Keith Hennessey has a good, succinct statement of the real unemployment problem we face:
Here’s a back-of-the-envelope calculation I did a couple of weeks ago when the April jobs report came out:
- We’re down about 7.8M jobs (payroll survey) from the peak when we were at full employment in December, 2007.
- We added 290K jobs last month. What’s the trend?
- 66K of those 290K were census workers. Those are temporary jobs that will go away.
- 290K – 66K = 224K
- We need to create about 150K jobs per month just to keep up with population growth and roughly hold the unemployment rate constant. (Some say between 100K and 150K.)
- 224K – 150K = +74K. If we use 100K then we’re at +124K.
- So if April’s numbers became a trend, we’d be creating about 75K – 125K more non-temporary jobs each month more than needed to keep up with population growth.
- 7.8M / 100K = 78-ish months
So if March’s data were to become a trend, we would be looking at 5-6+ years to get back to something like full employment.
Let’s reflect on this a bit. Assuming March’s data does, indeed, become a trend, how long do you expect the up-cycle to last? If you say less than five years, you’re predicting a permanently higher level of unemployment. If you say five to six years, you’re predicting that the economy barely holds its own from an employment standpoint using 2007 as a baseline. If you say much more than six years, you’re predicting a much longer than normal expansion.
And where will all of those jobs come from? Over the last decade almost all of the job creation came from the construction, financial, healthcare, and government sectors. Most of the net job creation has come from healthcare and government. Two-thirds or more of healthcare is paid from tax dollars and all of government is paid from tax dollars. Since on average and all other things being equal both healthcare and government produce fewer jobs per dollar spent than does the private sector, removing money from the private sector via taxation produces fewer jobs than leaving it there.
Uhhhmmm….no.
Obviously we need to take more frequent censuses.
“We’re down about 7.8M jobs (payroll survey) from the peak when we were at full employment in December, 2007.”
This brings up a question I wonder about, but for which I have no real answer. That full employment number he cites was at the end of a bubble. Is that a valid or meaningful comparison point? Where would we have been in 2007 w/o a bubble? Given our current lack of innovation and the inability of our rich people, the ones with all of the capital, to create new jobs for us, can we achieve that level of employment without another bubble?
Steve
Nobody knows. The full employment number, for most people, is that number of unemployed/employed people for which inflation is not changing. It is an unobservable number and at best it can be found via a paramterized model of the entire economy…as such it is a number that should be taken with a shovel of salt. Best bet would be to look at a number of such models and such implied full employment numbers and go from there.
Good question, my first guess is to say, lower, but see the above as to why we should be careful with that.
Best answer is: yes. Economies rarely stay “stuck” on the low side of the economic cycle and if they do it is probably due to government intervention. For example, if during a recession you go out and start destroying crops and agricultural output so that prices go up, and form government run cartels to limit supply and drive up prices with an agreement by industry to raise wages you’ll likely keep the economy in the crapper longer than it otherwise would have been.