Article 43


Friday, April 04, 2008

Bad Moon Rising Part 26 - Jobs Report


Reading The Vital Signs In The Jobs Report

By Jared Bernstein and Lawrence Mishel
Economic Policy Institute
April 3, 2008

The Bureau of Labor Statistics release of its jobs report on Friday, April 4, provides an important set of labor market vital signs, which are key indicators of our overall economic health and the living standards of the vast majority of working families who rely primarily on wage income. This issue brief outlines some of the most important indicators and benchmarks from the monthly jobs report, what they mean for families’ economic well-being in the current downturn, and the longer-term trends that give them context. As always, EPI will carefully monitor and report on these indicators every month on the morning the data is released.

Income recovery incomplete

First, it is important to recognize that this is the first recession and recovery cycle on record in which median family income has not regained the ground lost since the last downturn. According to our analysis of Census Bureau data, the income of the typical (median) working family was lower in real terms in 2007 than at the end of the last business cycle, in 2000.1 Given that family incomes will almost certainly decline in 2008, the typical family’s incomewhich failed to recover over this 2000 cycleחwill now begin a new descent, as unemployment rises throughout 2008 and into 2009 (as is predicted by virtually every forecast).

Weakening labor market causes broad-based income declines

Based on past experiences with how weakening job markets effect income growth, the rise in unemployment in 2008 will cause middle-class family incomes to fall by about $750, on average. The reasons for the decline include:

· Higher unemployment;
· Fewer hours worked per week;
· Fewer people employed per family;
· Declining rate of wage growth as unemployment rises;
· More people working part-time involuntarily;
· Higher underemployment (a monthly measure based on broader, more inclusive data on labor utilization).

Understanding the indicators

The BLS releases data on various indicators that are important to take into consideration when gauging the health of the labor market. They include:

1. Unemployment and net job gains/losses
2. Jobs in the private sector
3. Employment rate and work hours
4. Weekly work hours
5. Wage momentum
6. Long-term unemployment

1. Unemployment and net job gains/losses

The most highly watched numbers from the jobs report are payroll employment growth and the unemployment rate. A related indicator that gets a lot of attention is whether the report meets forecasters’ consensus prediction of payroll growth. In March, for example, the CONSENSUS is that payroll jobs contracted by 50,000.

Whether job growth meets analysts’ expectations is important, but even more important, especially in a weak period like the present, is whether enough jobs are created to absorb new workers entering the labor force while keeping the unemployment rate from rising. Our calculations find this “steady-state” number is 127,000: that is the number of payroll jobs that need to be created each month to forestall unemployment from growing higher (see the appendix for description of how we arrived at this number). In other words, at least 127,000 new jobs per month are needed just to maintain the equilibrium in unemployment.

It is possible for unemployment to decline in any given month, even if payrolls shrink. In fact, this occurred in February, when payrolls declined by over 60,000 and unemployment fell from 4.9% to 4.8%. But the reason the jobless rate went down was because hundreds of thousands of workers left the job market, were no longer actively seeking employment, and thus were not officially counted as unemployed. The point is that these monthly unemployment rate changes are volatile and can be driven by job loss and labor market exit and entry. Our benchmark of 127,000 should be viewed as the number of payroll jobs needed simply to keep unemployment from rising, assuming the labor force is not shrinking.

2. Jobs in the private sector

Private-sector jobs changes, another important indicator, tell us how quickly the economy is slowing down. In the last three months, private-sector job growth declined.

3. Employment rate and work hours

A key factor in raising middle class incomes over the last few decades has been that more family members work, and they work longer during the year (i.e., more weeks per year and/or greater number of weekly hours). As the labor market weakens, this process reverses itself. One can trace this by tracking changes in the employment rate (the ratio of employment to population). This ratio is important to watch because other measures, such as the unemployment rate or the labor force participation rate, depend on how people are classified as in or out of the labor force.

In February, the employment rate and the unemployment rate both declined. In this situation the decline of the employment rate provided a better indication of labor market weakness than the unemployment rate. In fact, it is well known that the employment rate has fallen since 2000, and that has led to an understatement of the growth of unemployment.

4. Weekly work hours

Another important measure to follow is weekly work hours. This number falls in a downturn as less overtime work is available, more people are employed part time, and employers cut back on hours as the demand for their goods and services falters.

5. Wage momentum

The hourly wage data provided in the monthly BLS report are the only monthly measure of wages that can be used to track shifts in the wage trajectory, specifically for the roughly bottom 80% of the workforce captured by the BLS measure of production/nonsupervisory workers’ wages. Recently, the rate of nominal (i.e., not inflation-adjusted) wage growth, measured year-over-year, peaked in March 2007 at 4.2%. By February 2008, that rate had slowed to 3.7%, a 0.5% deceleration. Note that inflation has grown more quickly over this period, due largely to rising energy and food costs. Real hourly wages have thus been flat or negative since October 2007.

6. Long-term unemployment

An issue that arises in each downturn is whether, when, and how to provide extended unemployment insurance (UI) to the long-term unemployed, that is, those who have been jobless for 27 weeks or more. The logic is that in a downturn those who do not find jobs are facing unusual problems because of the pervasive weakness in the job market, and thus need further income support. The federal government has provided extended unemployment insurance benefits in every recession since the 1970s, but Congress usually waits too long, letting unemployment, and especially long-term unemployment, rise substantially before it acts. The 2001 recession actually ended before Congress managed to extend benefits.2 As of this February, there were already about the same number of long-term unemployed1.3 millionחas in March 2002 when Congress finally extended unemployment compensation.

Appendix: Calculating the Jobs Needed to Prevent a Rising Unemployment Rate

To come up with the “steady-state” number of payroll jobs needed to keep the unemployment rate stable, we used as our benchmarks the labor force participation rates and unemployment rate in the fourth quarter of 2007 (66% and 4.8%, respectively). The question is then: given population growth, how many jobs are needed to keep the unemployment rate at 4.8%?

We took the projected growth of the working age population1.1% in 2008חfrom the most recent Social Security annual ESTIMATES. (We used the “intermediate” estimate; note that the Census 10-year projections yield the same rate.)

We then make one further, important adjustment. The labor force statistics used thus far in this exercise come from the household survey, but our benchmark should apply to the establishment survey. To adjust for this difference, we take advantage of the BLS publication [PDF] of household survey employment using the payroll survey definitions. For 2007, the ratio of payroll/household jobs was 95%, and we applied this adjustment factor to the household data to derive a payroll jobs number of 127,000 per month.

Specifically, a 1.1% growth of the working age population adds 2.554 million people. If the employment population rate remains at 62.8%, this implies an employment growth of 1.604 million (or 133,600 each month). If payroll growth were to be 95% of this household employment growth, it would need to be 127,000 per month.

1. Census data are available only through 2006, at which point the real median family income was about 2%, or about $1,000 below its 2000 level. Our forecast for 2007 finds that the difference, 2000-06, reduces to -1%.

2. Even though the official recession was over, it was good that Congress did extend benefits because unemployment continued to rise for many months. In fact, the period became commonly referred to as the “jobless recovery” due to the historically long time it took for the labor market to bounce back after the recession.


Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39 - Part 40
Part 41 - Part 42 - Part 43 - Part 44 - Part 45
Part 46 - Part 47 - Part 48 - Part 49 - Part 50
Part 51 - Part 52 - Part 53 - Part 54

Posted by Elvis on 04/04/08 •
Section Bad Moon Rising • Section Dying America
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CEO Welfare


The Welfare King of the 21st Century

By Dean Baker
t r u t h o u t
March 31, 2008

To help advance his 1980 presidential campaign, Ronald Reagan invented the “welfare queen;” a woman who drove to pick up her check every month in a Cadillac. This mythical figure helped galvanize support among working class whites who felt that their tax dollars were being frittered away on people too lazy to work, most of whom they believed to be black.

There was little truth to the mythology of the welfare queen, the vast majority of welfare stints were always short and were usually the result of family breakups or job loss. Furthermore, welfare never amounted to more than a trivial item in the federal budget, coming in near one percent of total spending. And, most welfare beneficiaries were white. But the welfare queen mythology proved to be an effective political tool, propelling Reagan to an election victory and boosting Republican prospects over the next two decades.

But the old welfare queen mythology has run out of steam. The Republicans are victims of their own success. Welfare rolls have plummeted in the decade following the 1996 welfare reform. Work requirements and harsher qualification rules make it hard to sell the image of a whole class of lazy freeloaders.

If the welfare queen is dead, then it’s time to say, “Long live the welfare king.” This person really exists, his name is James E. Cayne, and taxpayers just handed him almost $50 million. Mr. Cayne got this gift when J.P. Morgan renegotiated the terms of its takeover of BEAR STEARNS. The buying price went up fivefold, fetching Bear Stearn’s stockholders $1.2 billion instead of the $236 million in the agreement brokered by the Fed last week.

While Bear Stearns shareholders may still have been unhappy about their losses even at the higher price (the stock had been worth more than ten times as much a year earlier), in reality this was a very generous gift from US taxpayers. As an inducement to carry through the takeover, the Fed gave J.P. Morgan up to $30 billion in guarantees, in case the bank has to make good on Bear Stearns’ liabilities. In other words, J.P. Morgan is being given the opportunity to do some gambling, with the taxpayers committed to making good any losses. The money that J.P. Morgan paid for this privilege went to Bear Stearns shareholders, not the taxpayers.

James E. Cayne did especially well AS A RESULT of the taxpayer’s generosity because as the former CEO of Bear Stearns, and current chairman, he owned a great deal of the company’s stock. To put the taxpayer’s gift to Mr. Cayne in some context, this is approximately equal to the amount paid in TANF to 10,000 working mothers over the course of a year.

Of course Mr. Cayne and the rest of the Bear Stearns stockholders are not the only incredibly rich people benefiting from the taxpayers generosity these days. The Fed’s actions are reining down taxpayer money all over Wall Street. When Fed Chairman Ben Bernanke rushed in to save Bear Stearns last week, he made two other important policy changes. He indicated a commitment to protecting other major investment banks and he opened the Fed’s discount windowto the investment banks. These are both huge taxpayer subsidies to these titans of free market capitalism.

The story of the discount windowis straightforward. The Fed is allowing investment banks, which are subject to none of the restrictions or disclosure requirements of commercial banks, to borrow at a government subsidized interest rate. Currently the discount rate is two-and-a-half percent. Those seeking to refinance mortgages, most of whom are probably better credit risks these days than the investment banks, may want to call Mr. Bernanke and ask for the same deal.

While the subsidy involved in the below market lending is easy to see, the commitment to support the investment banks is probably the bigger subsidy to the Wall Street crew. The basic story here is that the investment banks made commitments, mostly in the form of credit default swaps, that they lack the resources to honor. These credit default swaps are essentially a form of insurance. The investment banks promise to make payments to bondholders in the event that there is a default on the bonds they hold.

The banks were prepared to deal with an occasion default, but they don’t have the resources to deal with the sort of large-scale collapse that we are now witnessing as a result of the bursting of the housing bubble. Mr. Bernanke has effectively told the banks’ creditors not to worry, because the Fed will make good on these credit default swaps, even if Bear Stearns, Lehman Brothers, or Goldman Sachs can’t.

This is a very nice deal for the investment banks, because they got the fees for selling the credit default swaps, not the Fed. And they were very big fees, making the banks and the bank’s executives extremely wealthy. In effect, the investment banks sold insurance that they actually were not in a position to provide. Instead the Fed is providing the insurance, but the investment banks get to keep the money they got from selling the insurance: nice work, if you can get it.

This is yet another episode of the Conservative Nanny State, the story of the how the government intervenes in the market to redistribute income from those at the middle and bottom to those at the top. In this case, the media would have us applaud Mr. Bernanke and the Fed for keeping the financial system from freezing up and preventing the economic chaos that would follow.

While the Fed deserves some credit for preventing worse financial distress in the face of the collapsing housing bubble, government handouts for the very richest people in the country are difficult to justify. In other areas, we usually expect to see some quid pro quo, for example, serious regulations on lending and perhaps restrictions to accomplish social goals, like a cap on executive compensation ($1 million a year should attract a much more competent crew). This is welfare as we know it now.


Posted by Elvis on 04/04/08 •
Section Dying America
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2008 H1-B Frenzy


H1B Visa Applications Flood USINS

April 3, 2008

The US CITIZENSHIP AND IMMIGRATION SERVICES (USCIS) was flooded with H1-B visa applications Tuesday, the very first day it started accepting them. At stake were 66,000 highly sought after foreign worker visas, used for bringing a new wave of immigrant workers INTO THE COUNTRY, about half of who work in Information Technology.

In 2007, 124,000 total H1B visa applications were received by USCIS, far exceeding the supply. To better handle the anticipated rush, the department hired extra hands to process applications, as immigration attorneys scrambled to send them in on the first day itself. Courier and postal companies sent “vans loads” of applications to California and Vermont centers, according to a news report.

According to the National Journal’s Congress Daily AM, Senate Majority Whip Richard Durbin and House Judiciary ranking member Lamar Smith both are considering limiting the H1B visa use to U.S. companies. “Eight of the top 10 companies seeking H-1B visas in the last round were FOREIGN COMPANIES,” Durbin said Tuesday. “The foreign companies, by and large, have taken control of the H-1B process. For example, the largest Indian companies are getting thousands of H-1B visas. They then, for a fee, will place engineers from India in American jobs for three years or six years and then, for another fee, place them back in India to compete with American companies. Trust me, that is not what we have in mind with H-1B visas.”

In addition Sen. Grassley (R-IA) wrote a letter to Speaker Pelosi and Majority Leader Reed regarding the abuses in the H-1B visa program and recent testimony heard in the senate (see letter).

Employers still continue to proclaim a labor shortage while Federal Reserve chairman, Ben S. Bernanke says that the American economy could grow smaller in 2008, hinting that we would be- if we weren’t already- in a recession. Further more, Money magazine reports that economists surveyed by are forecasting a loss of 50,000 jobs from the nation’s payrolls in April. If correct, that would mark the third straight month of job declines in the country, making the unemployment rate jump to 5.0% from 4.8% in February.


Posted by Elvis on 04/04/08 •
Section News
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Americans Wising Up

81% in Poll Say Nation Is Headed on the Wrong Track

By David Leohnardt and Marjorie Cobbelly
NY Times
April 4, 2008

Americans are more dissatisfied with the countrys direction than at any time since the New York Times/CBS News poll began asking about the subject in the early 1990s, according to the latest poll.

In the poll, 81 percent of respondents said they believed things have pretty seriously gotten off on the wrong track,Ӕ up from 69 percent a year ago and 35 percent in early 2002.

Although the public mood has been darkening since the early days of the war in Iraq, it has taken a new turn for the worse in the last few months, as the economy has seemed to slip into recession. There is now nearly a national consensus that the country faces significant problems.

A majority of nearly every demographic and political group Democrats and Republicans, men and women, residents of cities and rural areas, college graduates and those who finished only high school ח say the United States is headed in the wrong direction. Seventy-eight percent of respondents said the country was worse off than five years ago; just 4 percent said it was better off.

The dissatisfaction is especially striking because public opinion usually hits its low point only in the months and years after an economic downturn, not at the beginning of one. Today, however, Americans report being deeply worried about the country even though many say their own personal finances are still in fairly good shape.

Only 21 percent of respondents said the overall economy was in good condition, the lowest such number since late 1992, when the recession that began in the summer of 1990 had already been over for more than a year. In the latest poll, two in three people said they believed the economy was in recession today.

The unhappiness presents clear risks for Republicans in this years elections, given the continued unpopularity of President Bush. Twenty-eight percent of respondents said they approved of the job he was doing, a number that has barely changed since last summer. But Democrats, who have controlled the House and Senate since last year, also face the risk that unhappy voters will punish Congressional incumbents.

Mr. Bush and leaders of both parties on Capitol Hill have moved in recent weeks to react to the economic slowdown, first by passing a stimulus bill that will send checks of up to $1,200 to many couples this spring. They are now negotiating over proposals to overhaul financial regulations, blunt the effects of a likely wave of home foreclosures and otherwise respond to the real estate slump and related crisis on Wall Street.

The poll found that Americans BLAME government officials for the crisis more than banks or home buyers and other borrowers. Forty percent of respondents said regulators were mostly to blame, while 28 percent named lenders and 14 percent named borrowers.

In assessing possible responses to the mortgage crisis, Americans displayed a populist streak, favoring help for individuals but not for financial institutions. A clear majority said they did not want the government to lend a hand to banks, even if the measures would help limit the depth of a recession.

ғWhat I learned from economics is that the market is not always going to be a happy place, Sandi Heller, who works at the University of Colorado and is also studying for a masterԒs degree in business there, said in a follow-up interview. If the government steps in to help out, said Ms. Heller, 43, it could encourage banks to take more foolish risks.

There are a million and one better ways for the government to spend that money,Ӕ she said.

Respondents were considerably more open to government help for home owners at risk of foreclosure. Fifty-three percent said they believed the government should help those whose interest rates were rising, while 41 percent said they opposed such a move.

The nationwide telephone survey of 1,368 adults was conducted from March 28 to April 2. The margin of sampling error was plus or minus 3 percentage points.

When the presidential campaign began last year, the war in Iraq and terrorism easily topped Americans list of concerns. Almost 30 percent of people in a December poll said that one of those issues was the countryҒs most pressing problem. About half as many named the economy or jobs.

But the issues have switched places in just a few months time. In the latest poll, 17 percent named terrorism or the war, while 37 percent named the economy or the job market. When looking at the current state of their own finances, Americans remain relatively sanguine. More than 70 percent said their financial situation was fairly good or very good, a number that has dropped only modestly since 2006.

Yet many say they are merely managing to stay in place, rather than get ahead. This view is consistent with the income statistics of the past five years, which suggest that median household income has still not returned to the inflation-adjusted peak it hit in 1999. Since the Census Bureau began keeping records in the 1960s, there has never been an extended economic expansion that ended without setting a new record for household income.

Economists cite a variety of factors for the sluggish income growth, including technology and globalization, and it clearly seems to have made Americans anxious about the future. Fewer than half of parents җ 46 percent said they expected their children to enjoy a better standard of living than they themselves do, down from 56 percent in 2005.

Respondents were more pessimistic when asked in general terms about the next generation, with only a third saying it would live better than people do today. (Polls usually find people more upbeat about their personal situation than about the state of society, but the gap is now larger than usual.)

Charles Parrish, a 56-year-old retired fireman in Evans, Ga., who now works a maintenance job for the local school system, said he was worried the country was not preparing children for the high-technology economy of the future. Instead, the government passed a stimulus package that simply sends checks to taxpayers and worsens the deficit in the process.

דWhos going to pay back the money?Ҕ Mr. Parrish, an independent, said. We are. They are giving me money, except IӒm going to have to pay interest on it.

Democrats have asserted recently that the lack of wage growth has made people more open to government intervention in the economy than in the past, and the poll found mixed results on this score.

Fifty-eight percent of respondents said they would support raising taxes on households making more than $250,000 to pay for tax cuts or government programs for people making less than that amount. Only 38 percent called it a bad idea. Both Senator Hillary Rodham Clinton and Senator Barack Obama, the Democratic presidential candidates, have made proposals along these lines.

More broadly, 43 percent of those surveyed said they would prefer a larger government that provided more services, which is tied for the highest such number since The Times and CBS News began asking the question in 1991. But an identical 43 percent said they wanted a smaller government that provided fewer services.

And although both Mrs. Clinton and Mr. Obama have blamed trade with other countries for some of the economyԒs problems, Americans say they continue to favor trade if not quite as strongly as in the past. Fifty-eight percent called it good for the economy; 32 percent called it bad, up from 17 percent in 1996.

At the same time, 68 percent said they favored trade restrictions to protect domestic industries, instead of allowing unrestrained trade. In early 1996, 55 percent favored such restrictions.

Dalia Sussman and Marina Stefan contributed reporting.


Posted by Elvis on 04/04/08 •
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