On November 12, 2009, weekly initial reported jobless claims were announced as 502,000. While an improvement from last week initial jobless claims have remained over 500,000 per week for all of 2009. In response to these continuing dreadful unemployment numbers President Obama announced a job summit to be held in December:
Obama said the White House forum will gather CEOs, small business owners, economists, financial experts and representatives from labor unions and nonprofit groups “to talk about how we can work together to create jobs and get this economy moving again.”
“We all know that there are limits to what government can and should do, even during such difficult times. But we have an obligation to consider every additional, responsible step that we can take to encourage and accelerate job creation in this country,” he said.
Marketwatch, November 12, 2009
By employing classic Keynesian remedies, the White House hopes that the right level of stimulus will overcome economic realities and persuade employers to resume large scale hiring. But, the President and his advisers have missed the basic structural changes in the job market.
Breakfast with Dave
In his letter Breakfast with Dave, David Rosenberg one of the most perceptive practicing economists currently writing, discusses the new labor market paradigm:
There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market that need to be discussed
The Big Picture- US Unemployment Rated Headed for 12-13%
Rosenberg points out the unique aspects of this recession. There has been a structural change where 6.2 million jobs have been permanently eliminated. The workweek has been reduced to 33 hours per week. Employers will avoid hiring well into the future, choosing instead to lengthen the workweek. In a slow top line growth environment, this trend will be exacerbated as companies will be forced to continue slashing labor costs.
Rosenberg is validating the basic thesis in my prior blog entry, Why This May Be Worse than the Great Depression:
The government is still stuck in a 1950’s employer mentality. Can we implement New Deal-type of public improvement efforts such as road repair or retrofitting government buildings? How many credit derivative specialists have the ability to perform road paving or asbestos removal?
Similarly, the government is banking on new industries to be engines of growth. Is banking on this type of job growth realistic? High growth industries such as biotechnology and solar cell companies employ few and highly specialized employees. Even the modern US military needs fewer soldiers, as technology has revamped war.
The Great Depression ended when large numbers of employees were recalled by auto, steel, chemical and rubber companies to support the war effort. There is no massive recall or even new industry on the horizon to absorb the unemployed.
Politicians Continue to Fight the Last War
Government intervention has its limits. The Administration has not convinced banks to lend in the face of poor credit conditions. To maintain profitability, companies have focused on controlling labor costs. Despite the upcoming jobs summit, the Administration will be equally ineffective in fighting the tide of this new reality: basic structural unemployment.
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