Thursday, August 05, 2010

European Safety Net = European Unemployment?


Following the post in yesterday's NY Times Economix blog "Eurosclerosis Comes to America" by Casey Mulligan (U. Chicago economist) the chart above shows monthly payroll employment and monthly job openings (both from BLS) from January 2004 to May 2010 (job openings for June are not yet available).  Casey Mulligan wrote:

"This recession has been unique in terms of the multitude of public policies that dull incentives to work and earn income. Best known are unemployment benefits, which are paid only to people who have not yet accepted a new job. But the mortgage modification programs, begun by the Bush administration and tweaked by the Obama administration, offer mortgage forgiveness to borrowers with low incomes while offering nothing to those with high incomes.

The new home-buyer tax credit, the enhanced food-stamp program and many other programs in President Obama’s stimulus bill are much the same: people without low incomes need not apply. People accepting jobs in this economy see their various safety-net benefits reduced or eliminated.

Payments to the unemployed are compassionate, and maybe even the best government reaction to a deep recession. But previous economic research has shown that this compassion has a cost: programs like these make it more difficult for employers to fill their job openings. It is no surprise that adopting a European safety net is giving us a European unemployment problem."

MP: Casey shows a graph of job openings and jobless rates to support his conclusions (similar to the bottom chart above), and the chart above of job openings and payroll employment tells the same story. Since the end of last year, payroll employment has only increased by an anemic .77% while job openings have increased by a much healthier 26.6%. Over the last year, job openings have increased by almost 29%, while the unemployment rate has barely moved, as Casey's graph and data show, possibly due to all of the generous jobless benefits and the many extensions to those benefits. 

The chart above shows that the historically close relationship between payroll employment and job openings has not held up very well over the last year, for the reasons that Casey outlines.  And the huge increases in online job availability as documented by the Monster Employment Index also lends some support to the fact that job openings are showing strong gains, which have not yet shown up in employment gains and jobless rate decreases.       

37 Comments:

At 8/05/2010 8:59 AM, Blogger juandos said...

We can watch the state of California become the 'Eurosclerosis lab' for the US...

From the LA Times: L.A. pensions may consume a third of city's general fund by 2015

From the San Francisco Chronicle: State's furloughs let some claim overtime pay

 
At 8/05/2010 9:07 AM, Blogger morganovich said...

underwater mortgages = low labor force mobility = slow adjustment to new opportunities, just like europe

 
At 8/05/2010 10:41 AM, Blogger bobble said...

baloney

your chart clearly shows that *employment lags job openings* both on the way up and the way down.

look at Q4 2007 and Q1 2008, job openings going down but employment going up, just the inverse of what we see now.

 
At 8/05/2010 11:23 AM, Blogger Benjamin said...

Juandos--
The money taxpayers pour out in fire, police and military pensions is mind-boggling, and a total taxpayer rip-off.
In Los Angeles, until a few years back, an LAPD employee could retire after 20 years of service. A union contract gives these guys as three-day workweek, btw. Now they have to work--gasp--for 25 years to get a pension, unless they file for disability. If they say they cannot pull the trigger on a gun, they can file for disability. How do they test for that?
Well, they have the "disabled" cop try to pull a trigger. If he says he can't, he gets disability. The disabled cops often show up in new jobs as a cop in some Kansas or Iowa town.
One SoCal police chief complained, "The problem is, for every cop on the department budget, I have another two that are retired."
Of course, US military employees get full pension after 20 years of service. They may be under 40 years old. You will pay their pensions until they die, and their healthcare too. I wonder if military pension payouts exceed payroll by now.
This problem appears hopeless. No one is suggesting that military employees wait until age 67 to collect their pension benefits, although I do.
The VA is sucking down $100 billion a year out of the private sector, and that figure will explode in future years.

 
At 8/05/2010 11:30 AM, Blogger Benjamin said...

Note to Moganivich-

This ran today on CNBC. I like this guy Makin at AEI. He sure is not wasting his time there.

"John Makin of Caxton Associates and the American Enterprise Institute spoke with CNBC this morning about the threat of deflation now hanging over the U.S. economy.
Makin explains that deflation is already here. He talks about how CPI is only at 0.9% right now, and heading lower. That prices and wages in the U.S. are falling, and that we are now exporting deflation to Europe and Japan via a weakening dollar.
Housing is where this starts, and Makin thinks that the American public believes that house and car prices will be cheaper in the future. He also argues that, if we included housing prices in the CPI, we would already be in a deflationary period.
Bond yields are a key source of knowledge about where the economy is, and Makin points out that yes, bond yields falling on both short term and long term government debt makes clear that markets believe in the deflationary storyline.
He calls for more Fed action, and further experimental measures including the purchase of more treasuries.
Makin calls monetarists "wackos" for fearing inflation due to the increase of money supply.
It's compelling viewing for anyone concerned about our coming Japan scenario."

 
At 8/05/2010 11:59 AM, Blogger James said...

As an engineer, I am constantly amused at what social scientist accept as proof of their pet theories. This is a prime example. It would unlikely that job openings did not lead employment. All that says is that on average an opening exists before job seekers know about it and there is a lag between a job opening and someone starting a job.

A “job opening” does not always mean there is a job available. Almost every green card approved has had a job advertised for which there is not going to be a hire because the purpose of the ad is to fabricate data to show that there is no American available. See immigration lawyer Lawrence Lebowitz of Cohen and Grigsby conduct a seminar on how not to hire an American at http://www.youtube.com/watch?v=TCbFEgFajGU

Casey Mulligan is asking us to believe that 15 million people would rather accept an unemployment check, averaging about $310 a week, rather than a job. This offering is too flimsily to support that conclusion. He needs to offer more proof than this.

 
At 8/05/2010 12:08 PM, Blogger Mark J. Perry said...

James:

See this previous CD post about how in Michigan, the state with the highest jobless rate in the country (at that time in May), landscaping companies were actually finding it difficult to hire seasonal workers this year, partly because of “the most generous safety net we’ve ever offered nationally."

 
At 8/05/2010 2:50 PM, Blogger The Bitter Guy said...

Mark,
And that there are fewer illegal workers available to accept poverty level wages.

 
At 8/05/2010 2:59 PM, Blogger morganovich said...

benny-

linking to a wacko calling established theory wacko without providing any evidence except a misunderstanding of the bond and housing markets is hardly convincing.

the bond markets are showing us that no one has a good use for capital and that those who export to us will buy our bonds at any price to keep their currencies in line.

i'll bet this guy wasn't screaming about "massive inflation" due to the housing price increases we saw.

this is just another guy begging to be bailed out.

you keeping missing the same point over and over:

there is very little demand for money. rates are zero. the curve is steep. but money is contracting. that tells you everything you need to know. that's what the bond market is pricing in (well, that and the massive QE being run by the fed who is now rolling over the huge purchases they made last year)

what is it you want the fed to do? buy up every asset in the country?

they are lending for free, you can get a 300-400 bp riskless return, they are buying the hell out of the primary treasury auctions and have accumulated over $1 trillion is various other crap.

what's it going to take for you to see that you cannot spend your way out of debt?

 
At 8/05/2010 5:46 PM, Blogger Benjamin said...

Moganivich--

Not calling for spending. Calling for quantitative easing, like Perry's stablemate at AEI John Mankin.

Actually, I am not enamored of any more federal deficit spending, by Obama, Reaganites or anybody else.

Quantitative easing and nominal GDP targets are a way to boodt GDP w/o deficit spending.

 
At 8/05/2010 6:18 PM, Blogger Andy Harless said...

Several commenters have already pointed out that job openings lead employment. Also, initial unemployment claims show flows out of employment continuing at a rate that is atypically high for a recovery, so that more hiring is required to raise employment. I discussed these and related issues in more detail in a recent blog post. The bottom line is that there is not yet any evidence that the matching process (including the incentives faced by unemployed people) is slowing down the growth of employment more than usual.

 
At 8/05/2010 8:14 PM, Blogger PeakTrader said...

Andy, there may be more labor mobility (or less structural unemployment), because foreclosures are at record highs:

US housing foreclosures at 'record high'
16 Jul 2010

Last year, lenders foreclosed on more than 900,000 homes while the historic average is 100,000 annually.

More Americans will lose their homes by the end of this year than at any other time, with the foreclosure rate hitting a record high of 1 million.

 
At 8/06/2010 8:09 AM, Blogger juandos said...

"The money taxpayers pour out in fire, police and military pensions is mind-boggling, and a total taxpayer rip-off"...

Hmmm, pseudo benny with yet another unsubstantiated call regarding the 'military pensions'...

"Well, they have the "disabled" cop try to pull a trigger. If he says he can't, he gets disability. The disabled cops often show up in new jobs as a cop in some Kansas or Iowa town"...

Do you have some credible substantiation that we call can link to that proves your comment?

Do I doubt that it might happen on occassion? No but does it happen wholesale as it seems your comment is implying?

I'm very skeptical to say the least sir!

"And that there are fewer illegal workers available to accept poverty level wages"...

And you know this how bitter guy?

Todays's BLS Labor report: Employment Situation Summary

Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000.

 
At 8/06/2010 8:22 AM, Blogger morganovich said...

juandos-

note that they also revised may and june down to show 97k fewer jobs created than initially reported.

this report was pretty disappointing. (again)

u3 is being held down through large reclassifications of workers into the "not looking for work" bucket, but that hardly seems like an optimistic trend...

 
At 8/06/2010 8:39 AM, Blogger morganovich said...

http://calculatedriskimages.blogspot.com/2010/08/employment-recessions-july-2010.html

great employment chart

 
At 8/06/2010 8:52 AM, Blogger juandos said...

"note that they also revised may and june down to show 97k fewer jobs created than initially reported"...

Yeah morganovich and it seems to me at least that there is always the revision or worse, the 'unexpected'...

I thought Ironman over at Political Calculations had a great posting on that ubiquitous 'unexpected'...

"Unexpected?" Really?...

BTW Ironman has his always interesting: On the Moneyed Midways - August 6, 2010

 
At 8/06/2010 9:40 AM, Blogger Ron H. said...

"u3 is being held down through large reclassifications of workers into the "not looking for work" bucket, but that hardly seems like an optimistic trend..."

Perhaps a more accurate picture would emerge if an additional bucket were created that included those on extended benefits who are NOT looking for work but who SAY they are.

 
At 8/06/2010 12:33 PM, Blogger sethstorm said...

The more reason to make it harder to refuse people for non-temporary forms of work.

They can't withhold work, and people get out of unemployment.

 
At 8/06/2010 12:35 PM, Blogger sethstorm said...


See this previous CD post about how in Michigan, the state with the highest jobless rate in the country (at that time in May), landscaping companies were actually finding it difficult to hire seasonal workers this year, partly because of “the most generous safety net we’ve ever offered nationally."

People generally don't want temporary forms of employment to replace more permanent forms of employment.

 
At 8/06/2010 2:35 PM, Blogger Ron H. said...

"People generally don't want temporary forms of employment to replace more permanent forms of employment."

..or to interfere with endless extended unemployment benefits.

Get a job, Sethstorm.

 
At 8/06/2010 2:40 PM, Blogger Ron H. said...

"They can't withhold work, and people get out of unemployment.

Ding! Ding! Ding!

There IS no work, Sethstorm, get it?

Not for your set of skills at your price.

 
At 8/06/2010 3:20 PM, Blogger sethstorm said...


Ron H. said...

You have failed to answer my question. Should they have a harder time refusing the unemployed, the hiring end of the table might actually have to try working with the other end of the table. Of course, there will be a few hiring-end miscreants that will object to it, but they exist in any system.

20% unemployment, and an unwillingness to rehire is what exists. That's what is called a problem. The problem is that business doesn't think it should solve if they're not able to control what goes on in government.

Have a recovery with the people we have, not be unreasonably picky and lording over the people you want.

 
At 8/06/2010 3:27 PM, Blogger Paul said...

"Should they have a harder time refusing the unemployed, the hiring end of the table might actually have to try working with the other end of the table."

I must be misunderstanding. Is Sethstorm saying employers should have to hire any fool who applies?
Surely, I'm getting it wrong?

 
At 8/06/2010 3:40 PM, Blogger sethstorm said...


I must be misunderstanding. Is Sethstorm saying employers should have to hire any fool who applies?

Just about. More like any legitimate US citizen that applies, at any time. When all the hiring side does is try to find loopholes to not hire US citizens, you give them no more quarter to do so.

 
At 8/06/2010 3:54 PM, Blogger Paul said...

"Just about. More like any legitimate US citizen that applies, at any time."

That is staggeringly idiotic. Why don't you start your own business and demonstrate how it's done? I can't believe even you could suggest such an economically devastating thing.
I have a part-time business my wife and I run with nobody else. According to Sethstormian principles, would I also have to hire your slacker ass if you applied?

 
At 8/06/2010 4:09 PM, Blogger sethstorm said...


Paul said...

Hardly. It breaks the sclerosis by opening the floodgates. People get to work, businesses can't dodge the law. If there was an exception to cover people like you, many would make themselves look like the exception - even if they're a larger entity.

I honestly don't care since there are too many rent-seekers trying to look like you(or would if given the incentive by virtue of loophole). There are more than enough larger entities to go around as well that would be able to accept them.

 
At 8/06/2010 4:17 PM, Blogger sethstorm said...

Also, someone wouldn't want to apply to somewhere that isn't stable enough to add additional load.

 
At 8/06/2010 4:20 PM, Blogger Ron H. said...

"I must be misunderstanding. Is Sethstorm saying employers should have to hire any fool who applies?
Surely, I'm getting it wrong?
"

No, Paul, you read it correctly. In sethstorm's world an employer must hire ANYONE whether they have any work for them or not.

(legitimate US citizen only, the rest of those bastards are out of luck) So the marital status of an applicant's parents must be verified.

AND the employer must provide retraining for this employee so they are qualified to do a job that doesn't exist. In sethstorm's world this is known as "good faith".

This means that I, who have no work for anybody, nor any employees, must hire and retrain some legitimate US citizens to do...I don't know what. I don't run a business, so I don't know when I will ever need an employee, but nonetheless I will have them.

 
At 8/06/2010 4:26 PM, Blogger Ron H. said...

sethstorm, I didn't answer your question because you didn't ask one. You only spewed your normal meaningless drivel about ends of tables etc.

 
At 8/06/2010 4:28 PM, Blogger Ron H. said...

"I have a part-time business my wife and I run with nobody else. According to Sethstormian principles, would I also have to hire your slacker ass if you applied?"


Yes, Paul, AND you would have to train him at your expense while you paid him for full time work at a wage he finds acceptable.

 
At 8/06/2010 4:31 PM, Blogger Paul said...

"If there was an exception to cover people like you, many would make themselves look like the exception - even if they're a larger entity."

There's no money or reason to hire someone, there isn't enough business yet. I would have to shut down the business if your idiotic rule was in place.

You know, you might just be a shoe-in to replace Christina Romer, Sethstorm.

 
At 8/06/2010 4:39 PM, Blogger Ron H. said...

"If there was an exception to cover people like you, many would make themselves look like the exception - even if they're a larger entity."

I've noticed that! K-Mart's annual report indicates that they are a small family run business. How do they do that?

"Also, someone wouldn't want to apply to somewhere that isn't stable enough to add additional load."

Well, sethstorm, that might be MOST businesses these days. Times are tough, as you may have heard. How would you know if a company couldn't handle additional load? Perhaps your accountant or stockbroker can advise you before you apply.

 
At 8/06/2010 4:43 PM, Blogger Ron H. said...

""You know, you might just be a shoe-in to replace Christina Romer, Sethstorm."

Yes, sethstorm, check that out. That job will be available after the next presidential election.

 
At 8/06/2010 5:18 PM, Blogger sethstorm said...


There's no money or reason to hire someone, there isn't enough business yet. I would have to shut down the business if your rule was in place.

Someone more willing and able to adapt would take your place.

 
At 8/06/2010 5:31 PM, Blogger Paul said...

"Someone more willing and able to adapt would take your place."

Well we know that wont be you. Seriously, you have no concept of the real world. You're not a community organizer, are you?

 
At 8/06/2010 6:07 PM, Blogger sethstorm said...


Paul said...

Nice dodge, but not even anywhere close to being accurate.

 
At 8/06/2010 9:36 PM, Blogger Ron H. said...

"Nice dodge..."

That's not a Dodge, sethstorm, I wouldn't drive one of those pieces of junk. I drive a reliable import.

 

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