Tag Archives: unemployment

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

Job Creation or Deficit Reduction — How Should We Spend Your Money?

By Marc Seltzer; originally published on December 9, 2009, at care2.com

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Should the unused TARP funds go to support middle class job creation or be used to pay down the deficit?

The question has arisen recently after the Treasury reported that its losses on the 350 billion dollars that Congress provided for the administration’s Troubled Assets Relief Program (TARP) are expected to be much lower than originally predicted.

The President and Democratic leaders are calling for a portion of the remaining funds (as much as $200 billiion) to be used for job creation programs.  The President has outlined several ideas that the administration believes could help bring unemployment rates down faster than at the current rate of economic recovery:

  1. Small business financial assistance and tax breaks
  2. Unemployment benefits, cobra subsidies, and emergency assistence to seniors
  3. Additional infrastructure and incentives for home energy conservation

However, this money could alternatively be used to pay down the deficit and Republicans are calling for committing all of the funds to deficit reduction.

The PBS Newshour recently featured a brief debate between Princeton Professor and Nobel Laureat economist Paul Krugman and columnist and former Treasury official and Reagan administration advisor Bruce Bartlett on whether President Obama should direct unused TARP funds towards creating jobs or paying down the deficit.

Krugman called for action on the basis that the unemployment rate was devastating and unacceptable.  He noted that unemployment was expected to remain far higher than normal in the next two years.  Extended unemployment would cause lasting harm to people who were forced to use up their savings and cause long-term damage to future employment prospects, he argued.

Bartlett cautioned that Congress had appropriated the money specifically to help financial institutions under TARP and that it should not be rerouted without congressional approval.  While he said he was “agnostic” about the President’s ideas for job creation, he did not support action now because Congress had already enacted substantial stimulus legislation.

Paul Krugman:  “And we have what is really an ongoing economic emergency. I mean, this — it’s not just that we’re not creating jobs. The level of unemployment we have got is doing enormous damage. So, I think the president is justified in reaching for whatever mechanism he can.

If — if he can say — you know, it really doesn’t make a difference in terms of the economics, where it’s funded from. If he can say, look, what we’re doing is redirecting funds, and make it happen, then he needs to do it, because, ultimately, what we have is a jobs crisis. Action must be taken. I think the paperwork is relatively less important at this point.”

BRUCE BARTLETT:  “Well, I thought, if we were facing the kind of crisis situation that we were when TARP and the original stimulus were enacted, that would be one thing.  But I don’t think we’re facing that. I think we have — we did enact the stimulus. The money is — there’s a lot of money still to come from that in the pipeline. I think we have only spent about a fourth of it so far.

The unemployment rate is coming down. I think that there’s a case for, let’s wait a little while. Why not wait until after the president submits his budget in February? Why rush to act this minute?”

With high deficits and high unemployment there are strong competing interests for the money.  What do you think is the most important priority at this time?

For a podcast conversation on jobs stimulus between care2.com blogger Jessica Pieklo and myself, follow this link and click on the December 9, 2009, podcast.

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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.