Thursday, August 9, 2012

The good and bad news about unemployment claims

Unemployment claims continue to tell us that the economic fundamentals are gradually improving. On an unadjusted basis, the number of first-time claims is down almost 10% from a year ago. There is still no sign at all of a deterioration in the jobs market, and this all but rules out a recession. Claims keep falling, and the number of jobs keeps rising, and those are hallmarks of recovery. On an unadjusted basis, the number of people currently "on the dole" is down over 17% from a year ago. More and more people have an incentive to find and accept a job, and that is a very positive change on the margin.

Unfortunately, as the above chart shows, the portion of the labor force that is receiving unemployment compensation is still extremely high from an historical perspective. Congress was never more generous in its willingness to extend unemployment benefits in this business cycle, and the recovery was by far the worst in modern times. Could there be a connection between those two facts? Yes. When you pay people to not work, don't be surprised if you find that more people are not working. 5.66 million are still receiving unemployment checks today, substantially more than the 4.6 million who were receiving unemployment checks at the peak of the 1981-1982 recession. As a percent of the labor force, the number on the dole today is still far worse than most of the recessions of the past 30 years.


Benjamin Cole said...

Sad to see this extended recession, when no recession was necessary.

There is plenty of competition in all markets, more than enough to compel aggressive monetary expansionism.

No business I know of is bragging about pricing leverage. Everybody wants business, wants work. Bid on business, and you will have plenty of competition. Sometimes globally (think architecture).

Yet our monetary authorities (comfortably beyond accountability to the voting pubic) keep up their pompous pettifogging about inflation. It is ever the 1970s in the Federal Reserve, with a insular domestic economy and a more-unionized private labor force. And Fed staffers do not have to worry about becoming unemployed.

Since Fed pay is fixed, Fed staffers actually have an economic incentive to advocate policies that would lead to deflation.

It would be interesting to see what sort of policy positions would emerge from the Fed if staffers and board members were paid in connection to real growth.

With zero bound the rule in Japan and heading worldwide, Fed policy (and that of central banks everywhere)will have to adapt. So far, right-wing orthodoxy is unable to change, has become encrusted in dogma and sacred stasis.

McKibbinUSA said...

Ironically, outlawing public spending on unemployment benefits would probably advance the cause of the long-term unemployed faster than retaining unemployment benefits at any level...

brodero said... I get the sense you want to make things sound a little worse?Can't wait to get the elections
over with so we can get back to discussing good old fashioned economic and market data.

Scott Grannis said...

No. I point out the bad side of things every now and then in order to explain why the recovery has been so disappointingly slow. When the reasons for a slow recovery are so often related to poor public policy (e.g., extending unemployment benefits, increasing transfer payments, bloated government spending), this opens the possibility of much stronger growth in the future if policies can be reversed. It would be so easy to fix things, and the results would be so dramatically good, that I find it very hard to understand why someone would not be bullish on the long-term future of the U.S. economy.

Bill said...


When you see guys like Paul Krugman given unlimited air time to argue that more government spending is good and the reverse will kill the economy, and when such a large percentage of the population receives transfer payments and would like that to continue, I don't know how you can be that optimistic about the future. The fact that Obama is either tied or slightly ahead in most major polls with an unemployment rate over 8% and economic growth between 1-2% has got to tell you that the future is not very bright.

Dan said...

Shouldn't the long term unemployed be required to be in a retraining program to continue receiving benefits?

steve said...

bill hit it right on the head. obama SHOULD be way behind in polls. instead, he's ahead. the US is a NANNY state and voters will never vote away their dole.

William said...

Although there certainly are Liberal Democratic Congressmen and Senators, Barack Obama has proven to be a moderate only slightly Left of center compared to the historical positions of the Democratic Party.

Indeed, the whole country has shifted toward the Conservative - the Right - and free markets the past 30 years. Only if one is Extreme Right as many seem to have become does one perceive Obama as a hard LEFT a Socialist, etc.

I wouldn't be too concerned about the US becoming a Nanny state.

But government spending has risen and will rise because of the aging population, Social Security and Medicare expenditures - no doubt about it. They will be very difficult to control going forward as is Defense/ Intelligence / Homeland Security because of vested interests.

John said...

A lot of that "dole" goes to corporations with procurement contracts.

Under Bush, procurmeent spending rose consistently went from $232 billion in 2001 to $541 in 2008. It has declined slightly under Obama, earning him the label "antibusiness."