Pethokoukis, Economics, U.S. Economy

The Age of Amerisclerosis: Are jobless recoveries here to stay?

Credit; Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence

Credit; Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence

It’s not just Obamanomics. The US is stuck in its third-straight “jobless recovery,” just like after the 1990 and 2001 recessions. And new research suggests this “persistence of unemployment” could mean future US recessions and recoveries will continue to resemble Europe’s 1980s downturn. Even after growth recovered, hiring didn’t. That’s when “Eurosclerosis” was coined.

Now get ready for Amerisclerosis. US labor markets used to rebound much faster. After the 1981-82 downturn, the jobless rate was back to normal in 18 months. More than four years after the Great Recession’s official end, however, the unemployment rate is only halfway back to where it was in 2007. And even this slow rate of recovery overstates the job market’s true health given the accompanying decline in the labor force participation rate.

But don’t look for any easy answers in Amerisclerosis? The Puzzle  of Rising U.S. Unemployment Persistence, Olivier Coibion, Yuriy Gorodnichenko, Dmitri Koustas. The researchers are better at crossing off possible reasons than establishing hard causality. Among the failed candidates or candidates that provide only partial explanation: the financial crisis, too little stimulus, less geographic mobility for workers.

Now the team did find that a decline in social trust has raised unemployment because it a) makes workers more likely to claim government benefits like disability pay even if they don’t deserve them, b) has weakened social networks making it tougher to find a job. From the paper: “We find that the decline in trust in the U.S. can account for all of the rise in unemployment persistence observed since the 1980s.” A similar phenomenon was seen also in Europe. But this affect is “dwarfed” by the aging of the US population because once older workers lose their jobs they are more likely to permanently leave the labor force by retiring.

Which leaves us where, exactly? Coibion, Gorodnichenko, and Koustas.

Our interpretation of these results is that there must be additional, and more powerful, factors at  work. Identifying these other forces should be a key priority for the research agenda of macroeconomists. There is no shortage of places to look.  … . An incomplete list includes rising  economic inequality, a declining share of labor income, changes in the demand for skills, and a higher frequency of financial crises.

Let me repeat: which leaves us where, exactly? Well, while new research is being conducted, the researchers suggest government respond to recessions with a more aggressive and sustained fiscal and monetary effort given findings of “a nontrivial contribution of monetary and fiscal policies toward the higher unemployment persistence of recent recessions.” As the authors told The Washington Post’s Jim Tankersley in an email: “Future administrations should, when facing recessions, have concrete plans to deal with the fact that downturns are likely to be more protracted in the foreseeable future.”

In other words, “timely, targeted, and temporary” fiscal stimulus is out. So a future US president and Congress facing recession might want to consider a) spending on needed infrastructure, b) supply-side tax cuts such as a large investment tax credit, c) special efforts to deal with lingering long-term unemployment like job sharing and wage subsidies, d) providing any needed political cover for the Federal Reserve to meet the demand shock through monetary policy, conventional or otherwise.

 

38 thoughts on “The Age of Amerisclerosis: Are jobless recoveries here to stay?

  1. How about this: why don’t we try doing something akin to what Calvin Coolidge did and cut government spending by 50%, scrapping the Byzantine tax code (which no one person could read in a lifetime), deregulate American life by making following regulations optional, eliminate the Fed’s power by auditing their books and cutting off their QE-Infinity? There are other things we could do, but this seems to be a good start.

    • Hate to see facts intrude here, but the vast majority of public jobs are held by teachers, cops, janitors, secretaries and bus drivers. Education alone accounts for half of the public sector.
      http://www.businessinsider.com/10-states-where-an-insane-percentage-of-people-work-for-uncle-sam-2010-6?op=1

      BTW, those insane states? Bright red for the most part: MS, ID, WV, KS, where low population density means more cops and teachers per capita than CA or NJ.

      • Here’s a better metric, Toad, by which to judge the efficacy of the social(ist) safety net:

        http://neighborhoodeffects.mercatus.org/2013/09/18/how-are-the-states-doing-with-pension-funded-ratios/?utm_source=facebook&utm_medium=macro&utm_campaign=fbpage

        Notice WI, where the most recent cacophonous confrontation occurred (soon to be repeated at a locale near you).

        See the green? That’s good, Toad. That means the recent adjustments to the horseshit promises these servant goons were given were effective, unlike their adjacent southern neighbor IL (FIBs, as we used to call them).

        So, get ready to have a bunchamore sit-ins, protests, and general disruption when this happens to your microscopic pension, Toad.

        It’ll also get pretty bumpy coming up, with the batshit loony Repugs threatening government shutdown, yada-yada-yada.

        • And you realize of course that using today’s federal bond rates as a discount in pension funding math would make Scrooge look like a pauper.

          • To “attack a straw man” is to create the illusion of having refuted a proposition by replacing it with a superficially similar yet unequivalent proposition (the “straw man”), and to refute it, without ever having actually refuted the original position.

          • My bad. Mesa’s strawman attack is Detroit above. (Actually, the whole union thing.) This is an ad hominem attack. Had to google officer barbrady so Mesa is contributing to the popular culture anyway.

          • Here, I’ll answer that for you: the common discount rate used to judge pension investment performance is 7.5 – 8%.

            Do you know why? Hint: it has to do with the long-term historical average return of the S&P 500, and historical bond yields.

            Guess what returns have been over the past decade plus? About 2 – 3%.

            Guess which demo is retiring now, and needs the most amount of growth? Asshat boomers.

            Guess which demo just stabbed itself in the heart by reelecting the most dangerous socialist since FDR, ensuring zero growth for the foreseeable future? Asshat boomers.

            You apparently do not understand that higher ror assumptions create the illusion (delusion) of healthy pensions.

            Lower, more realistic returns (2%) reveal the full extent of the problem. Greedy public sector thugs have created their own Armageddon.

            This disaster is only beginning – much, much more pain to come.

            So your statement

            “using today’s federal bond rates as a discount in pension funding math would make Scrooge look like a pauper.”

            is not only wrong, it’s ignorant. But that is what we expect from public sector shitbags like you.

            Fortunately, most of us understand your shortcomings as a Genuinely Stupid Person (GSP ™), and don’t pay attention to your bullshit.

          • You are amazing, Mesa. Without boring everyone to tears, pensions can be evaluated by MVL and AAL formulas. The former uses current risk free bond returns to eliminate investment risk from the picture, and often generate unfunded liabilities two or three times the second, which estimates at investment returns.
            From your post of the Mercatus map: “The numbers were crunched by State Budget Solutions, using a yield on (notional) 15-year Treasury bonds of 3.2 percent. They estimate that the overall funding gap in the states is $4.1 trillion, much larger than the $1.3 trillion typically reported when using the state’s own assumptions (or a discount rate of about 7.5 percent)”

            You can’t have it both ways, Mesa. If the Fed loses its grip and interest rates blow up, pensions stop being a problem. So, tell us: Which part of the sky is falling today?

        • You’re wasting your time with Todd. He says when interest rates blow up public pensions cease to be a problem. Everybody else’s goes down the tubes. But public pensions don’t invest in bonds (or even socks) in his juvenile mind.

      • A significant part of the growth in the public sector comes from the addition of bureaucrats that do not do anything but shuffle papers required by the multiplying mandates and regulations imposed by Washington or public sector unions. The Boston Public School system has more bureaucrats than teachers. When the unions in Wisconsin were defenestrated by Scott Walker’s reforms suddenly a lot more money became available to actually pay teachers to teach kids.

        California’s public sector, at both the state and municipal levels, provide for rich retirement packages and early retirement for police and fire fighters way beyond what the state and municipalities can afford (have you never heard of Vallejo?). In the absence o public sector unions, these jobs jobs could be staffed at a fraction of the cost.

        The public sector is unbelievably bloated and unproductive. In downturns public sector workers lose their jobs far less frequently than private sector workers. On top of that public sector workers get better pay and benefits than the average public sector worker that supports them.

        Public sector unions are our feudal lords and we private sector stiffs are their serfs.

  2. I want a government job. One of those high paying federal government jobs that pay 50% more than their private sector counterparts. You know, one where it doesn’t matter if you’re incompetent or don’t show up to do the paper-pushing. They can’t fire you anyway. One of those jobs.

    That’s the answer to our economic paralysis. A government job for EVERYONE!

  3. Easy answers; what we always look for is that one thing that caused the problem. Maybe that’s because of limited sound-bite time or article space. Why do “they” always think there is a single answer that will suddenly make it all clear? We live in a complex world, and for each challenge there are many answers, all related through great complexity, which has to be fereted out through careful reseach.
    But is it possible that a study of the complexity would turn off readers and listeners who are also looking for simple answers? Are we then faced with the possibility that we don’t really seek answers, but paliatives?
    No wonder we’re screwed up.

  4. Lower income and younger workers have the highest unemployment rates, and they experience the most unemployment when recessions hit. Coming out of recession, jobs are not created as much be large corporate employers as they are by small businesses and new business formation. These last two have been lagging seriously in recent years. So the answer to the question posed in the article should be: why so little new business formation? I think this is due to two things: first, credit availability, which has been lagging because lenders were burned so badly in the financial meltdown and because of Dodd-Frank and other new regs (which are not even written yet, so lenders are holding back); and second, federal regulations have increased under Obama, especially Obamacare, which is a huge bundle of regulations and obligations.

  5. It is no mystery why the 1990, 2001, and 2007-2009 recessions were all followed by relatively jobless recoveries. Employers will only hire someone if they expect to make significantly more money through the employee’s efforts than the expected costs associated with the employee.

    Higher unemployment rates associated with the 1990 recession were prolonged by the federal tax increases of 1990 and 1993 and the threat of an employer healthcare mandate that dissipated with the 1994 election of Republican majorities in Congress. Employers after tax returns on the expected costs associated with an employee were significantly higher from 1990 through 1994 than they were before the 1990 recession. They remained higher after 1994 than they were before 1990 but were significantly lower after the threat of HillaryCare receded.

    The 2001 recession was badly aggravated by the Sarbanes-Oxley securities law that impeded capital formation and new risk-taking activities. The 2001 tax cut was small and was slowly phased in. The 2003 tax cut accelerated the 2001 tax cut but did little more. The markets took the measure of George W. Bush and concluded he was not the president most people had anticipated. Consequently, a general air of pessimism persisted throughout his presidency that shaved at least 1/2 of 1% off of real GDP growth each year.

    The 2007-2009 recession was aggravated by a lack of confidence in George W. Bush and poor policy enacted by the Democrats in 2009 and then held in place by them thereafter. First, the stimulus enacted in the Spring of 2009 was allocated almost exclusively to state and local governments that used this money to keep their employees on the payroll. Second, the threat of and then implementation of a health care mandate on employers from November of 2008 forward has made employing someone much more expensive than before 2008. Third, the small tax cuts of 2001 and 2003 were allowed to partially expire because President Obama and U.S. Senate Democrats refused to re-authorize them. This reduced the after-tax return to employers.

    Lastly, the unemployment problem has been greatly aggravated by the U.S. government refusing to enforce immigration laws. This has driven down the equilibrium wage for U.S. labor and prolonged periods of unemployment. This has been true during all time periods running from the 1990 recession forward.

  6. Are jobless recoveries here to stay?

    Uh, yes, as long as Obamascare Doddering-Frankenstein, and Obama’s enormous regulatory-academic-surveillance state exists.

    You voted for this.

    Great job, USA

        • Meaning Obama would have to be a magician to have any effect on the jobless recoveries of 1990 and 2001. (The point of the paper was that this was the third in a row and thus indicative of coming recessions.)
          I should add that the authors underscore Paul Krugman’s arguments. They say the stimulus trimmed a percentage point from jobless rates initially but then ended, after which, zero bound interest and budget cuts proceeded to ADD 1.5 percentage points to unemployment. Mr P summarizes: “In other words, ‘timely, targeted, and temporary’ fiscal stimulus is out.”

          • Incorrect.

            The “jobless” recoveries of all post-1989 recessions were actually job creators.

            Your leftist narrative, once again, is full of shit.

            Post 2006 is an excellent test, since all of your buddies took control, and guess what happened?

            14% unemployment

            Paul Krugshit doesn’t understand Paul Krugfuck’s arguments.

            Krugman is irrelevant. And he knows it.

          • Oh, ok. Got it. If it doesn’t fit Toad’s/The left’s narrative, then it didn’t happen.

            Except it did.

            And now the worst possible recovery of all, during almost total leftist control, has occurred, but it’s not really relevant.

            God you leftists are imbeciles.

          • No, you don’t get it. The blogger is responsible for this thread. The study he links says what it says. If you have a problem, blame the blogger for straying from the gospel according to wingnuts.

  7. I think a tipping point has been reached on the public trust issue – after prior recessions unemployed workers still regarded the state as pretty much an umpire for capitalistic transactions. After TARP and the exponential growth in regulations/regulatory capture by the beltway bandits and their mini-me’s in every state capital, folks pretty much know that the art of the game is to scam as much of the benefit pie as you can for yourself.

  8. one billion chinese and one billion east indians are now part of international work force—unlike just a mere 30 years ago, when both countries believed in the socialism that democrats still believes in.

    • And this is a major reason why we have experienced jobless recoveries – and will continue to do so until such time as wage differences become less profound. Globalization is not going to go away and it should not, but it has wrecked havoc on those who work in occupations that can be readily off-shored.

  9. Pensions? There are 22 million vets in the USA, all of them entitled to health care at taxpayer expense–taxpayers who pay income taxes that is.

    The VA (actually called the Veterans Department now, but I didn’t want to use the initial “VD”) budget now at $150 billion a year and doubling every seven years.

    One-third of vets returning from overseas now claim post traumatic stress disability benefits, which they can qualify for even if dishonorably discharged.

    After just 20 years of employment, a US soldier can retire on full pension and complete medical for life, a package that would make French railway workers blush.

    That military pension is worth $2-3 million easily—it would be cheaper to give a soldier $500k after 20 years.

    We have a problem.

  10. What we need is a trade handicapping system.. Not a tariff wall. We need something that works like a handicap in golf, to let two widely disparate players compete, more or less, evenly.

    If we don’t get this, and soon, we’re going to get socialism as a result.

    It is NOT an economic problem.. It’s a political problem and our “leaders” need to realize that Americans won’t just starve to death on principle. Once they become convinced that the game is rigged against them, they’ll take whatever “help” is offered to them by Government.

    And make no mistake, that “help” will be offered by someone and at some point.. Because it will carry with it a great deal of political power.

    If we don’t fix this.. Soon.. We’re going to look, and function, more like Europe than Europe does today.

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