Tag Archives: jobs

Where the Stock Market Goes, Jobs Follow

By Marc Seltzer; originally published on May 10, 2010, at care2.com.

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Right on schedule, 2010 jobs numbers are improving dramatically, following in the footsteps of the U.S. stock market’s impressive, year-plus climb back from 2008-2009 financial-crisis lows.  “The best job growth in [the] manufacturing sector since 1998” as Senator Dodd described it on Face the Nation.  However, in the past week, the market has fallen 5%.  Does this indicate a problem for the recovery or signal that employment gains will not continue?

The stock market, which reflects a willingness to invest in companies on the prediction of future profits, gained 23% in the last twelve months.  However, many called this a “jobless recovery” because unemployment numbers were poor during much of this period.  Job growth typically follows many months after the stock market gains, as businesses turn increased prospects, sales and planning activity into action on the hiring front.

Look at the recent employment numbers:  290,000 new jobs in April; 230,000 new jobs in March, after 39,000 in February; and 14,000 in January.  While it will take a few years for the 8+ million unemployed Americans to find new work even if the economy creates three- or four-hundred thousand new jobs a month as the recovery continues, the strong stock market of the past year would suggest continued strength.

Following the same reasoning, does this past month’s stock market downturn foretell a loss of jobs in 2011?  That depends on whether the stock market slide reflects only a “correction” — temporary profit taking and selling in light of how extraordinarily fast the market rebounded over the past year — or a more negative economic prediction in light of financial instability in Europe.

On the bright side, the trouble in Greece, which has shaken Europe, is still small in proportion to the size of the U.S. economy — the entire Greek bailout package, somewhere above 100 billion dollars, is in the ballpark of what the U.S. government spent to bailout insurer A.I.G.  On the other hand, the European Union is not the United States, politically speaking (although public disapproval of the bailout is reminiscent), and if the rescue is not performed as well as it was in the US, instability could spread to larger EU nations.  As an important trading partner, what happens in Europe will impact the United States (More coverage of Greek financial issues in the New York Times).

Even with EU weakness, however, the North American and Asian economies are poised for growth.  After a severe recession, U.S. growth will be driven by pent-up demand and new innovation, as well as continuing stimulus spending.  The bubble and bust of the 2000s was very destructive, but there should be no doubt of the underlying demand for U.S. goods and services.  The need for quality health care, environmentally sound products, better energy solutions and cutting-edge technologies has never been greater.  Even the U.S.’s greatest liabilities, such as its over-dependence on fossil fuels, will force research, development and significant economic activity.

It remains to be seen how European economies will cope with the current crisis, but the United States is now beginning a significant economic recovery.  With plans for better regulation of financial markets working their way through Congress, a new period of sustainable economic growth, while by no means guaranteed, is within reach.  It will take more than a minor setback to derail the U.S. economy now, and that’s good for workers waiting to get aboard.

Marc Seltzer also podcasts about the Supreme Court at SupremePodcast.com

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Questioning Conventional Wisdom — “Jobless Recovery”

By Marc Seltzer; originally published January 6, 2010

Don’t be too sure

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“Jobless Recovery”

No adjective characterizes political and media discussions of the recovery from the 2008 recession more than the word “jobless.”

Is it true?  Have the stars aligned to deny us a bright future?  Should we be worried?

LIBERAL EXPRESSIONS OF CONCERN

One way to evaluate what people are saying is to look at their motivation.  In this case, liberals and conservatives are both motivated to characterize the job prospects as worse than they likely are.  Many liberals, such as outspoken Nobel Laureate Economist Paul Krugman, want the government to take action in support of job creation so they focus on the high unemployment rate.  Ten percent is certainly higher than a more ideal 5 or 6 percent that would be a healthy level for the economy, if it were not in either an excessive boom or bust cycle.  But the current high unemployment reflects the depth of the recession, not a “jobless” recovery.

In 2009, the growth rate only turned positive in the third quarter.  Jobs are a lagging indicator and always follow the business turn-around and improvement in growth rate by many months.

Thus, the 2009 recovery is not “jobless” because unemployment has not yet come down.  Every recession involves the loss of jobs and every recovery involves the improvement in business conditions and higher growth rate long before jobs return.

Professor Krugman is worried about a weak recovery and thus wants to see additional stimulus aimed at creating jobs.  He is particularly concerned that the slow return of jobs creates great suffering and harms employment prospects for the long-term unemployed.  His proposals could help alleviate high unemployment and move the economy more quickly towards full employment, but they do not indicate that this is a jobless recovery whereas other recoveries were not.  Rather they reflect the fact that the severity of the recession led to millions of layoffs and that it will take time for millions of workers to be rehired into the labor market.

HOW ABOUT THOSE REPUBLICANS?

On the other side of the isle, the Republicans are constantly saying that the Obama administration actions such as stimulus spending and health care reform are bad for the economy and that we are headed for a jobless recovery.  However, it serves the Republican political goals if the Obama administration can be described as failing to lead an economy out of recession.  Millions of people are unemployed and many who are employed face job insecurity.  The Republicans exploit this to political advantage by claiming that current policies are wrong and pointing to a “jobless” recovery as evidence of failure.  The Republicans will continue to have every incentive to claim that Democratic policies are causing a jobless recovery until the 2010 elections.

But that doesn’t make it so.  Remember that it is far quicker to lay off employees than it is to rehire them.  Layoffs can be done by thousands on a single day, while rehiring takes substantial human resource department efforts, paperwork and staffing in itself.  Unless employees were simply furloughed, a thousand employees laid off in a single afternoon could take months to rehire in ordinary conditions.  For this reason, and because the recession of 2007-2008 involved a spectacular financial crisis with fast and deep layoffs, reaching a peak 750,000 a month in January of 2009, unemployment may only decrease by 750,000 to two million new jobs a year in coming years.  Remember, we lost more than seven million jobs.

Nonetheless, six to eighteen months after the growth rate becomes strong, we should expect to see substantial gains in employment.  It will be correct to say during the recovery that jobs are not created as fast as they were lost, but that is a hardly the standard for a “jobless” recovery.  The real key is the growth rate.  It reached more than 2% in the third quarter of 2008.  Six months from now it should be higher still.   The activity is reflected in increased hours and temp job hires for now, but inevitably job creation will follow.

The real question is whether innovative action in the public and private sector can increase the speed of job creation without distorting the marketplace and creating waste.  Nations such as Germany subsidized jobs during the crisis to limit layoffs.  Many nations, including ours, supported public and private sectors with stimulus spending, preventing layoffs from getting worse than they did.  Now, the question is whether means will be found to efficiently return to higher employment more quickly than in other deep recessions.

May 6, 2010 UPDATE:  Recent jobs data finally confirming predictions:  Denver Post

Bailout Losses Smaller Than Expected

By Marc Seltzer; originally published on December 6, 2009, at care2.com
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The good news is that the losses from the government bailout are far less than many feared.  The New York Times reported yesterday that the Treasury currently counts losses of only 42 billion dollars out of its several hundred-billion-dollar rescue program.

Of course, 42 billion is still beyond comprehension.  It is bad news to lose those public funds, and there are other funds still at risk.  Nonetheless, it’s better than the hundreds of billions that were in doubt.

In fact, for those who feel that the government bailed out Wall Street at the expense of Main Street, the facts may prove otherwise.  It turns out, for example, that the banks are rapidly repaying much of what was given to them.  The financial industry still has TARP funds that may cause public losses over time — no final accounting is available — but the largest share of the current estimated losses, 30 billion, come from the bailout of automobile giants G.M. and Chrysler.

The bailout of the Detroit automobile companies was designed to protect Main Street, not Wall Street.   Middle class workers at the big factories and at the auto-parts supplyers would have lost their jobs without government intervention.  The U.S. was losing more than 500,000 jobs a month at that point.  Adding auto factory closures, that number might have hit a million a month, and who knows what else might have collapsed?

I am still haunted by Thomas Friedman’s New York Times Op-ed saying that giving money to G.M. and Chrysler might stop smaller, greener, entrepreneurial auto innovators from inventing the wonder cars of the future because the competition from a subsidized G.M. was too great to overcome.  Be that as it may.  Main Street jobs and an entire industry were saved at a point when the economy was very vulnerable.

The bailout of the banks, though ostensibly done to save the financial system, gave the government rescue a bad name as it appeared to protect Wall Street over Main Street.  It certainly saved financial industry shareholders and employees from their share of losses.  It turned even uglier when it created windfalls in compensation for the already rich.  However, if the bulk of the money lost went to saving middle class jobs and helping the car companies retain some value in the bankruptcy reorganization process, we may need to rethink who we say was bailed out and why.

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December 7th, 2009 UPDATE:  Food for thought in Newsweek’s take on the jobs data.

December 9th, 2009 UPDATE: A NYT article on the congressionally mandated review of TARP’s effectiveness.

Employment Poised to Turn Positive

Job losses Reported Through November 2009

By Marc Seltzer; originally published on December 4, 2009, at  care2.com.

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Despite doom and gloom in Republican talking circles, the overall jobs data is right on track in reflecting a rebound in economic activity.  Just released unemployment numbers show the lowest number of monthly job losses in two years, down to 11,000.

When Republicans handed over the Presidency to Barack Obama in January 2009, the monthly losses were 741,000.  If the automobile companies had folded, as they would have in the Spring without government support, another  million-plus people would have been thrown out of work, sending the monthly number over 1,000,000 for several months in a row.

It would have been preferable if private business activity had caused employment to improve.  But the financial freeze robbed businesses of their confidence and their financial capital, so businesses have shedded jobs, delayed plans, and closed down.

The government rescue gave money to states to stop layoffs at schools and police departments.  In other ways, from the Fed’s low interest rates to funds for infrastructure, education grants, promoting green technology and the like, the government injected money into the economy.  Job losses in September of this year were down to 139,000 and in October, 111,000.  The stimulus is working, despite Representative Boehner’s (R-Oh) claims of failure.

Jobs are a lagging indicator, which means that new business planning, funding and activity happens first, and then the hiring of employees occurs many months later after confidence improves, and opportunities require new staffing.  The growth rate for the economy as a whole was around three percent for the quarter ending in September, in line with the positive growth rates that the U.S. hopes to sustain for long-range growth, although more is desired now to make up for negative growth during the recession.

The goal is for employment to come roaring back and for private business to take over for public support of the economy. However, businesses large and small are still shell-shocked by the financial freeze and destruction of wealth that it wrought.  They must also adjust to lower spending as consumers behave more responsibly and unemployment remains significantly elevated. Fortunately, there is still a lot of stimulus money left to power infrastructure projects before the handoff to the private sector takes place.

The government has done the lion’s share.  It still needs to implement sound financial reform legislation, giving the public and financial industries confidence in a sound and fair system.  In addition, health care reform in the public and private sectors could free up wasted money for productivity in other areas that serve American business, such as exports.

Insurance regulation and universal coverage, already contained in proposed legislation, will spread the burden of costs more equally.  However, systemic overspending in health care robs families of wages and businesses of profits that could be put to better use.  Following evidence-based medicine rather than custom and practice and market-driven medicine could go a long way to giving us more for our money.  Malpractice reform, consistent with evidence-based medicine, would also eliminate waste.

Look for December or January employment numbers to finally turn positive and fourth quarter growth to remain healthy.  This will be welcome news to the unemployed and businesses, and should give the country more confidence that we are, in fact, on the road to recovery.

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December 8, 2009 UPDATEBloomberg Economics podcast of Dec. 7, 2009.  Tom Keen’s interview with Steven Wieting, Managing Director of Economics and Market Analysis reflects on the jobs data and recovery.   It’s technical, but provides some thoughtful observations.

(The original publication of this story contained an older employment graphic; this version has been updated).

Immigration 2009

By Marc Seltzer; originally published on March 19, 2009 at care2.com

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No Easy Answers

The announcement that President Barack Obama will begin a public discussion of immigration reform in May will reawaken debate on a highly contentious issue.  At core, the issue pits those fiercely opposed to allowing illegal residents in the United States to convert their status to legal residency against those who, albeit with conditions, seek to legalize most of the U.S.’s estimated 12 million illegal residents.

Political Risks

If the President follows his campaign position in seeking a legislative solution that includes offering legal status to those in the country illegally, he will be investing his political capital in an extremely divisive issue at great political risk.

Prior to the 2008 election in which Democrats gained in both houses of congress, anti-illegal immigrant forces had the upper hand.  While Democratic gains make the congressional votes for reform more plausible, the economic crisis and growing unemployment will intensify concern that giving illegal residents the opportunity to obtain legal status will make already-difficult competition for jobs that much worse.

The President will have his hands full with this one and risks a political fight of an uglier, nastier and more divisive nature than even the financial turmoil has wrought.

Increasing Attention and Concern

The economic crisis and growing unemployment is likely to increase opposition to immigration generally and make compromise more difficult.  However, some commentators such as Thomas Friedman, in his NY Times column, have noted that allowing more legal immigration could bring wealthy immigrants eager to buy homes, shoring up the contracting real estate market.

Illegality is troubling, but what are the alternatives?

Illegal immigration presents the difficult combination of illegal entry into the United States, perceived competition for jobs, and use of public resources that is a too-bitter pill for many Americans.  Yet with nearly 12 million illegal immigrants residing in the United States, it is difficult to realistically imagine a solution that does not involve granting some form of legal status.

One approach would be to grant permission to work for a period of years, without giving traditional legal permanent residency, which begins a path towards citizenship.  However, advocates of a path to citizenship for illegal immigrants, recognize that people who have effectively moved to the U.S., will likely be in financial and family jeopardy if they are forced to leave after having lived for five, ten or more years in the United States.  This type of compromise has not received significant support from immigration opponents, either, who chafe at the idea of rewarding those here illegally with any form of legitimate legal status.

Reagan’s Leadership, or a matter of time?

One thing is certain, poor management of the immigration issue in the past has set up a nearly impossible predicament in the present.  Congress could have largely managed the issue by raising legal immigration quotas sufficiently to keep up with the needs of employers during the 1990s and first decade of the new century.   Instead, the demand for labor far outstripped the legal supply and the debate shifted to unrealistic proposals of effective border enforcement on the one hand and mass deportation on the other.

In the end, Obama’s political skill and the Democratic congressional majorities may forge a “legalization” solution, much as Ronald Reagan did in 1986.  However, the opposition will be charged, and losing control of the issue could not only lead to defeat of immigration reform, but chip away at the President’s momentum and, so far, commanding authority.  While both sides in the debate should compromise and seek to offer creative solutions to the real problems that exist, within their principles, there will be those primarily looking to use the issue against Presidential authority and to position candidates for the 2010 congressional elections.

What to expect, at least initially

President Obama will likely push for a legalization process that aims to implement legal status after the recession eases and the unemployment rate declines.  Mr. Obama is opening the debate in May, and it would not be a surprise for legislation enacted in 2009 or 2010 to provide opportunities for legal status in 2010, 2011 or 2012, when employment is predicted to increase, if the recession ends.

Any proposal is likely to impose penalties and conditions as an attempt to deal with and discourage “unlawful” entry and residence.  More today than in the past, surveillance technology at the border and electronic identification procedures in the workplace make future enforcement of immigration laws possible, although by no means guaranteed.

UPDATE: In Immigration Solutions I push towards a compromise and ask both sides if they are willing to meet half way.  Whether it was because his hands were full with health care of because the prospect for immigration reform legislation was not good, President Obama has put off immigration legislation for at least a year.  In a later post I will review what is going on in enforcement and changes that result from the economic downturn with respect to illegal immigration.