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Saturday, August 04, 2012

An Employment Note

I said I might write more about employment this weekend. See the post below for some stuff about trucking and rail. 

Here's a bit about employment. I do not and never have considered employment as a forward (leading) indicator, nor do I really consider employment as a whole a coincident indicator. I consider it a lagging indicator. Employment levels max out after a recession has already started in a service economy. 

But some particular pieces of employment levels do tend to be leading indicators. I introduced one in the female heads of households two months ago, and here's another - the employment level for 25-34 year- olds. This, in our current economy, does tend to be predictive of recessions:

As our economy has shifted steadily more toward the service/consumption side, this indicator has gained in strength. Over time the demographic shifts in population age can produce long slides, but the short shift is what you are looking at. When that suddenly changes direction (either protracted stagnation or down), you have a high probability for a new recession. 

I did not freak out over this last year because there was a self-correcting explanation for the slide, but this year there isn't such an explanation. There are external factors, such as the problems in Europe and China, but they aren't self-correcting. To the extent they are contributing, you can expect more of the same. 

Why is this indicator good? Like the female head of households, it's an aggregating category of job generation weakness. Older workers will tend to displace younger workers when things get tight, because job creation is lagging and older workers stick to their jobs. This one usually flags the first stage of recession, and I believe it has this time as well. It's choppy, but we haven't managed to get back to the previous high in a year. We probably won't.

I shared the following with you in my own blog's comments but thought I'd repeat it here for others.

My girlfriend is 42 and going back to school to become a nurse. She's got a part-time job right now (so she's not technically unemployed). They won't let her work more than 25 hours per week or she'd lose her grant.

If she's working, then someone else isn't. She calls people in the hopes that they will donate blood. She's overqualified. It doesn't require a college degree. It's the kind of job that the people in this post would have (25-34 year olds) if she didn't have it instead.

Sigh. Sigh. Sigh. Sigh.
Older workers will tend to displace younger workers when things get tight, because job creation is lagging and older workers stick to their jobs.

Bonus thought.

It would be cost effective for my girlfriend to do the job for no pay. The job comes with health insurance that will actually pay for her expensive medical condition. The insurance she's got now doesn't seem to think Dystonia requires any treatment.

How is a younger worker supposed to compete with that?
I should probably clarify something.

She just got the job. She's on the old insurance until October though. There's a 60 day waiting period.
How august of you MOM, for your leading job indicator.
Here's an indication of how bad things are.

Job Openings per Unemployed
Well, if you want to get all linguistic about it, Squire, "august" is not the word I'd choose.

Eiiaa. This isn't good. I feel like the chronicler of misery.
Mark - you are unquestionably the graphical chronicler of misery.

The problem is that you aren't just wallowing in it - we are now in a self-reinforcing cycle of employment slack depressing most labor incomes which further depresses the economy.

The only real way out is to enhance production, not because it will directly produce a whole lot more jobs, but because it will shift the underlying economy back toward a growth trajectory.

Ultimately, economics is about producing stuff, and a service economy gets into these self-reinforcing slumps once it can no longer add debt and the fundamental trade imbalance begins to prevail. We are too large an economy to get along just on services.
And let's not forget career deflation. You push relatively skilled people out of their jobs into lower paying jobs. Those jobs are no longer available as starter jobs for young people. And those older skilled workers have to work longer to pay for retirement.

And this is leading to people renting rooms in a house instead of renting their own house. I know people about to pay $400 a month for a room. They'll get to keep their dog and it's one of the larger rooms in the house but still....

Mark - you are unquestionably the graphical chronicler of misery.

If it is any consolation, I'll eventually be forced to stop. At the very least, we will either run out of miserable data or I will die of old age.

I think you can pretty much guess which way I'm leaning. Sigh.
Teri - yes. This isn't new - for example house-sharing was relatively common in high-cost areas in the wake of the late 70s-early 80s debacle. Rents are so high that house-sharing is far cheaper, and that will be one of the ways the housing overage is dealt with.

But the fact that this is what we are seeing certainly affects any joyful prognostications about a housing resurgence, doesn't it?

Job creation is much worse now than it was then. Long series.
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