Unemployment vs Underemployment

At the beginning of this year, we mentioned the Augmented Unemployment Rate as a way of drilling beneath the unemployment rate headline data, as a way to get to the true employment situation.

Then, in May, we noted (with a bit of a snicker) that the WSJ was surprised — while we were not — by the lack of broad public satisfaction with the apparently improving economy:

“Despite months of strong growth and recent good news on payroll jobs, six in 10 American voters say the economy is heading for trouble rather than prosperity, according to a new Wall Street Journal/NBC News poll. Moreover, the proportion of Americans who say the economy has improved in the past year has declined significantly since January, as has the proportion who believe it will improve in the next year.”

We see yet another conformation of the tepid jobs improvement in this chart below, courtesy of Job Watch. It further confirms both Fed Chair Greenspan’s Augmented Unemployment Rate data, as well as the WSJ poll:

Underemployment higher than at recovery’s start
Source: EPI/Jobwatch

The significance of these dates: March 2001 was the official start of the recession, November is its official end. Last months employment data, June 2004, is a full 31 months after the recession ended: Underemployment is actually higher.

This continued Job weakness is very consistent with our September 12, 2003 discussion of the President’s tax package. We observed how the White House was seemingly over-emphasizing the stock market, to the detriment of a more broadly based macro-economic stimulation. At the time, we wrote: “I simply cannot recall any previous time where the focus was on stimulating the Markets, rather than stimulating the economy.”

More specifically, in “Stock Market vs the Economy,” I detailed exactly how this was occurring:

“The President’s tax package was very much focused on the Stock Market. It replaced an odd accounting permutation – the preference for debt over equity by public companies (via double taxation of dividends) – by creating a new odd permutation, a new “dividend class” taxpayer bracket; For some reason, we also lowered the capital gains tax – on the heels of the biggest investment bubble in history.

It’s hard to imagine that capital investment really required additional stimulation.

The bulk of the tax cuts were for the investor class (ie, the top 10%); As you can see, it had the expected response – it stimulated investment in the market. To stimulate the economy, you cut taxes for the spending classes – the middle class. They typically spend most of their discretionary income. That in turn stimulates manufactured goods and service consumption, which should lead to additional hiring. The trade off is less of a fund flow driven rally, and more of a better set of employment numbers.

All told, I don’t believe that’s the most effective way to spend a trillion dollars. As the President often says, “if you want more of something, tax it less.” So, on top of middle class tax cuts, if you want to increase hiring, give companies a tax credit for new hires or health care costs or just cut the payroll tax. It’s really not that complicated – when you increase your domestic headcount over a previous percentage – i.e., 2001’s high number, the firm gets a tax credit. Note that overseas outsourcing or reducing US headcount will not qualify you for the cuts.”

Lets hope June employment data was an aberration, and not the reversal of the recently improved jobs numbers of March, April and May.

This is one instance where I really wouldn’t mind being wrong . . .

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  1. wcw commented on Jul 13

    Another issue is just where new hires have occurred on the income distribution this year.

    Viz Roach, last Friday, at http://www.morganstanley.com/GEFdata/digests/20040709-fri.html#anchor0
    “Putting these segments together, low-end jobs accounted for about 44% of total hiring over the February to June interval, double their share in the workforce.”

    Annenberg essays an analysis that has been making the rounds using the population survey (strike one) at http://www.factcheck.org/article.aspx?docID=208

    Ignoring the uncomfortable conflict between these numbers and the payroll survey over the longer term, I appreciated their spreadsheet by job classification and weekly wage at http://www.factcheck.org/UploadedFiles/Good%20Jobs%20Bad%20Jobs.xls

    If you divide jobs into weighted quartiles (i.e., top quartile is one-fourth of total pay, not of jobs), the Februrary-through-June period (inclusive) has the following rather asymmetric shape:

    quartile share of job/wage growth

    qile jobs wages
    1st -6% -14%
    2d 5% 8%
    3d 18% 37%
    4th 83% 69%

    The first column gets skewed by weighting quartiles, but the second doesn’t. I’d say Roach and Kerry are right, and Annenberg is wrong: new jobs during the good-job-growth period have gone disproportionately to bottom-quartile earners.

    That said, I’m not sure this has all that much to do with Bush’s give-to-the-rich tax policies. My best guess is that bottom-quartile jobs, mostly low-end service work, are the hardest to arbitrage on the global labor market as well as the hardest to make more productive with better application of organizational design and IT. Sure, a neo-Keynesian policy designed to stimulate hiring would have raised wage-earners boats more overall, but I’m not sure we wouldn’t be seeing the same pattern favoring low-end job growth at the expense of the top of the distribution.

    As an erstwhile top-quartile earner, I can’t pretend to be unconcerned.

  2. bill commented on Jul 17

    On May 11, 2004, John Kerry failed to show up to vote in the senate to extend unemployment benefits to hundreds of thousands of people out of work because of President Bush’s foolish economic, tax and trade policies. This bill failed to pass by ONLY ONE VOTE! – John Kerry’s. Moneybags Johnny couldn’t make it because he was much too busy campaigning in Kentucky – a state with terribly high unemployment.

    Senator Kerry spends more time politicking and making jokes about how nice his hair is than he does actually taking care of his senatorial duties. The man has missed 75% of the votes and has cost his state millions upon millions of dollars. Now he wants to do the same for the nation.

    Bush is a decisive incompetent who is financially ruining this country but Mr. Kerry is a shameless liar who falsely prides himself on his superior intellect. So what are we going to do with these two gentlemen?

    Personally, I’m voting for a 3rd party candidate. A third party candidate won’t get elected but a protest vote is very important nonetheless. Voting for a third party candidate could have far more impact than supporting status quo politicians.

    Don’t throw your vote away by voting for either the selfish gigolo multimillionaire Kerry or the intellectually limited Mr. Bush.

    And as far as terrorism goes, read “Osama’s Revenge.” According to the author, terrorists presently have 20 nuclear suitcase bombs (10 times more powerful than Hiroshima’s) that they plan to set off within a year. Thank you Republican and Democratic leaders; specifically, Carter, Reagan, Clinton, and both Bushes.

  3. Barry Ritholtz commented on Jul 19

    Hey Bill,

    Thats the unfortunate downside to a 2 party, non parlimentary system.

    If you want your vote to matter, you gotta hold your nose and pull the lever for one of the two major party’s candidates.

    The question is, which one is less odious to you? A protest vote is a hollow gesture, IMHO. Its the easy way out — vote your conscience wiht no real consequences.

    Sorry, thats too simple. In the real world, you must make choices between two evils.

    Now, go forth and vote . . .

  4. The Big Picture commented on Apr 12

    Jobless vs. Unemployed

    In today’s NYT, Floyd Norris hits on a subject that has been a favorite of ours over the years: Finding the true measure of the economy’s labor situation.The unemployment rate is low. The jobless rate is high.Those two seemingly contradictory statement…

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