Today’s Color On Our Color-Coded Economy Chart: Silver

David Leonhardt at NYT:

For many of these long-term unemployed, the financial and psychological damage will last for years. For most other workers, however, the situation has had a perverse, and mostly overlooked, silver lining.

Unemployment has been concentrated among a surprisingly small number of people, given how deep the recession has been. The nation’s pool of jobless workers has not been constantly changing. Instead, it’s been relatively stable — mostly because the hiring rate of new workers plunged in 2008 and still has not recovered. The drop in hiring has actually been steeper than the rise in layoffs.

Compare the current slump with that of the early 1980s, which was similar in severity. Over the course of 1980, 18.1 percent of the labor force was unemployed at some point. In 2008, the first year of this slump, only 13.2 percent was, according to the Labor Department’s most up-to-date data. That number surely rose in 2009, but it is unlikely to have come close to the 1982 peak of 22 percent.

If anything, the slowdown of the recovery in the last few months has made the recession even more concentrated. It has put off the day when the job market will be strong enough to re-employ many of the long-term jobless. But inflation has fallen to zero, which helps the purchasing power of everyone fortunate enough to have a job.

Given that the economy seems to have entered this new phase — a new slog — I wanted to use this week’s column to sketch an updated portrait of the economy. The highlights follow. More detailed information is posted on the Economix blog.

Heather Horn at The Atlantic round-up

Felix Salmon:

David Leonhardt’s latest column is full of interesting employment datapoints. Among them:

  • In 2008, only 13.2% of the labor force was unemployed at some point. That compares to 18.1% in 1980, and 22% in 1982.
  • Real wages, which normally fall during recessions, have risen in this one. Even nominal wages are up.
  • The mancession is over: “male employment has risen by almost one million this year, while female employment has fallen by 300,000″.

The overriding impression is of most Americans actually doing OK, with an unemployable underclass bearing the brunt of the recession. Maybe we really are all middle class now: there’s the unemployed at the bottom of the pile, and the plutocratic elite at the top, with the overwhelming majority sitting in between, doing OK but hardly great.

The problem is that persistent unemployment at or around 10% is unacceptable in the U.S., especially with the social safety net being much weaker here than it is in Europe. Leonhardt is right that Euro-style safety nets aren’t particularly innovative, but they do at least keep people housed and clothed and fed and living outside poverty — reasonable expectations for anybody to have, I think, in the richest country in the world.

Andrew Sullivan:

I am struck by two things. The first is a question of why the Democrats are under so much electoral pressure when so many people are doing fine in this economy, indeed enjoying hefty wage increases in an era of very low inflation. Of course, I’m not arguing for selfishness, but it’s odd to me empirically that so many are complaining when such a discrete and relatively small section of the country is in such economic pain. People are pretty good at ignoring the plight of others in assessing their own situation. Have the employed seen such a boost in their living standards since the 1990s?

The second thing that strikes me is the comparison with the war. Just as in the economy, a relatively small and socially segregated segment of America bears the real burden – of their loved ones facing and meeting death and injury day after day. Why do we seem more indifferent to them than to the long-term unemployed?

What allows us to compartmentalize in some areas and not in others? Or will, in fact, the popular discontent with the economy fail to materialize as profoundly as we expect in the elections ahead? And will the resistance to the wars begin to rise?

Tyler Cowen:

Those facts, in a nutshell, are why I am not AD-obsessed when it comes to explaining the current economy.

Furthermore, I don’t buy the idea that so many of the unemployed are stupidly and stubbornly holding out for a higher wage than they can get, while at the same time they can be reemployed by a mere bit of money illusion.  There are so many blog posts written to the Fed, to Bernanke, etc. “Hey guys, goose up the money supply!  Bernanke, read your old writings!”

Yet I have seen not one such post to the unemployed: “Hey guys, lower your wage demands!  It’s good for you!  You’ll get a job and avoid the soul-sucking ravages of idleness.  It’s good for the country!  It’s good for Bernanke, you’ll get those regional Fed presidents off his back!  Why not?  The best you can hope for is to get tricked by money illusion anyway!  Show up those elites and get to that equilibrium on your own!  Take control!” and so on.  If such posts would seem patently absurd, we should ask what that implies for our underlying theory of current unemployment.

I sooner think of these unemployed individuals as having gone down economic corridors which are no longer promising and not facing any easy adjustment to set things right again.  Furthermore I consider that portrait of their troubles to be more consistent with the general tenor of liberal, left-wing, and progressive thought, not to mention plain common sense.

Ryan Avent at Free Exchange at The Economist:

I understand the thinking behind Mr Leonhardt’s point. The most recent recession was fairly unusual in that the rate at which workers entered unemployment never got that high; instead, unemployment rates soared because the rate at which workers exited unemployment was unusually low. As a result, fewer workers have moved through unemployment than one might expect given the 10.1% peak rate, and the ones that did enter unemployment have remained without a job for an unusually long time. But there are two points to make about this. First, as Brad DeLong notes:

Unemployment in 1980 averaged 7.2%–and affected 18.1% of the labor force. Unemployment in 1982 averaged 9.7%–and affected 22% of the labor force Unemployment in 2008 averaged 5.8%–and affected 13.2% of the labor force. In those three cases the total number of those affected by unemployment at some time during the year was 2.3, 2.5, and 2.3 times the average unemployment rate.

In 2010 the unemployment rate will average 9.5% of the labor force, and 2.3 times that will be… 22% of the labor force.

Second, unemployment isn’t the only category of labour market suffering there is. U-6, which includes workers marginally attached to the workforce and employed part-time for economic reasons (that is, not by choice) peaked at 17.4%. Nearly one in five workers in or marginally attached to the labour force were underemployed as a result of the recession. Not captured in that statistic are the workers who faced across the board salary freezes or cuts in order to reduce firm layoffs. And as Mr DeLong notes, the rise of two-worker, two-income household means that a given level of unemployment affects a larger share of the country’s households. The number of people directly affected by under- or unemployment may not have constituted a majority, but it was probably close.

Meanwhile, those not directly affected may nonetheless be feeling the pain of recession. The severity of the downturn has meant a loss of opportunity around the country. Employed workers stay in jobs they hate because of the paucity of other openings, and households remain in cities they’d like to leave thanks to negative equity. As the mobility has fallen in association with the recession, workers have been less able to maximise the return to their skills or their own utility. Mr Leonhardt says that the employed have enjoyed real wage increases. That’s nice, but the improvements have been smaller than they should have been, and much smaller than workers likely anticipated five or ten years ago (or, say, back when they were deciding how much to invest in their own human capital).

If the “most America is doing ok” notion seems not to pass the smell test, it’s because it doesn’t reflect reality.

Dean Baker at the Center For Economic and Policy Research:

David Leonhardt tells readers that the Great Recession has had some silver linings for many workers. High on his list is continued wage growth. This is misleading. All the real wage growth in this downturn occurred in the months of November and December of 2008. This was due to a plunge in the price of oil and other commodities. Since December of 2008 real wages have stagnated.

The wage growth in those two months also followed 6 years of wage stagnation. Essentially, nominal wage growth was eaten up by rising commodity prices during the upturn. These gains were then realized when prices crashed, but it is misleading to imply a pattern of consistent wage growth during the downturn.

avg-real-hr-wage

The piece also correctly notes that unemployment has been concentrated among a smaller segment of the workforce than was true in the 1981-82 recession. This is a direct implication of the high levels of long-term unemployment. However, it is also worth noting that part of the reason that unemployment is more concentrated is that the workforce is much older today.

Brad DeLong:

Wait a minute.

Unemployment in 1980 averaged 7.2%–and affected 18.1% of the labor force. Unemployment in 1982 averaged 9.7%–and affected 22% of the labor force Unemployment in 2008 averaged 5.8%–and affected 13.2% of the labor force. In those three cases the total number of those affected by unemployment at some time during the year was 2.3, 2.5, and 2.3 times the average unemployment rate.

In 2010 the unemployment rate will average 9.5% of the labor force, and 2.3 times that will be… 22% of the labor force.

And, as Bob Reich pointed out at coffee at Brewed Awakening yesterday afternoon, there are many more two-earner households than there were in 1982: the share of households affected by an unemployment spell is thus likely to be significantly higher than it was back in 1982.

Arnold Kling:

Health care now approaches 20 percent of the economy. With health insurance included in compensation, that means that 20 percent of compensation is determined not by your skill level, but by the median cost of health insurance. If the value of your skills has been rising faster than the median, then maybe that is not a problem. However, if the value of your skills has been rising more slowly than the median, then your skill level is no longer enough to overcome the health insurance hurdle.

Let the worker’s subjective valuation of health insurance equal V. Let the cost of health insurance equal C. Let the marginal product of labor equal M. Let the opportunity cost of the worker’s time equal W. Then we have:

M – C ?= W – V

The worker takes the job if and only if the left-hand side exceeds the right-hand side. If the excess of the worker’s marginal product over the cost of health insurance is not greater than the worker’s take-home wage requirement less the worker’s subjective valuation of health insurance, then the worker will not be employed. That may be what we are seeing today.

For example, suppose that your marginal product is $25,000, but the cost of employer-paid health insurance is $15,000. The means that the employer can only afford to give you pay net of health insurance costs of $10,000. Suppose that you would not pay more than $5,000 for health insurance if you paid for it yourself. Then the value of the job to you is $10,000 + $5,000 = $15,000. If you value your time at more than $15,000, then you will not take the job.

It is not that the marginal product of workers is close to zero. It is that the marginal product of workers is close to the median cost of health insurance, and workers do not value health insurance that highly

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