Unemployment

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Contents

New economic data charting from the Minneapolis Federal Reserve

The Minneapolis Fed has launched a useful charting service which analyzes not only the Great Recession, which allegedly has ended (must be news to the 1.8 million...and growing...newly uncovered unemployed, but we'll take the NBER's word for it) but the even Greater Recovery that we have presumably been in for the past 6 months or so. At least those Fed critters have a twisted sense of humor.

In order to quantify just how funny they are, the Min Fed provides the following preamble "The 2007-2009 recession is widely thought to have ended sometime last summer. How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?"How indeed? Here are the charts which just a cursory perusal will lead the peruser to wonder what on earth the administration is smoking. Recovery indeed.

So here are the pretty charts.

First, a comparison of all recession since 1948 looking at the change in employment. Keep in mind the black dot is the place in time when the recovery presumably started.

Unemployment insurance tracker

The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning. A record 20 million Americans collected unemployment benefits last year, and twenty-six states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits. In many other states the situation is deteriorating fast. Using near real-time data on state revenues and the benefits they pay out, we estimate how long state trust funds will hold up. Click on a state to find the latest, plus historical data, and details on tax increases and benefit cuts. (Updated Weekly)

Are government employment statistics true?

There is an old saying, "when in doubt follow the money." These days investors have lots of doubt about pretty much everything (if not so much money). And with data from the government increasingly bearing the Quality Control stamp of approval of the Beijing Communist Party, there is much doubt in store courtesy of an administration which will stop at nothing in its competition with China as to who can blow the biggest asset bubble the fastest, data integrity be damned. Undoubtedly, of all government released data, the most important is, and continues to be, anything relating to unemployment. This is precisely where the government's propaganda armada is focused. Yet in matters of (un)employment, the ultimate authority is, luckily, the Treasury, and not the Fed. "Luckily," because when it comes to making money "difficult to follow" Tim Geithner's office still has much to learn. Which is why when we looked at the Daily Treasury Statement data we were very surprised: because it indicates that the government could be underrepresenting employment data by up to 32%!

The suddenly very prominent topic of Unemployment Insurance, whether it pertains to Initial Claims or to Emergency Unemployment, has one very useful characteristic: it is based on "money", specifically money outflows from the US treasury which goes to fund the weekly "paychecks" of those that have not been in the workforce for well over a year. And as pointed out earlier, money can be followed. The US Treasury presents a daily in and outflow of all money sources in the Daily Treasury Statement prepared by the Financial Management Service. And in the plethora of data presented here, probably the most relevant and useful data series is the Withdrawals quantified in the form of Unemployment Insurance Benefits.

Compiling the monthly data of Treasury Disbursements for Unemployment Insurance Benefits and then superimposing it with the total number of people receiving Insurance Benefits as disclosed by the Department of Labor is a useful exercise, as the two series have historically correlated with an R2 of well over 0.90. Below is an indexed comparison of UIB outlays and Unemployment Insurance Receivers for Fiscal 2007.

Surely this is logical: the more unemployed collecting benefits from the government, the more the outlays.

Yet what struck us is the when this chart is presented from 2007 until today. Something unusual emerges. An absolute chart of the money spent by the government superimposed with the total insured unemployed is presented below:

Yet the best way to see what this chart indicates is on an indexed basis with a September 2007 baseline.

What becomes obvious is that a correlation which used to be almost 1.000 has diverged massively, and now the relative outlays surpass what the government highlights are the number of people actually collecting benefits by 32%! This implies two things: either the average unemployment monthly paycheck has surged, which is not the case, or there is some gray unemployment area which is not disclosed by the government, and which accounts for a shadow unemployed insurance economy. Because while the DOL indicates there are about 9.5 million total unemployed, for the correlation to return to its near 1.0 trendline the number of unemployed on benefits has to be 14 million. At least this is what the actual cash outlays by the Treasury suggest: the government spent a record $14.7 billion on Unemployment Insurance Benefits as of December 30, a 24% jump sequentially from the $11.8 billion in November. Yet the DOL has disclosed a mere 1.7% increase in those to whom insurance benefits are paid: from 9.4 million to just under 9.6 million. To put the $14.7 billion number in perspective, in December the Federal Government paid a total of $14 billion ($700 million less) in Federal Salaries! A cynic could be temped to say that effectively the number of people employed by the government is double what is disclosed. A yet bigger cynic could claim that America is now the biggest socialist state in the world. Both cynics would not necessarily be wrong.

And some more perspective: in calendar 2009 the government has paid $140 billion in Unemployment Insurance Benefits. This is yet another economic stimulus that nobody in the administration discusses, yet which undoubtedly has the biggest impact on the economy, as all those millions unemployed can moderate their pain courtesy of a passable weekly check from the government which should just about cover the rent and beer. Which is why more than anything, Obama is dead set on extending insurance benefit payments in perpetuity: because if the 10 million official and 14 million unofficial people who are on benefits (not to mention the tens of millions of unemployed unlucky enough to even get their weekly allowance from Uncle Sam) start thinking about their true predicament and their real "employability", then a landslide loss by this administration at the mid-term elections will actually be an upside surprise to what it can objectively expect.

IMF believes US suffers structural unemployment

"...The IMF forecasts U.S. economic growth of just over 3 ¼ percent in 2010 and about 3 percent in 2011, with inflation very low and unemployment remaining above 9 percent.

“We are less optimistic than the authorities about the path of growth,” David Robinson, a deputy director in the IMF’s Western Hemisphere Department, told reporters. “In part this comes from our research that after a financial crisis there is a permanent loss of output.”

A final report will be issued once it has been discussed by the IMF’s 24-member Executive Board in late July.

Every year, the Fund conducts reviews of its member countries’ economies as part of its work in monitoring the health of the global economy.

Robinson said one of the most serious problems facing the United States is the rise in structural unemployment, which is a mismatch of the supply and demand for labor with the necessary skill set.

The IMF forecasts a gradual reduction in unemployment, which is a typical experience after financial crises according to Robinson. Evidence from the recent crisis shows the drop in employment was much larger than the drop in output, which Robinson attributes to the high degree of uncertainty brought on by the worst economic recession in 80 years..."

Globalisation, labour markets and international adjustment

This book deals with some key issues which should be of interest to researchers and policymakers alike. What are the macroeconomic effects of increased flows of labour across borders? How significant was the dampening effect on global inflation of the integration of labour from former command economies into the global market economy? How has globalisation changed the inflation process or the transmission mechanism of monetary policy? What has been the role of emerging Asia in the build-up of global current account imbalances? What can policy do about the resulting problems? It is our hope that this book will be seen as an important contribution to the analytical debate on issues that are very much alive today.

References


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