A Look Behind Some Of The Unemployment Numbers

By now you all know the employment numbers for September were disappointing to say the least. Unemployment stuck at 9.6% and private sector job growth of 64,000 — not enough to even keep up with population growth. Here’s a link to the WSJ’s roundup of economists’ reactions. But there were a couple of bits of data embedded in the report that are worth a bit closer look.

First, job losses in the government sector are accelerating. Some might say it’s high time given that sector has up to now seemed relatively immune to the effects of the recession. Unfortunately, it appears as if teachers have been singled out as the group that has to take the fall.

From the WSJ:

State and local governments overall cut 83,000 jobs last month, the Labor Department’s employment report showed, contributing to the overall loss of 95,000 jobs across the economy. As a result of government cuts, September marked the first month of the year in which overall jobs declined even after excluding the effect of temporary federal Census workers.

Budget cuts during the summer kept tens of thousands of teachers at home once the new school year started. Local government payrolls fell by 76,000 during the month, including almost 50,000 education jobs. State government payrolls overall declined by 7,000 and would’ve increased slightly if not for the loss of 7,800 education jobs.

I may well be missing something here but it would seem that there might well be other jobs in government that we could do without before cutting into our cadre of teachers. These numbers do seem a bit skewed.

That aside, the Journal article contains this bit of information which would seem to indicate that this is just the beginning of the contraction of government payrolls.

Local governments have now cut jobs in nine of the past 10 months. But the losses only bring their payrolls back to late-2006 levels, just after housing values peaked, suggesting more pain ahead as budgets reflect lower property tax revenues.

As noted in today’s Ahead of the Tape column, budget shortfalls for 2011 and 2012 are likely to reach $260 billion, which could translate to losses of roughly 900,000 jobs, according to the Center on Budget and Policy Priorities.

Basically, government has only begun to grapple with the reality of the economy they’re left with post the recession. Frankly, I don’t believe for a minute that we will see 900,000 government workers or any number remotely close to that lose their jobs. Losses of that magnitude would spell disaster for local politicians’ power bases not to mention tip the overall unemployment problem towards a deeper crisis.

It’s hard not to expect higher taxes and fees in an effort to maintain the status quo. Of course, higher taxes and fees are the last thing the economy needs to get rolling again and so around and around we will go.

The chart below from Jake at EconomPicData.com illustrates a trend in U-6 which seemed to be pretty much ignored this time around. Specifically, unemployment under this broader measure is actually increasing.

Why the jump? Here’s an explanation from the WSJ Real Time Economics blog:

The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs.

The key to the rise in the broader unemployment rate was due to a 612,000 jump in the number of people employed part time but who would prefer full-time work. Meanwhile, the number of discouraged workers and those who classify themselves as “marginally attached” to the labor force also increased.

Those jumps were likely affected by a temporary end to extended unemployment benefits. Earlier this year, Congress let an extension of jobless benefits lapse. During that period people may have dropped out of the work force, and though many returned in August some were still coming back into the system last month.

Count me as one of those who believe that U-6, though imperfect, probably paints a better picture of our employment problem. It reflects the extent to which a lot of people in this country have had to resort to marginal employment in order to hang on with their fingernails. The sad reality is that many if not most of them are resigned to the fact that they won’t make it back to their former life styles.

It’s foolish in the extreme to expect that a recovery which merely moves people into jobs which require skills far below their abilities is going to suffice to restore any sort of vibrant economy. The U-6 measurement shows just how deeply we have sunk and how far we have to go, and this past month we have gone in the wrong direction.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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