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.
Musical Chairs
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
@Mish “The above chart got me thinking….”
See, that is where you went wrong Mish. You can’t be thinking and working at WaPo at the same time. 🙂
There might be real demand for special skills and real professionals but in general we are going towards hiring people and outsourcing the jobs elsewhere if it’s not something very special. Like my brother working as automation engineer and most of the work is done in India (or somewhere else in Asia) where the company can hire 3-5 engineers with the same money. My brother mostly checks the automation program and tests it and if any modification is needed he sends the check list to those responsible.
Sam applies to majority of jobs. Never mind that the workforce might not be 100% perfect regarding their skills but when you can hire more people with same money, it doesn’t matter since it’s about numbers. Five people can produce the same or more with less money than one or two well-paid Europeans or Americans.
Then when we come to the low end, there is very few permanent jobs available in my country. Mostly hired when needed through job brokers for few days at the time.
The erosion of middle class is speeding up.Soon we have just the 5% well-paid professionals and others are happy to have any jobs at all.
It’s impossible to generalize. Where I live lay-offs are supposed to mirror the demographics of the company’s employees, to avoid the burden falling entirely on the young (least seniority). In practice, though, there is a lot of age discrimination.
If you are fifty and your company goes broke or is sold, it doesn’t matter how good you were, you are too old to get in the door anywhere, particularly in stem and IT. Only senior management type jobs might come your way.
If you are above fifty and apply for jobs that 30-year olds or 18 year-olds could do, they won’t hire you either, wondering why your career hasn’t panned out, or whether you’re physical condition is as good as when you were 24.
People that can tend to get out before turmoil hits an organization, so the organization is already losing out before they reorganize. People with general skills (not specialized) tend to have far more possibilities even though their “skills” might be questionable.
For any individual unemployed person, it is impossible to judge whether it’s mainly bad luck or whether it’s a combination of various factors. It’s complex.
Sure there are many factors but ever since early 1990’s the trend has been to reduce direct hiring and all kind of retirement responsibilities.
This hits very hard if you are over 50 since in our country all kind of retirement payments and health insurance payments are burdening the employer. You are basicly very very unhappy company owner if it turns out that after the guy is permanently hired, he starts to fall ill not to mention incapability retirement.
Will be very costly so if you 50+ or even 45 and been unemployed more than 500 days, you are very lucky or well-connected to get any position. (For those unfamiliar with our system, one gets 500 days of income based unemployment ‘salary’ before falling to basic benefits which is about 70% of the real salary).
Youth unemployment is on the rise here in Europe and I believe their futures are very much in question.
when the Space Shuttle program shutdown, hundreds of computer systems admins hit the local market over a couple of years. The early releases were some of the laziest and least competent people I had ever run across. The last people to get released were extremely competent, but couldn’t get jobs, because the early releases had so tarnished their reputation.
There are a lot of reasons good, quality people find it hard to find decent jobs.
Apparently Washington Post publishes this kind of stuff and expects us to pay to read it!
It’s really just common sense, which Mish points out with statistics. The economy is shrinking, but the human population is increasing… fast. There is no way to ever have productive work for everyone. You will witness more and more calls for socialism, because more and more people are going to be left out.
Something like 7 billion people in the world, 80% making less than $10 a day. You don’t want to be competing for low skill jobs because competition for that is flooded.
The US government thinks it’s 1916 and the economy is still in the early growth phase. So they are flooding an already flooded labor pool with immigrants. You can see the damage that is causing all around you.
It seems you got the unemployment and job openings numbers swapped in the second FRED chart.
Job openings 5.5 million on both
My own research shows the following:
Yes, I know many of you believe that there are plenty of jobs out there.
But that is because you have not done some simple math and calculated these numbers:
The civilian labor force was 157,106,000 as of July 2015
The U-6 unemployment measurement was 10.7 as of July 2015
If we multiply 157,106,000 times .107 we get 16,810,342 PEOPLE that are unemployed.
The latest JOLTS (Job Openings and Labor Turnover Summary) number is 5,200,000 Job openings.
If we subtract that number from the 16,810,342 that are unemployed, we find out that we have 11,610,342 people that cannot possibly find work.
Think about that the next time a businessman or politician tells you that we need more temporary workers on temporary non immigrant visas.
http://keepamericaatwork.com/what-will-your-children-do-if-they-cannot-find-jobs-in-america/
There are plenty of work out there but it is the wrong kind. Not everyone is capable regardless of training for many jobs. The problem is there is no longer very many good paying blue collar jobs available today. Automation and global trade have taken care of that. Eventually Social programs will have to be cut back and then people will really begin the struggle.
The best example I have seen of this is car mechanics. 30 yrs ago if you could adjust a carb. or know how replace a head gasket your good. always lots of car jobs. Today you need to read a computer and tune things to a nanometer. Kids must have a STEM education. Jew Catholic, don’t that kind of education is next to worthless these days.
Steve
Other than because of income tax revenue, why the hell is government obsessed with jobs reports? Why is the domestic political debate dominated by employment? I don’t feel like the government has ever done anything to truly help working people, other than to “fix” problems they created to begin with.
I’m a big boy, I know how to find a job myself thanks.
I don’t care for any government “help” either, but would appreciate if they got the heck out of the way.
Most job gains are coming from small to mid sized businesses. These are the biz types that have been most severely affected by the regulatory hammerlock of the Obama administration.
The government is obsessed by job reports because the current crop of politicians are afraid they will lose their jobs if unemployment is too high. In 1932, the Republican Party lost control of Washington for nearly the next 50 years because of joblessness.
“I don’t feel like the government has ever done anything to truly help working people”
In the 1950s the federal government started building the Interstate Highway System. It did this to fundamentally change the way Americans lived, by moving them out of central cities into suburbs. By doing this, they would create booms in housing development, automobile production, furniture production, appliance production and just about everything else we expect in a modern lifestyle today. The 20 years from 1956 to 1976 were the greatest era of wealth creation in American history. It was also the glory years for working people.
That is the government’s job. Create the fundamental infrastructure needed for economic growth.
I don’t doubt you are right. The Highway system turned out to be one of Government’s Greatest Hits. The problem is, as always with government, once the highway system was done, the government guys used to administering all that money, wouldn’t just walk away from the status, pay and privilege association with it entailed.
So, with nothing particularly useful left for government to do, they started inventing excuses for why they were necessary. Wars on poverty, wars on drugs, ownership societies blah, blah. All of it nothing, literally nothing, other than a drain on and destruction of the livelihoods of the population at large.
The War Between The States had a similar effect. Abolishing (or at least speeding up the process) slavery was, in and of itself, a good thing the Federal Government did. But in order to be able to pull that off, they had to expand A LOT. And never retrenched after that. So that, in the end, the net result wasn’t so much that the Federal Government “freed” the fraction of society that was previously held as slaves, but instead that it has enslaved everyone else as well.
Government always works like that. Always growing, never retrenching. And obviously so, since as long as government is allowed a monopoly on setting the rules and acting as final arbiter of what is allowed and not, why would they ever voluntarily rescind the privilege they have gown accustomed to?
The year I spent unemployed after suddenly losing a lucrative tech job in 2009 gave me a new sympathy for the vagaries of joblessness. I had never had to struggle to find a good job before, everything had fallen in my lap through contacts.
It was a complete shock to find that no one wanted me for the few openings in my field that were available at that time. Sure, I could have worked in some low wage job, but that would have meant giving up on my career. Once you leave a tech field it is very hard to get back in. Your experience becomes dated fast. I spent my year of unemployment doing volunteer work for free to keep my skills up.
I know my experience doesn’t offer any great insight into unemployment statistics, but I have a new realization that unemployment can happen to anyone.
No progress on the “unemployment” problem, will ever be made until those working on it realize it is, in it’s entirety, a problem created by modelling the world by models that in no shape or form match reality. Like all of progressive “thought,” all it is, is futzing around with arbitrary classifications and pretending they have some meaningful anchor in the real world. Which they, again like all progressive “thought,” never had nor ever will have.
The problem faced by humans, is obtaining enough resources to sustain life. Not to “be counted as employed”, vs “be counted as unemployed.” Unemployment, and I speak from experience, is awesome! Until the money runs out, or at least threatens to do so. It’s not like as the famous “Idle Rich” are suffering that badly for lack of spending hours a day suffocating on a logjammed freeway, for the opportunity to spend many more in a dimly lit cubicle, or by dressing up in uniform asking random people “do you want fries with that, sir.” Collecting butterflies around the country estate at ones leisure, despite suffering from “unemployment”, isn’t really that raw a deal.
Like all dead wrong models, economic or otherwise, the “unemployment” one, causes real harm, by leading those duped by it, to champion misguided prescriptions. debt fueled “stimulus spending” is one. Legally mandated shorter workweek (ostensibly to “share” the “available jobs” more evenly, unless my French is rusty) is another. A ridiculous glorification of those with the means to donate enough to politicians to get themselves classified (here come the progressives with arbitrary classifications again) labelled “job creators” yet another.
Of course, none of it works. Just as engineering, exploration and medicine would suffer quite a bit, if it insisted on maintaining Aristotle’s model, that said heavier things fall faster than lighter ones. Or that the earth really is flat and you must be careful not to fall of the edge if you go too far. Or that diseases live in ones blood, so getting rid of them, entails getting rid of that pesky blood.
While a model based on reality, that it is resource access people need, would focus solely, or at least almost so, on
1)making life, and quality of, sustaining and enabling resources available in as great quantities as possible, for as little effort as possible. As in, creating/extracting/developing them as efficiently as possible. Meaning, as cheaply as possible. So that the amount of “do you want fries to go with that, sir” one has to suffer through to get by, would be minimized, and one could go back to enjoying the horrors of unemployment again.
and 2) making it as easy, convenient and safe as possible, to save up earnings earned from ones employment. So that one can, when one feels unusually motivated for it, either due to ones personal life situation, or to wider trends and societal forces causing a temporary uptick in how much money people are willing to pay for what one is capable and willing to do, put in some extra effort. And bank the surplus of said effort, leading to less of a crisis if the above societal trends reverse ones earning potential at some point i the future.
That’s it. Arbitrarily “unemployment” measures, while undoubtedly good for the earnings potential of progressive drones employed at the Fed, is, when viewed from over on the reality side of the field, nothing more than a bunch of idiots sitting in a circle masturbating thinking they are making the world better that way. Just like doctors sitting around debating the “correct” and “optimal” method of bloodletting once did.
“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.”
Suppose we think of skills here in terms of units. Say someone with a lot of skills has 250 ‘skill units’ while someone with low skills is only 50 ‘skill units’.
Think of unemployment then being not being able to sell out all your ‘skill units’ for hire. A person with 250 skill units is only able to hire out 200 of them. He would feel that he has a job but he should be making more, he is actually being under utilized. On the other hand a person with only 50 skill units can hire out none of them and he has no job. In terms of unemployment, though, the first guy is counted as fully employed by most measures while the other guy isn’t.
Interestingly say employment picks up a bit and employers want to hire another 50 skill units. It is easier to first tap the guy who has 250 total units with 50 to spare than the guy with just 50 units. After all, you already know the guy, he is already working for you and chances are adding to his pay will still be lower compared to the fixed costs of recruiting and hiring a new person. To really eliminate the unemployment you need another 100 units to be in demand.
Think about it the other way, say we are talking about buying new cars. Say consumers want to buy 10% more new cars this year. Who benefits from that? Existing companies like Ford, Honda, GM etc. Is someone going to start a brand new car company because of that higher demand (say Apple Car?)? Probably not, only if the demand was very high or sustained over a long period will the market take the risk of starting a new car company to compete with established players.
Nonetheless you are missing good news here. You look at this and say unemployment hasn’t changed because the guy with 50 units hasn’t gotten a job yet. The reality is that the economy had 100 units of unemployment and now it has only 50 units. Unemployment has been cut in half, which is no small feat.