Saturday, July 11, 2009

Next economic problem ... joblessness

Unemployment tends to be a lagging indicator in the economy (come to think of it, that hardly makes it an indicator at all, but I digress). As the output of the economy begins to stabilize and then, with any luck, improve later this year, the employment situation is likely to continue deteriorating for some time.

Bloomberg had an excellent analysis yesterday of the labor market challenges facing the U.S. and the Obama administration. Besides rising unemployment, the article also points to the higher incidence of long-term unemployment.
The article also mentions how joblessness will depress wages and contribute to further housing woes and bankruptcies.

The U.S. traditionally hasn’t had to deal with long-term joblessness. During the last 30 years, Americans who were thrown out of work took an average 15.8 weeks to find new positions. In June, the average duration of unemployment was 24.5 weeks, the longest since records began in 1948. The number of people collecting unemployment benefits reached a record 6.88 million in the week ended June 27.
Policies that may help in the short-run include providing tax breaks to companies that add jobs and modifying unemployment insurance to provide re-employment bonuses. Longer term policies include training assistance. Of course, the most helpful thing of all will be an improving economy.


jhs said...

Dave: My wife and I were talking about what the next step in US manufacturing will look like?

Your post notes the spike in long-term joblessness. What is on the horizon in terms of solutions?

I'd like to see you write something on that or share some links.

A lot of folk's mood is a result of this uncertainty. What do you think?

Pino said...

Hi Dave, welcome back from vacation.

With the minimum wage increasing this month, I would expect that some discussion regarding it would be included in the unemployment conversation. Similar to you, my family and I just returned from Minnesota last night/this morning. I was able to witness first hand the tender mercies of airport staff and customer service. I distinctly remember thinking that many MANY of the people that we encountered along the way were not deserving of a job much less one at 7+ bucks an hour.

Further, a friend of mine that was at the wedding we attended is a manager at Starbucks. She mentioned that labor costs was a primary concern when determining which stores remained open and which were slated for closure. Could minimum wage laws be affecting unemployment in a negative way?

Dave Ribar said...


It's doubtful that the new minimum wage is having or will have much of an effect. For one thing, 20 states already have minimum wages that are above $7.25; 7 others have minimum wages that are between the current minimum wage of $6.55 and the new wage of $7.25. For another, the real value of the wage is far below its historic highs (in real terms wages before 1983 were substantially higher).

Additionally, the minimum wage directly affects relatively few people.

There are many exemptions. The minimum wage for wait staff hasn't changed; it's still a little over $2. Sub-minimum wages remain in place for young workers, students, and the disabled.

Finally, empirical studies have found that any employment effects of minimum wage increases are modest, at worst. The increase in earnings for those who are employed far outweighs the losses in earnings associated with decreased employment.