New Jobless Claims Aren’t As Good As They Look

The Department of Labor announced yesterday that new jobless claims have fallen to 305,000 for the week, a six-year low.  Unfortunately, the new jobless claims figure isn’t as reliable an indicator of labor market trends as it used to be.  It says more about the continued decline in layoffs than it does about a surge in hiring.  The biggest problem in today’s labor market is a weak hiring rate for employers.  So while a lower level of new jobless claims is better than a higher level, I don’t expect this to signal a boom in job creation.

To see why layoffs aren’t the problem, as many workers were laid off in the five years since the Lehman collapse as during the real estate boom of 2003-2007.  In the five years between 2003 and 2007, in the midst of a real estate boom and economic recovery, when the unemployment rate averaged 5.2%, there were 1.86 million layoffs per month, on average.  In the five years since the Lehman collapse in August 2008, including the biggest recession since the Great Depression, when the unemployment rate averaged 8.6%, there were also 1.86 million layoffs per month, on average.  While layoff rates were elevated during the second half of 2008 and all of 2009, over the past three years layoffs have been 8.8% lower than pre-recession levels and continue to decline.

Over the past three years during our tepid economic recovery, only 4.23 million people have been hired per month, on average, compared to 5.1 million people per month in 2003-2007. 870,000 fewer people have been hired each month over the past three years compared to 2003-2007.  This great slowdown in hiring, which represents a decline of 17% compared to the previous economic recovery, is the biggest challenge facing the labor market and the economy.

Unemployment insurance data are less relevant in 2013 because of the narrow focus on relatively recent job losers.  New labor market entrants and re-entrants to the labor force, comprise about half of the unemployed but are ineligible for unemployment insurance.  Longer term unemployed workers and jobless workers who have given up their job search and dropped out of the labor force are also ineligible for UI.  For unemployed new entrants and re-entrants to the labor force, and for the millions of jobless workers who have dropped out of the labor force, a surge in hiring is needed to bring them back to work.  So while there were 3.8% fewer layoffs in the past 12 months compared to one year earlier, the fact that hiring only increased by 1.1% over the same period means that employment rates will remain low until businesses increase the pace of their hiring.

Unemployment insurance data are also less relevant in today’s economy because the fraction of unemployed workers eligible for state unemployment insurance programs is at an all-time low.  The following chart shows the percentage of unemployed workers who are job losers and have been unemployed for 26 weeks or less.  These two conditions are good proxies for the key determinants of eligibility for most state UI programs.* Since 1980, in non-recession years, about 40% of unemployed workers would satisfy these requirements.  During recession years, about 45% of the unemployed are job losers in their first 26 weeks of unemployment.  Over the past 3 and one half years, however, only about one-third of unemployed workers have been relatively recent (26 weeks or less) job losers.

losers

The fraction of jobless workers who are eligible for UI is even smaller.  If one includes workers who have dropped out of the labor force in the past year but are available for work as “jobless”, only 26% of “jobless” workers satisfy the conditions required by most state UI programs.

While new jobless claims data provide some information about the rate at which workers are losing jobs, and whether job losers appear to be finding work before filing for UI benefits, yesterday’s new claims figures must be interpreted carefully.  The labor market of 2013 is very different from the pre-recession labor market.  Layoffs continue to decline but have not coincided with commensurate increases in hiring in a weak recovery.  Most jobless workers are long-term unemployed, new-entrants or re-entrants to the workforce unable to find work, or those who have given up job search altogether and are no longer labor force participants.  Employers have hired 870,000 fewer workers per month over the past three years than they were prior to the recession.  Until hiring levels approach the 5 million hires per month that were common in 2003-2007, job growth will continue to disappoint.  Slightly lower new jobless claims per week is just one small step in the right direction.

*Unemployed workers are eligible for Federal UI benefits if they are unemployed longer than 26 weeks and reside in states where unemployment rates are sufficiently high.  Most state UI programs allow up to 26 weeks of benefits but they need not be the first 26 weeks of a worker’s unemployment spell and benefits are only available for job losers.

New Jobless Claims: 2013 Has Been a Good Year for Seasonal Adjustment

Headlines have highlighted the fact that  new jobless claims have fallen to 335,000 and 330,000, respectively, in the past two weeks.  News reports state that new unemployment insurance claims have dropped to their lowest levels in five years.  These statements are based on seasonally adjusted data.  The following table shows seasonally adjusted and unadjusted new jobless claims data in the first three weeks of 2012 and 2013.

 

New Unemployment Insurance Claims

Date Seasonally Unadjusted Seasonally Adjusted
January 7, 2012

646,219

390,000

January 14, 2012

525,422

364,000

January 21, 2012

416,880

372,000

Avg First 3 weeks 2012

529,507

375,333

   

 

January 5, 2013

557,798

375,000

January 12, 2013

556,710

335,000

January 19, 2013

436,766

330,000

Avg First 3 weeks 2013

517,091

346,667

 The table indicates that while seasonally unadjusted new UI claims have been 2.3% lower in early 2013 than early 2012, seasonally adjusted new UI claims  dropped by 7.6% from one year ago.  The average seasonal adjustment factor in the first three weeks of 2013 reduced claims by 33% while the adjustment factor was 29% over the same three weeks in 2012.  Had the same adjustment factors been used in both 2012 and 2013, new UI claims would have averaged 366,533 per week in January 2013.

An average of 366,533 new UI claims per week is better than we have seen for much of the recovery, but it is certainly not the lowest level in the past five years.  As recently as late September and early October of 2012 the average number of seasonally adjusted new UI claims fell below 360,000 per week.  The last few weeks have seen unusually large seasonal adjustment factors making the difference between seasonally adjusted and unadjusted new UI claims larger than we have seen in recent memory.  The news on jobless claims is good, but the large seasonal adjustment may be overstating the improvement over the past few weeks.

70,000 Workers Displaced by Hurricane Sandy in New Jersey: Unemployment Rate May Reach 11%

Hurricane Sandy had a devastating effect on employment in New Jersey and a fairly large impact on employment in New York, as well.  A leading indicator of unemployment is the weekly report of new unemployment insurance claims.  A spike in new jobless claims means that a large number of workers were displaced from their jobs.  New Jobless claims have quadrupled in New Jersey and doubled in New York in the aftermath of Sandy relative to November 2011.  Using these data I estimate that Hurricane Sandy displaced 150,000 workers in the first two weeks after the storm hit, with 70,000 jobs lost in New Jersey and 50,000 lost in New York.  These job losses could push the November unemployment rate above 11% in New Jersey and above 9% in New York.

During the weeks of November 10th and November 17th (the most recent weeks for which detailed state data are available) about 96,000 jobless workers in New York filed for first-time unemployment insurance benefits, compared to about 48,000 new claims one year ago.  Similarly, almost 92,000 jobless workers in New Jersey filed for first-time unemployment insurance benefits during the weeks of November 10th and November 17th, compared to just over 24,000 new claims one year ago.  In the weeks after Sandy the rate at which workers lost jobs is about four times higher in New Jersey and twice as high in New York compared to November 2011.

The following charts compare the year-to-year change in new unemployment insurance claims the weeks of November 10th and November 17th and the corresponding change in claims for the previous 16 weeks (on average).  The charts indicate that new jobless claims remain very high in New Jersey while they have dropped recently in New York but remain above 2011 levels.  In both states new jobless claims in 2012 were consistently below 2011 levels until Hurricane Sandy hit.

Hurricane Sandy caused about 70,000 people to lose their jobs and file for first-time unemployment insurance benefits in New Jersey and 50,000 in New York during the weeks of November 10th and 17th.  These job losses are measured relative to the declines that would have been expected had the storm not hit the New Jersey coast.  Using similar methods, I estimate that about 30,000 additional jobs were lost in the rest of the country, possibly due to Hurricane Sandy.

The November jobs report (released on December 7th) is the first one after the presidential election and the first to include data gathered after Hurricane Sandy.  The storm’s displacement of 150,000 workers in the past two weeks is enough to increase the U.S. unemployment rate from 7.9% to 8.0%.  Hurricane Sandy is also likely to increase the unemployment rate to 11% in New Jersey (from its current 9.7%) and above 9% in New York (from its current 8.7%).  The November unemployment rate is based on worker’s labor force status for the week ending November 17th.  This means that continued job losses and displacement of workers in the second half of November, especially in New Jersey, will not factor into the November unemployment rate but could possibly cause the unemployment rate to increase further in December.

(Not) Leaving Las Vegas: When Unemployment Happens in Vegas the Jobless Stay in Vegas

Since February 2009 the unemployment rate in Las Vegas has averaged 13.1% and never dropped below 10.1%; it now stands at 11.5%.  Jobless workers have not left the metro area despite the persistently high unemployment rate and lack of job growth since the recession ended.  This stunning lack of out-migration, Las Vegas’ labor force of about 980,000 workers declined by less than 200 people in the past four years, is puzzling because there are better job prospects for the unemployed and underemployed in other parts of the western U.S. 

Every other state has a healthier labor market than Nevada and every major metropolitan area has a lower unemployment rate than Las Vegas.  The unemployment rate in North Dakota is 3.1% and has not been above 4.2% since February 2009.  Unemployment rates in Nebraska, South Dakota, Utah and Wyoming are 3.8%, 4.5%, 5.2% and 5.2% respectively.  The combined labor force in these states is more than 3.5 times larger than Las Vegas, and could easily absorb jobless workers leaving Las Vegas.  The labor forces in these relatively healthy states have grown by an average of less than 1.4% over the past four years.  In other words their labor markets are expanding at a steady but unspectacular rate.

The last four years stand in stark contrast to Las Vegas’ recent history.  Between 2004 and 2008 the Las Vegas labor force grew by 16.8%.  Between 2000 and 2004, a time of relatively slow economic growth for the U.S. overall, its labor force grew by 14.1%.   This means that about one-quarter of the Las Vegas labor force arrived between 2000 and 2008.  These recent arrivals came to a city in the midst of a real estate boom but have persevered through four years of high unemployment and plunging real estate values.

A comparison of Las Vegas and cities on the Gulf and Atlantic coasts that also experienced a real estate boom and bust in the past decade is informative.  Between 2004 and 2008 the labor force grew by 13.4% in Fort Myers-Cape Coral, Florida and by 12.7% in Myrtle Beach, South Carolina.  Since then their labor forces decreased by 1.3% and 4.2% respectively.  If the labor force in Las Vegas contracted at the same rate as it did in Fort Myers or Myrtle Beach, because unemployed workers left the city to find employment elsewhere, the Las Vegas unemployment rate would be 1.3 to 3.9 percentage points lower.

Labor forces have declined in many cities across the U.S., even those that did not experience a real estate boom and bust, but not in Las Vegas.  Much like the gambler who stays at the blackjack table believing his luck will change with the next shoe the people who came to Vegas for economic opportunities are hanging on and hoping that 2013 will be different.

Hurricane Sandy Likely to Increase Unemployment Rate to 8.0% or 8.1%

The November jobs report (released on December 7th) will be the first one to include household and payroll survey data gathered after Hurricane Sandy.  It is likely that November’s unemployment rate will jump from its current level of 7.9% to 8.0% or 8.1% due to Hurricane Sandy.  Sandy had a devastating impact on the tri-state area of New York, New Jersey and Connecticut where about one eighth of U.S. output is produced.  A leading indicator of the unemployment rate is the weekly report of new unemployment insurance claims.  A spike in new jobless claims means that a large number of workers were displaced from their jobs.  As I explain below, Hurricane Sandy displaced 145,000 workers as measured by new jobless claims in the first full week after the storm hit.

During the week of November 10th (the most recent week for which detailed state data are available) over 63,000 jobless workers in New York filed for first-time unemployment insurance benefits, compared to about 21,400 new claims one year ago.  Similarly, over 46,000 jobless workers in New Jersey filed for first-time unemployment insurance benefits during the week of November 10th, compared to just over 12,000 new claims one year ago.  The rate at which workers lost their jobs nearly quadrupled in New Jersey and nearly tripled in New York compared to November 2011.

The following charts compare the year-to-year change in new unemployment insurance claims the week of November 10th, the first report to reflect Hurricane Sandy effects, and four-week moving averages of year-to-year changes in new claims over the previous 20 weeks.  For example, the annual percentage change in new claims for November 3rd is based on a comparison of data for the week of November 3rd and the three previous weeks to the corresponding weeks in 2011.  The charts indicate that, for New York and New Jersey, new jobless claims were consistently below 2011 levels until Hurricane Sandy hit.

Hurricane Sandy caused about 80,000 people to lose their jobs and file for first-time unemployment insurance benefits in one week in New York and New Jersey alone.  Although the effect of Hurricane Sandy on the rest of the country is smaller, it isn’t negligible.  The following chart compares the year-to-year change in new jobless claims the week of November 10th to four-week moving averages of year-to-year changes in new claims for the rest of the United States (excluding New York and New Jersey).  The chart indicates that new jobless claims were up about 12% in the first full week after Hurricane Sandy, or an increase of 65,000 claims.

Hurricane Sandy’s displacement of 145,000 workers in one week is enough to increase the U.S. unemployment rate by 0.1 percentage point, from 7.9% to 8.0%.  The November unemployment rate is based on worker’s labor force status for the week ending November 17th.  That means that one more week of new jobless claims data will factor into November’s unemployment rate.  The preliminary new claims data for the week of November 17th shows a smaller increase in displaced workers, probably half as many as the 145,000 displaced in the prior week.  We will know more on November 29th when more detailed and complete data for the week of November 17th are released.  At this point it is most likely that the November unemployment rate will jump to 8.0% or 8.1%.

1.7 Trillion Weeks of Unemployment Benefits

In the past four years Federal and state unemployment insurance programs paid about 1.7 trillion weeks  (32.7 million years) of unemployment insurance benefits to jobless workers as they continued their job search.  32.7 million years is a remarkably long time period that is usually reserved for events measured on the geologic time scale (South America fully detached from Antarctica about 32.7 million years ago during the Oligocene Epoch).  Unemployment benefits were paid to an average of nearly 8.2 million workers per week, every week, for the past four years.  The unemployment insurance rolls have been quite high for an unusually long time because of the depth of the recession, the weakness of the recovery and because Congress and the President extended unemployment benefits so that job losers could collect benefits for up to 99 weeks. 

More generous benefits undoubtedly provided greater financial support for job losers and their families, but also encouraged jobless workers to be more selective in their job search and remain unemployed longer.  Many Democrats and Keynesian economists view the unemployment insurance program, food stamps and other social safety net programs as economic stimulus.  On the other hand conservatives, such as Casey Mulligan of the University of Chicago, argue that the work disincentives of the unemployment insurance program and other safety net and entitlement programs increased the depth and length of the recession.

One way to quantify the opportunity cost of providing unemployment insurance benefits to approximately 8.2 million jobless workers per week is to consider how many employees could have been hired using those resources.  Although unemployment insurance benefits vary by state, the typical weekly benefit is about one half of a worker’s previous weekly wage.  This means that the cost of insuring 8.2 million jobless workers per week is about the same as the wage and salary costs of employing 4.1 million workers per week. 

Many economists have complained that the government stimulus didn’t include enough investment in infrastructure or purchases of goods and services.  Our representatives in the Federal government chose to pay people to search for work rather than employ them directly for public works projects.  But how many roads, bridges, schools and other valuable public sector investments could have been completed instead of paying for 1.7 trillion weeks of job search?  Instead of paying half of the typical weekly salaries of 8.2 million people looking for work each week, we could have instead:

  • Paid the salaries of every worker employed in the construction and repair of streets, highways and bridges for the next century
  • Paid the salaries of every elementary and secondary school teacher in the U.S. for four years.
  • Paid the salaries of all workers in the motor vehicle (and parts) industry for two decades.

Democrats and Keynesian economists lament that state and local government employment has fallen 1.8% over the past five years instead of the 3.9% growth from 2002 to 2007.  The relatively small decrease in state and local government payrolls pales in comparison to the cost of jobless benefits over the past four years.  The money paid to unemployed workers per year over the past four years is equal to about 1/5 of the annual salaries of all state and local government employees combined.

Hoover Dam, The Grand Coulee Dam, LaGuardia Airport, The Lincoln Tunnel and many other public works projects were built during the Great Depression when many of the workers on these projects had few other job options.  The economic approach to dealing with the 2008-2009 recession has been quite different.  In 2013 we will reach 2 trillion weeks of unemployment benefits paid since the recession began.  When the history of this recession and recovery is written it will be clear that we did not use this time of excess capacity and idle workers to re-build and re-tool our infrastructure.  We will not be able to point to the dams, bridges, highways, schools and hospitals that were built during the recovery even though about two million construction workers lost their jobs after the residential real estate market collapsed and many of them are still out of work.  Instead the approach of this Administration and this Congress has been to pay people who lost their jobs to look for work, even though many of the jobs that were lost in the recession are no longer there.

What Happened in Vegas? Its Not Better Off Than Four Years Ago

The question “are you better off than four years ago?”, first asked by Ronald Reagan in his campaign against Jimmy Carter in 1980, has a different answer for households in different parts of the country, and for workers who differ with respect to their occupation, age, education, race, gender and work experience.  The average answer to this question belies substantial inequality in changes in economic fortunes over the past four years.  There have been economic success stories even during the depths of the deepest recession since the Great Depression.  Some small businesses and start-ups have flourished.  The stock market and corporate profits have rebounded well in the past four years.  Many individuals have found work, moved from part-time to full-time work, received a promotion, or a substantial increase in their rate of pay.

At the other end of the spectrum, there is unlikely to be a group of workers more adversely affected by the recession and weak recovery than construction workers in areas where the real estate bubble burst.  Consider building construction workers in Las Vegas, Nevada.  Four years ago there were 17,500 workers employed in building construction.  Today there are only 5,100 meaning that employment has fallen by 71% over four years.

The Case-Shiller price index for residential housing in Las Vegas has fallen by 41% over the past four years.  This means that many of the unemployed and underemployed construction workers are underwater in their homes.  Moreover, given the glut of housing, the employment prospects for construction workers in Las Vegas is likely to remain weak for years to come.

What happened in Vegas, unfortunately, isn’t confined to Vegas.  There are a number of other cities and areas, from Riverside County, California to south Florida, that are casualties of the crash in real estate markets.  Many residents of these areas lost equity in their homes.  Others lost their jobs and have been underemployed for years.  Many small businesses, especially those dependent on real estate and construction, have failed.  So whenever pundits and journalists attempt to determine whether the typical American is better off than they were four years ago, remember that there are 300 million different answers to that question.  In some parts of the country the answer is clearly no, for far too many Americans.

Labor Market Pessimism

Through the first six months of the year the number of workers who quit their job is down 28.5% from 2007.  Workers do not generally quit a job if they believe it will be difficult to find a new job.  A low quit rate is a symptom of worker pessimism in the labor market.

A second indication of labor market pessimism is that although the number of workers laid off through the first half of 2012 is down 3.3% from 2007, the number of laid off workers filing for unemployment insurance claims is up over 18% from 2007.  Workers who are laid off appear more pessimistic about finding a new job than they were in 2007 because they are much more likely to file for unemployment insurance.  A laid off worker who is fairly certain to be re-employed within a few weeks is much less likely to go to the trouble of filing for unemployment insurance claims.

The labor market recovery will be weak as long as quit rates remain far below pre-recession levels and new unemployment insurance claims stay at their current rate of 374,000 per week (compared to 317,000 per week in 2007).  The pessimism of those who have recently lost jobs and those who are considering a job move suggest that the unemployment rate is unlikely to drop over the next few months.

Workers Displaced from 2007-2011 have Struggled to Find Employment

Every two years the Bureau of Labor Statistics (BLS) surveys workers who were displaced from “long-tenured” jobs in the previous three years.  A “long-tenured” job is one which lasted at least three years prior to the job “displacement.”  A job “displacement” is a separation that occurred because:  “a plant or company closed or moved, there was insufficient work” or the “position or shift was abolished.”  Generally these longer term jobs are better jobs and “displacements” are job separations for economic reasons that occur disproportionately in recessions.  The BLS survey is conducted in January or February of even-numbered years.  The most recent data from the January 2012 survey indicates that the number of displaced workers was much higher during the 2007-2009 recession and the rate at which workers found new jobs during the recovery has been much lower than after the recession of 2001.  However the earnings received by displaced workers who were re-employed at the time of the BLS survey are similar for the recessions of 2001 and 2007-2009.

The following bar chart indicates the number of workers displaced from “long-tenured” jobs per year, over the previous three years, in BLS surveys from 1994 to 2012.  The line graph above the bar chart indicates the re-employment rates for these workers as of the survey.  On average the survey occurs about 18 months after the typical worker lost their job.  The 2010 and 2012 surveys include workers displaced in the 2007-2009 recession while the 2002 and 2004 survey includes workers displaced in the 2001 recession.

A comparison across surveys reveals that:

  • About 40% more workers per year were displaced from “long-tenured” jobs between 2007 and 2011 compared to the 1999-2003 period.
  • Workers displaced from “long-tenured” jobs from 2007 to 2011 were 18% less likely to find re-employment within the next 18 months compared to workers displaced from 1999 to 2003.

The next bar chart compares the earnings of displaced workers who were able to find a full-time job after displacement to their previous earnings, based on BLS surveys from January 1996 to January 2012.  The red bar measures the fraction of re-employed full-time workers who are paid at least 20% less than previous earnings.  The green bar measures the fraction of full-time re-employed workers who are paid least as much as they earned previously.

A comparison across surveys reveals that:

  • Workers displaced from “long-tenured” jobs between 2007 and 2011, who found another full-time job, were slightly more likely (8.5%) to experience a pay decrease of 20% or more compared to workers displaced from 1999 to 2003.
  • Workers displaced from “long-tenured” jobs from 2007 to 2011, who found another full-time job, were no more likely to receive a pay decrease of any kind compared to workers displaced from 1999 to 2003.

The recession of 2007-2009 was the deepest downturn since World War II.  The recovery since 2009 has been tepid.  This is reflected in both the number of workers displaced from jobs they held for at least three years and the low rate at which these workers found jobs during the recovery.  There are much smaller differences in the relative earnings of workers who found full-time work in this recovery compared to displaced workers after the 2001 recession.  The most troubling empirical finding is that between 2007 and 2011 only about half of workers displaced from jobs they held for at least three years were employed within the next 18 months.

The Long Road Back to Full Employment

It will take years of vigorous sustained economic growth to restore the U.S. labor market to anything close to “full employment”.  Consider the case of young adults age 20-24.  The unemployment rate for this age group has fallen from 15% to 12.9% over the past three years.  Nonetheless, the labor market for young adults is anything but healthy.  The labor force participation rate for adults age 20-24 has fallen from 73.4% to 70.8% since May 2009 because of the weak recovery.  Although there are 264,000 fewer unemployed workers age 20-24 than there were three years ago, there are also 566,000 fewer labor force participants than if the participation rate had remained steady.

As I have written in a previous post to this blog, there is an even more dramatic decline in the rate at which young adults are finding full-time work.  In May, 2000 54.3% of adults age 20-24 were employed in full-time jobs, but last month only 37.1% of adults age 20-24 were employed full-time.  If today’s labor market was comparable to 2000 full-time employment of adults age 20-24 would be higher by 3.75 million.  Some of these 3.75 million workers are currently working part-time while others are unemployed, and still more have left the labor force.

Young adults aren’t the only workers dropping out of the labor force or settling for a part-time job.  When a vigorous economic recovery finally arrives there will be millions of underemployed and unemployed workers and labor force drop-outs looking for full-time jobs.  Given the slack in the labor market and the rate of population growth, two years of employment growth of at least 500,000 full-time jobs per month would be required to restore the participation rate, the employment to population ratio, and the fraction of workers in full-time jobs to pre-recession levels.  In other words 24 straight months of growth about five times faster than what we have seen of late is needed to restore full employment.

Follow

Get every new post delivered to your Inbox.

Join 1,227 other followers

%d bloggers like this: