29 posts categorized "Unemployment"

04/07/2017

Unemployment Rate Drops to Lowest Level since 2007

The March jobs report was released by the BLS this morning.  The real news is that the economic recovery continues.  In terms of data, the unemployment rate dropped to 4.5 percent, the lowest level since May 2007 (nearly ten years!).  That is the good news.

Unemp0317

But while the unemployment rate dropped, the number of jobs added was less than recent trends.  In March, 98,000 new jobs were added, but this is significantly below the average of 202,000 for the past five years.

Employ0317

Two words of caution are in order.  First, we don't want to draw significant conclusions from a single jobs report.  On a month-to-month basis, there is a lot of noise in the data.  It is best to consider long-run trends.  In this case, the long-run trend on employment is certainly positive. 

Second, it is still to early to credit or blame our new government leaders for any economic economic conditions that may show up in the data.

 

 

02/03/2017

January Jobs Report Brings Good News and a Data Lesson

Earlier today, the BLS released the jobs report for January 2017 and the news is not bad.  While the unemployment rate ticked up slightly to (a still low) 4.8 percent, other indicators came in very strong.  Nonfarm employment increased by 227,000 jobs in the month.

Unemp0117

Labor force participation edged up to 62.9 percent and this offers us another teachable moment.  Students may be confused as to how 227,000 new jobs were created and yet the unemployment rate increased.  One reason is that the labor force increased by 76,000 workers.  Therefore, many new workers entered the labor force and many of these found jobs - all of this is positive.  But the unemployment rate still climbed because some of these new labor force participants did not find work (yet). These workers are probably frictionally unemployed: they may find work eventually but it takes some time to match workers with available jobs.  

Lfpr0117

12/02/2016

Unemployment Drops to 4.6%

The U.S. unemployment rate dropped in November to 4.6%, the lowest level since August 2007. 

Unemp1216

This is certainly good news, but perhaps not as positive as it first appears.  Part of the reason why the unemployment rate dropped last month is due to 178,000 new jobs added in the economy - not a trivial number.  In fact, as Justin Wolfers notes, this is 178 times the number of Carrier jobs that were recently "rescued." 

But a second reason the unemployment rate dropped is due to a decline in labor force participation.  In November, the U.S. labor force dropped by 226,000 workers, bringing the labor force participation rate (LFPR) down to 62.7 percent.  This is the third straight drop in the LFPR after showing signs of improvement this year with a 63% in March.

Lfpr1216

 

 

11/04/2016

Last Jobs Report Before the Election

The jobs report was released this morning and it is not bad news for Hillary Clinton.  The unemployment rate ticked down to 4.9% in October.  Historically, low unemployment rates have helped political parties retain power.

Unemp1016

This report could be stronger but it adds to the record string of consecutive months of positive job gains, bringing this record streak to 73 months now.  In October, nonfarm employment grew by 161,000 jobs. While many are touting this record string of job gains, we should point out that these have not been the strongest job gains we've seen historically.  For example, in the eight years from 1993 to 2000, the U.S. economy added an average of 242,000 jobs per month, versus the average over the past six years of 200,000.  That is a big difference over the course of several years.

Employ1016

 

02/08/2016

Is the Unemployment Rate Really 4.9 Percent?

A first glance at last week's jobs report might lead you to believe that all is well in the U.S. economy - and perhaps that is true.  But there are recurring indications that some long-term negative trends may persist. 

Let's start with the good news.  The unemployment rate dropped to 4.9 percent, the lowest level since February 2008.  Back then, the economy was entering the Great Recession and the unemployment rate rose to 7.3% by the end of that year.  The graph below shows the unemployment rate since 2005.  It really is nice to see the steady declines over the past five years. 

Unemp0216

In addition, the 151,000 now jobs added to nonfarm employment extends a streak of more than five years now (since October 2010) of gains in nonfarm employment.  So the total number of jobs is growing and the unemployment rate is dropping.  What can possibly be bad about the labor market?

Digging a little deeper, we see continued evidence of a disturbing long-term trend that many economists are watching closely.  In particular, the labor force participation rate (LFPR) is still very low as more than 94 million remain outside the labor force.  The graph below shows the labor force participation rate going back twenty years to January 1996.

Lfpr0216

I've covered this before (see here and here), but a quick review is in order.  When the LFPR falls, it means that some work-eligible adults are no longer working or actively seeking work.  But it also means that GDP is being produced by a smaller fraction of the population.  More and more people are "sitting on the sidelines."   

Where are all these potential workers?  Economists are still teasing out the answer, but one big reason is demographic and the other big reason is a weak macroeconomy.  The demographic piece is due to the aging labor force: baby-boomers are now retiring and this will continue for the next 15 years.  But, as you can see in the graphic above, the weak economy drove many workers out of the labor force and many have not re-entered.  For many, job prospects are just not as good as they were prior to the Great Recession. 

This biases the unemployment rate downward.  Imagine the LFPR rose again to pre-Great Recession levels. In December 2007, at the onset of the Great Recession, the LFPR was 66 percent.  If the LFPR climbed to 66% again tomorrow, more than 8 million workers would enter the labor force.  If none of these workers found jobs, this would drive the unemployment rate up to 9.65 percent.  More realistically, if half the workers found jobs, the unemployment rate would climb to 7.34 percent.  That seems more in line with the economy I live in. 

The bottom line is that the economy is not doing as well as the unemployment data indicates.  Much of the reason why we only see 4.9% unemployment is because the labor force has shrunk.  Let's hope this is not a permanent change. of late. 

12/04/2015

Unemployment Steady at 5%

The BLS released the November jobs report earlier today.  The key takeaways are that the unemployment rate stayed unchanged at 5 % and that 211,000 new jobs were created.  In addition, the labor force participation rate ticked up slightly to 62.5 percent.  All of this is good news.

Screen Shot 2015-12-04 at 12.28.29 PM

Even though nothing spectacular happened to the unemployment rate in November, the picture of the last year tells a different story. In the last twelve months, the unemployment rate decreased by 0.8 percent.  In the last two years, the unemployment rate fell two percentage points!

In November, 211,000 new jobs were created. This job growth was close to the average of 237,000 in the past twelve months. Gains occurred in construction, professional services, and health care.  Losses occurred in the mining and the information sectors.

It may seem odd that there are new jobs created but the unemployment rate stayed constant. This is because the unemployment rate is percentage based on the labor force, which grew by about 300,000 workers in November.  

 

11/30/2015

College Students Need Macroeconomics Principles

Should we ditch macroeconomics or perhaps reduce it to two weeks?  In a recent blog post, Noah Smith argues that most of the material in a Principles of Macroeconomics class isn’t really necessary.  After teaching macro principles to more than 1,000 students per year since 2003, it is easy for me to find the blind spots in Noah’s view.  More than anything, it is pretty clear that Noah doesn’t spend much time with college students. 

Let me start with what Noah gets right: students should learn the Solow model for long-run growth, and the AD-AS model for business cycle analysis.  He also includes “the standard Milton Friedman, New Keynesian, AD-AS, accelerationist Phillips Curve theory of monetary policy.”

Now we come to Noah’s first howler: he believes that this material should take “about two weeks.”  Two?  What students is he teaching?  I teach at the University of Virginia, a really great university with super students.  But this takes six weeks, not two. When my students show up for macro principles, very few even know that interest rates are market prices.  I do teach the Solow model but most Macro principles instructors believe it is just too hard for the intro level. 

More than that, Noah leaves out a host of other macro topics that students need to learn at the intro level, whether they continue in economics or not.  This list includes:

1. Key macroeconomic variables.  These need to be defined, explained, and put in their proper historical perspective.  These include real GDP growth, unemployment, inflation, and interest rates.  And not just for the United States.

First off, the way we measure these variables actually matters.  Consider that unemployment rates do not include underemployed or out-of-labor force workers.  Or that GDP only includes market goods.  Both of these are relevant for policy and have been discussed in the media recently.  And historical perspective is really key here – it can be one of the best gifts you can give your students. What is a big number or a small number?  When unemployment is 7%, is that high or low?  How about in the U.S. versus Spain?  Or when real GDP grows by 4%, is that high or low?  How about the U.S. versus Mainland China?  Most college students won’t know this without a macro principles course.

2. The loanable funds market. You can’t understand financial collapse/contagion without a good understanding of the loanable funds market.  A big part of this discussion is also forming an intuitive understanding of interest rates, which is not natural for most students.  In my principles course (and textbook) I even cover mortgage-backed securities, securitization and moral hazard now so that the students understand the Great Recession.

3. Fiscal and monetary policy. In many universities, this is the one place where real economic policy is taught - Intermediate Macroeconomics typically focuses on theoretical models.  I view these policy discussions as voter education curriculum.  Students need to know what deficits mean and something about historical perspective here too.  They also need to know where government revenue comes from and how it is spent.  Hint: it’s not all spent on foreign aid and welfare!  And what about the Fed? This is the course where students learn about Fed policy and both actual and perceived effects on the economy. 

If time permits, it is great to also throw in international trade and finance, like the balance of payments (many misconceptions arise from a misunderstanding of how capital inflows are related to merchandise trade). 

Basically, to cover all of this takes about a semester.  It is foolish to think that two weeks is enough.

By the way, my favorite macro textbook covers all of these topics clearly in a great one-semester format.

10/12/2015

Why Is Unemployment so High in Spain?

Do you think it is hard to find a job in the United States? Try looking in Spain, where youth (15-24 years old) unemployment rates have exceeded 50% since 2012.  The figure below shows youth unemployment for both Spain and the United States beginning in 1995.  Even when Spain was experiencing strong economic growth from 1995 to 2008, youth unemployment rates were around 20 percent!

Spain Youth Unemployment

But it is not just rough for the youth of Spain: the figure below shows overall unemployment rates in Spain, which consistently dwarf those from the United States. 

Spain Unemployment

Economists believe the main reasons for these differences are labor market regulations in Spain – regulations that were actually put in place to help workers.

For example, mandated severance pay in Spain is particularly generous.  Until 2012, any Spanish firm that wished to fire a worker was required to continue to pay them for 45 days for every year they were employed.  Thus, if a firm wanted to fire a ten-year employee, they’d have to pay them for 450 days after their employment ended.  This regulation make it very difficult for young workers to break into the labor force.  They also incentivize firms to search longer for just the right worker to fill open positions.  Both of these increase frictional unemployment.  In 2012 this requirement was reduced to 20 days of pay for every year of employment.

Another regulation is mandated annual increases in wages and benefits.  That is, firms are required by law to give pay and benefits raises every year.  Think about this from the firm’s perspective: before you ever hire and retain a worker for more than a year, you will be sure they are worthy of their current pay plus raises.  These regulations increase the time firms spend searching for just the right match, and again, increase frictional unemployment.

Remember: Incentives affect behavior.

All of this data is available from the Organization for Economic Co-operation and Development (OECD).

10/05/2015

Unemployment Rate Steady, but Labor Force Participation Falls Again

On Friday, the BLS released its monthly jobs report. The good news is that the unemployment stayed low at the low rate of 5.1 percent. 

Screen Shot 2015-10-02 at 8.55.53 PM

However, the results regarding the labor force participation rate (LFPR) and the number of jobs added are not as positive. Labor force participation fell to 62.4% - the lowest rate since October 1977. So there are still millions of workers sitting on the sidelines in the U.S. economy.

Screen Shot 2015-10-02 at 9.43.03 PM

To understand just how low this rate is, consider that the LFPR has not been lower since women entered the labor force en masse in the 1960s and 1970s.  To see this, let's look at the LFPR for men only (graphed below).  The LFPR for men has not been lower since we began keeping records (1948).  In fact, I would guess that the only era in U.S. history when this could possibly have been lower would be the Great Depression era - too bad we don't have that data.  

Male LFPR

Finally, the economy only added 142,000 jobs in the last month. This is low compared to both the current years' average of 198,000 and as well as 2014's average of 260,000.

Screen Shot 2015-10-02 at 9.03.42 PM

Another reason economists are less enthusiastic about this report is that the number of jobs added for July and August is now revised downward - with 60,000 jobs added less than reporter earlier.

 

08/11/2015

More Jobs Growth in July

The July jobs report from the BLS showed change in the unemployment rate (5.3%) and labor force participation rate (62.6%).  The unemployment rate since 2004 is plotted below:

 Unemployment July 2015

The big positive news is the estimate of 215,000 new jobs added in the economy overall.  This continues three straight months of more than 200,000 new jobs.

Payroll July 2015

One last trend to watch:  although the long run trend for the U.S. economy is increasing jobs in the service sector along with relative declines in manufacturing, the July report estimates increases in manufacturing jobs.  The net change of employment opportunities in manufacturing +15,000, up from just +2,000 the month before.

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