Last month’s analysis of the US labour force data – Tip of the iceberg – the US labour market catastrophe now playing out (April 6, 2020) – presaged what was to come. We now know more about the size of the iceberg. It is unimaginably large. Words fail really. This is one of those all-time historical events that make the severe crises of the past (early 1980s, 1990s, GFC – look like blips). On May 8, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2020 – which shows that the US labour market has collapsed into territory never before recorded. And, given that the data released was drawn from samples that went up to April 12 (establishment survey) and April 18 (household survey), and so doesn’t fully capture the extent of the unfolding catastrophe. More recent data released by the US Department of Labor (unemployment insurance claimant data) shows the situation worsened in the last two weeks of April. In the last two weeks of April 2020, more than 9 million extra workers registered unemployment insurance claims. All the aggregates are demonstrating dramatic shifts to the point that graphs are becoming rather binary – the rest of history and now. The employment-population rate plunged 8.7 points to 51.3 per cent, which is the largest monthly fall since the sample began in January 1948. The U6 measure of broad labour underutilisation increased by 14 points to 22.8 per cent. This is the largest monthly rise in this measure since it was first published in January 1994. The situation will get worse. Its already catastrophic and it demonstrates a massive policy failure from the Federal government. Instead of directing trillions into the top-end-of-town, the US government should have guaranteed all incomes and introduced large-scale job creation programs and a Job Guarantee as an on-going safety net. Instead it is watching over people dying and people’s material prosperity being destroyed.
It is Wednesday so music and some snippets. I have updated the US unemployment claims data with a new map and state table. Shocking. We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts. But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government. The current estimates suggest that to create around 685 thousand jobs might require an outlay of $34 billion over the course of a year. That got me thinking. The main response of the Australian government is the $A133 billion over 6 months JobKeeper wage subsidy scheme. The Treasury claims it will be the difference between an unemployment rate of 10 per cent and 15 per cent. That difference is 685 thousand jobs. Then start doing some division and multiplication and you start to see that this doesn’t make sense as I explain below.
The Australian Bureau of Statistics has started publishing weekly employment data – Weekly Payroll Jobs and Wages in Australia, Week ending 4 April 2020 – which is drawn from a new series made available as a result of the Single Touch Payroll data provided by the Australian Tax Office. For the first time, researchers like me can have up to date information as the economy cycles. Usually we get the labour force data some 5-6 weeks behind time and although a lot doesn’t necessarily happen in a month, this crisis is the exception – the whole box-and-dice is collapsing so quickly that we need weekly data, like is provided in the US through the Department of Employment’s unemployment claimants data to stay in touch with how things are tracking. But for now I estimate that the unemployment rate rose to around 10.9 per cent in the 3 weeks to April 4, 2020 (up from 5.2 per cent for the March data – which was surveyed in the early part of the month). In that time, unemployment has more than doubled and is around 1.5 million and rising. The conclusion from my analysis of the latest available data (released April 21, 2020) – is that some sectors in the Australian labour market have experienced a sudden and catastrophic contraction – like nothing we have ever seen in the data. Both employment losses and major wage cuts are underway and the policy response is totally inadequate for the task. A much larger fiscal intervention is required and it has to be directed at workers rather than firms. I will say more about those issues next week. But I am guessing that the Government’s response so far is less than half of what it should have been – it needs at least another $A200 billion.
There was an interesting article posted on Alternet (April 12, 2020) – Leftist policy didn’t lose. Marxist electoral theory did – in response to the dismal showing by Bernie Sanders in the current Democratic Primaries. I think it summarises the confusion that is now abundant on the progressive side of the political struggle. The arguments presented highlight the dilemma facing the progressive side of politics. Should Leftists compromise with centrists to get more traction? Compromise with what? If you read between the lines, there is no argument being made for Leftists to challenge the basic macroeconomic myths of neoliberalism that social democratic politicians around the world have adopted and straitjacket by. Rather, Leftists should accept these constraints and work at local levels to make small gains for better housing etc. It is a defeatist agenda – a surrender to the main game. I reject it.
I am monitoring the US Department of Labor’s weekly data releases for the unemployment insurance claimants account, that I reported in my last commentary on the US labour market – Tip of the iceberg – the US labour market catastrophe now playing out (April 6, 2020). Their latest release (April 9, 2020) – Unemployment Insurance Weekly Claims – shows that in the prior week ending April 4, 2020, the initial claims rose by 6,606,000, but this was down on the increase the week before by 261,000. In the last three weeks, the total initial claims is 16.8 million persons. The impacts are quite stark already. For example, as you will see, in just one month (March), service sector occupations have shed 36.7 per cent of the total jobs that were added in the ‘recovery’ period between January 2010 and February 2020. And given the timing of the surveys (biased towards earlier in the month), the situation was much worse by the end of March. It is quite obvious that this crisis is impacting heavily and disproportionately on the least-advantaged workers and communities in the US. This cohort always suffers during a recession. But this time, the specific occupation biases are exacerbating the problem and inequity, given the nature of the economic shock (closures, shutdowns etc). It means the fiscal support should be heavily weighted to assisting the most impacted both in terms of people, their families and the regions they live in. The maps show that the spatial impact of the downturn to date is also very uneven. As yet, I have not seen a commensurate response from the US government. The fiscal support funds so far announced do very little for the most impacted communities and people. They certainly shore up the top-end-of-town which, while predictable, will come back to haunt the nation in the years to come.
On April 3, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2020 – which shows a deteriorating labour market situation due to the coronavirus crisis. However, as I explain below, the data released was drawn from samples that went up to March 12 (establishment survey) and March 14 (household survey), and so doesn’t fully capture the extent of the unfolding catastrophe. More recent data released by the US Department of Labor (unemployment insurance claimant data) doesn’t leave anything to doubt. In the last two weeks of March 2020, 9.955 million workers registered unemployment insurance claims (6.6 million in the last week). If we consider that shift, then the US unemployment rate would be around 9.8 per cent by the end of march and rising. All the aggregates are demonstrating dramatic shifts. The employment-population rate fell by 1.1 points to 60 per cent, which is the largest monthly fall since the sample began in January 1948. The U6 measure of broad labour underutilisation increased by 1.7 points to 8.7 per cent. This is the largest monthly rise in this measure since it was first published in January 1994. The situation will get worse.
On March 6, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2020 – which reveals a mixed picture – payroll employment growth has maintained its momentum since December, adding a further 273 thousand jobs and the unemployment rate fell marginally (although steady at the one-decimal point level). But the employment-population ratio fell by 0.1 points and the Broad labour underutilisation ratio (U-6) rose in January by 0.1 point to 7 per cent because there were more underemployed workers. Further, while real wages grew marginally, they lag behind labour productivity growth, which means there is scope for faster wages growth without triggering inflationary impulses. And the polarisation between high-pay and low-pay continues. So getting workers into paid employment is one thing. Paying them decent wages and providing them with secure jobs is another. I conclude that there is still scope for expansion even though the unemployment rates are at levels not seen since the 1960s.
On February 7, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2019 – which reveals a labour market was stronger in January by a considerable margin. Employment growth was robust and the participation rate rose by 0.2 points, which meant that the labour force change outstripped the net jobs added and unemployment rose as a consequence. But the employment-population ratio rose by 0.1 points. The Broad labour underutilisation ratio (U-6) remains high, and rose in January by 0.2 points, because there were more underemployed workers. An examination of the transition probabilities show that there is still strong growth into employment from those who were previously outside the labour force (in inactivity). The corresponding entry from outside the labour force into unemployment continues to fall. So the US labour market is absorbing new entrants straight into employment at increasing rates, which is a good sign. Overall, these appears to be excess capacity that can still be tapped if growth is strong enough. And while workers are still being absorbed into paid employment from outside the labour force is a sign of a strengthening labour market, as regular readers will know, I have documented the strong bias in the US to lower paid and precarious work. So getting workers into paid employment is one thing. Paying them decent wages and providing them with secure jobs is another.
Today, I am in the mountains north of Melbourne (Healesville) talking to the – Chair Forum – which is a gathering of all the Superannuation Fund Board chairs. I am presenting the argument that the reliance on monetary policy and the pursuit of fiscal austerity in this neoliberal era, which has been pushed to ridiculous extremes around the globe, has culminated in the socio-economic and ecological crisis that besets the world and is pushing more and more policy makers to express their doubts about the previous policy consensus. I will obviously frame this in the context of Modern Monetary Theory (MMT), given that our work has been the only consistent voice in this debate over a quarter of the century. What economists are suddenly coming to realise has been core MMT knowledge from the outset.
It is Wednesday and I have a long trip by plane and road to Victoria where I am speaking at a major business conference in the mountains outside of Melbourne tomorrow morning. So only a few things today that I have been thinking about. Remember the 2010 film – Inside Job – which documented how my profession had become corrupted by the financial services sector into producing, allegedly, independent research reports extolling the virtues of deregulation etc and not admitting they were being paid for by the beneficiaries of the propaganda masquerading as research. It shows how corruption runs deep in the economics profession to accompany the incompetence that mainstream macroeconomists display. Well, I have been following an unfolding story about how Uber has decided to draw on that corrupt tendency for their own gains. It is not a pretty story. And then we have the so-called social media trend of cancel culture which is meant to be about matters of principles but leave the proponents caught up in a rather dirty pool of hypocrisy.