Washington Post writer Matt O’Brien proposes Getting Stuck Without a Job is Mostly a Matter of Bad Luck.
That notion is ridiculous.
While there may be instances of “bad luck”, in general, the employees with the weakest skills were the first to be let go and the last to be rehired.
O’Brien did post some interesting charts about the length and strengths of recessions vs. long term unemployment.
That chart is interesting, but all it really does is quantify what should be inherently obvious.
O’Brien states “When there are a lot more unemployed people than there are job openings—or six times more, to be exact, like there were in 2009—then a lot of people will get left behind. Think of it as a particularly high-stakes game of musical chairs.”
The above chart got me thinking. Here are two charts that I produced along the same lines.
Job Openings vs. Unemployment Level
The problem with the above chart is the same one in O’Brien’s chart that preceded it: Neither counts discouraged workers or those trapped in part time jobs that want a full time job.
The following chart corrects for that deficiency by factoring in U6 unemployment.
The U6 alternative measure of unemployment is 9.6% vs the “official” unemployment rate of 4.9%.
Job Openings vs. U6 Unemployment Level
There are problems in the above chart as well. For example, Some of the job openings may be part-time jobs, and some people who are unemployed may only want a part-time job.
However, that chart too likely understates the problem by a significant degree. Many millions of people really want a job but stopped looking. Others retired to collect Social Security when they would really prefer to work.
Off the Deep End
It is at this point O’Brien jumped off the deep end.
All you have to do is look at the late 1990s. Back then, the Fed allowed unemployment to get so low that the chances someone would end up long-term unemployed averaged just 5.9 percent between 1998 and 2000. Things never got so good during the mid-2000s, and might not now either.
Long-term unemployment isn’t a story about bad personal motivation. It’s a story about bad macroeconomic luck. After all, it’s not like the people who lost their jobs at the end of 2009 were three times lazier than the ones who did at the end of 2015. It was just that there were more people competing for fewer jobs back then, so much so that 30 percent of them were still looking for work six months later.
O’Brien clearly believes the Fed can “control” the unemployment rate as part of its “dual mandate” along with guiding the economy.
Dual Mandate Equals Mission Impossible
Here’s the deal.
1. The Fed can control money supply but it will have no control over interest rates (or anything else).
2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).
That is the full and complete extent of the Fed’s “control”. Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.
The idea the Fed can control the economy and unemployment at the same time is absurd. And if low interest rates caused jumps in employment, then France, Italy, and Greece would be shining stars of economic growth, not cesspools of stagnation.
Mike “Mish” Shedlock