In Saturday’s Wall Street Journal Phil Izzo explained that the “Number of the Week” is 450,000 because employment now increases when first-time unemployment insurance (UI) claims fall below that level. In 2010 and 2011 the average number of new UI claims was 430,000 per week but employment grew by 1% per year. Previous conventional wisdom held that employment gains would occur only if new UI claims dipped below 400,000 per week.
WSJ readers learned that job losers are more likely than ever to file for UI benefits. This is why 450,000 first-time claims is the new threshold for employment growth. We should not conclude, however, that 400,000 new jobless claims per week is good news in today’s economy. It is an ominous sign that workers lack confidence in our economic recovery. Let me explain why.
First, here is the good news. When next month’s turnover (JOLTS) survey is released by the BLS it will almost surely indicate that there were fewer layoffs in 2011 than any time in the 11 year history of the survey. This is not surprising. After shedding millions of jobs in the recession, companies are no longer downsizing.
Now, here is the bad news. In 2011 nearly everyone who was laid off filed a claim for UI benefits: 21.1 million persons filed for first-time UI benefits, while 20.1 million people were laid off or discharged according to JOLTS (lagged one month to allow time to file a claim). Although workers are eligible for UI if they have been laid off but not if they quit their previous job, the Department of Labor acknowledges that some ineligible individuals apply for and receive UI benefits. This could explain why there were 105 new UI claims for each 100 layoffs last year. To put this in perspective in 2007 new UI claims were 74% of layoffs.
The “take-up” rate for the UI program has reached 100%. Nearly all job losers file for benefits because many are eligible to receive benefits for 99 weeks and even more lack confidence in the economic recovery. They are correct to be skeptical. Job openings and new hires are 30% and 25% below their pre-recession levels, respectively.
Two years of mass layoffs and downsizing are behind us. Unless we head into another recession it is impossible for new UI claims to average more than 400,000 per week in 2012. There is no guarantee, however, that employment will grow if 400,000 workers lose their jobs and file for UI benefits each week. If this continues even a modest 4% decline in hiring would eliminate all employment growth in 2012.