Daniel Gross at Slate explains how different measures of labor underutilization show bigger declines in employment than the headline unemployment rate.
The data on people not in the work force show the number of people not looking for work because they're discouraged about finding jobs has risen from 276,000 in September 2007 to 467,000 in September 2008—up 70 percent. The percentage of people unemployed for more than 15 weeks stood at 2.3 percent in September 2008, up from 1.6 percent in September 2007, a rise of nearly 45 percent. But the most troublesome is the U6. The U6 is sort of the summa of job angst, a shorthand tally for the aggregate of job-related frustration. (Moneybox covered some of this terrain back in 2004.) To compile the U6, the BLS takes the number of unemployed, plus all marginally attached workers, plus all of those employed part-time for economic reasons, and then calculates that total as a percentage of the sum of the entire civilian labor force plus marginally attached workers.
The U6 in September rose to 11 percent, its highest level since the data series started in 1994 and significantly higher than it was in the last recession, in 2001.
That U6 number is already higher than in 2001 even though economists predict the unemployment rate will go much higher.
That rate (called “U-6”) in November? A whopping 12.5%.
This expected rise in unemployment will push mortgage defaults up much higher. How many more banks will fail as a result?
Moody's Economy.com now sees the unemployment rate peaking at 8.7% in the first quarter of 2010, rising from the 6.5% peak it forecast in September.
How much of an impact does unemployment have? Barclays Capital estimates that a 1% increase in the unemployment rate, like that between May and October, could push up losses on securities made up of pools of mortgages by as much as 35%.
The US unemployment rate hit 10.8% in 1982 and some economists are saying recession will be the deepest since WWII. So that opens up the possibility of double digit unemployment.
The Irish economy is labouring under the collapse in residential construction and a severe decline in consumer spending and as a result unemployment is expected to reach 10 per cent in 2008 and may peak at 12 per cent in 2010, according to the report.
Richard Sylla, an economic historian at New York University, says that his rule of thumb for a depression would be double-digit unemployment rates lasting for more than a few months. The only times that occurred in the U.S. were during the Great Depression and the 1890s. The deep recession that ended in 1982 briefly saw unemployment rise above 10%.
Berkeley economic historian Brad DeLong’s definition of a depression is in a similar vein: Unemployment hits 12%, or it stays above 10% for three years.
Another measure of depression involves the size of the economic contraction. I do not expect to see depression levels of economic contraction. But the financial markets keep throwing up surprises. So hard to say for sure.
While in terms of raw numbers the November job losses are the largest since 1974, it is important to realize that the economy and labor market are much larger than they were in 1974. In percentage terms, the number of establishment jobs declined by 0.4 percent. In comparison, the December 1974 job losses of 602,000 were twice that number—a 0.8 percent decline from the previous month. The size of the decline in percentages is the same as the peak job losses in the 1981-82 recession but twice that as compared to peak job losses in the 1990-91 and 2001 recessions.
So the 1973-1975 recession still looks bigger than the current recession. We would need to see a huge increase in job losses to get up into 1974 territory.
The November jobs report is one of the worst jobs reports in 30 years. Job losses totaling over a half a million is a very worrisome number. However, it is important to realize that the numbers are not as bad as the 1973-75 recession. The employment picture is already worse than the last two recessions, but right now the 1981-82 recession appears to be an apt comparison due to the increased relative scale of our economy.
One thing different today that gives policy makers a lot more latitude: much lower inflation rate. The Fed can do massive bond buying and take other measures to expand the money supply to counteract the contraction.
|Share |||By Randall Parker at 2008 December 07 10:24 PM Economics Labor|