months. It could offer very-low-interest loans for proven entrepreneurs. It could offer federal dollars to states that lower regulatory burdens on small businesses. It could do all these things at once.

But such programs cost money, and the federal government seems hardly in the mood to reach into its pockets again. Right now, most stimulus is coming from monetary policy, conducted outside Congress' purview: The Fed is undertaking another round of quantitative easing. On the Hill side, the fiscal stimulus on the table involves keeping the Bush tax breaks—a slight boon for jobs—and reinstating federal extended unemployment benefits—a bigger boon, and a less-sure thing. The latter program would directly aid the 2 million workers scheduled to lose their extended jobless benefits before Christmas, plus 2 million more by spring. But that hardly makes up for the recent sunset of many provisions of the 2009 stimulus bill.

At most, the federal government is looking at changing the calculus by a few hundred thousand jobs. With 15 million unemployed, that is not much.

5.      The silver lining.

The best thing that can be said about this jobs report is this: Other measures of our economic health are looking better. Most auspiciously, initial unemployment claims have started dropping, meaning that the unemployment rate should probably head south in December. And one month does not a trend make: The high unemployment rate and crummy job growth could be a blip, influenced by seasonal factors and up for major revisions in the next report.

But looking over the past nine months—or, really, the past three years—the story remains a bleak one. And the economy could sure use some happy surprises this Christmas.

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