Unemployment Also Rises

Unemployment Also Rises

Fyodor O. Minakov

Recent June unemployment numbers, compiled and released by the Bureau of Labor Statistics, were cause enough to further upset the already jittery summer equity markets. A rapid decrease in the unemployment rate has followed every economic recovery in U.S history, but as Federal Reserve Chairman Ben Bernanke indicated last week, citing “headwinds” in the economy, this time it might be different.

Unemployment levels in the United States have jumped up and down quite frequently, with sharp rises during recessions, and equally sharp declines during economic recoveries. The unemployment rate during periods of growth has always maintained a value of between 4% and 6%. In fact every recovery from the mid 20^th century onwards has tended toward a trough below 6%. The recent rise in the unemployment numbers, though perhaps not the greatest the U.S has experienced since World War II (the recession of the early 1980’s was slightly worse in percentage terms), was nevertheless the sharpest by far, as the unemployment rate rose from 5% to 10% over the course of one year. Additionally, whereas previous unemployment numbers have had sharp peaks, and then quickly fallen to pre-recession lows, the 2011 labor market seems to be frozen, unable to create more jobs.

The number of jobless appeared to decline in December 2010, leading many to believe that economic recovery was in full swing, but then sharply rose, from a temporary lull of 8.8% back to 9.2%. The United States has never experienced this prolonged and high period of unemployment since the Great Depression, which begs the question, what’s to the numbers?

In June, overall unemployment, in the words of the Bureau of Labor Statistics, was virtually “unchanged” relative to May, when there was a significant increase from 8.8%, a month previous, to 9%. When segmented by age, the most affected groups are teenagers without high school diplomas, a traditionally excess labor pool that is only used in times of labor force expansion. When segmented along racial lines, Blacks and Latinos have a higher unemployment rate than Whites and Asians, the latter group experiencing the least unemployment per capita nationally.

The number of unemployed persons that have been out of work for five weeks, which is a revolving figure that accounts for more recent employment trends, increased by 412,000 in June, while the number of those that had previously been unemployed for 27 weeks or longer remained unchanged.

Of the sectors of the labor force that fared best in June were outpatient health care professionals, miners, and leisure and hospitality workers. These trends can be readily explained by increasing health care demand from retiring baby boomers, high commodity prices, and recovery in the demand for luxury services, respectively. The single largest group of newly unemployed was government workers, a sector that experienced a reduction of 39,000 jobs net. Specifically, the worst among these were state education workers whose numbers dwindled from about 2.4 M to 2.1 M, and local government education workers whose numbers fell by 200,000 from May to June. This was doubtless due to the massive decreases in state spending on education in light of municipal budget concerns, and fears over general obligation (GO) debt defaults. Private sector employees performed well in sum, with an overall growth of 57,000 for the month. Employees in the financial sector, and the construction industries were the other notable weak job creators, although given the bloat of these industries prior to 2008, this must come as no shock.

While none of these individual trends is particularly disturbing on its own, at this late stage in the economic recovery, the overall numbers look rather shabby. By comparison, the recession after the dotcom bubble was quite mild, buoyed by the continued development of the U.S technology and financial sectors, as well as government subsidized residential real estate construction.

If we are to accept the argument made by Republican congressmen, and libertarian ideologues that government taxation of ‘job creators’ is to blame, unemployment should be at historical lows. On the other side of this incredibly divisive and heavily politicized issue are the Democrats that claim that government programs are the way to go, mandating the creation of jobs through government spending.

While the decrease in government jobs certainly adds to the overall unemployment rate, the private sector has thus far failed to produce the high employment rates seen after previous recessions, adding fewer jobs month over month than had been projected by consensus macroeconomic estimates.

This phenomenon may point to a structural unemployment rate problem, rather than a temporary setback caused by the financial crisis. Corporate balance sheets are rich with cash, and S&P 500 earnings are hardly indicative of any serious macroeconomic problems.

Rather, perhaps we should look at the composition of the unemployment rate by education levels. The unemployment rate for those that hold a Bachelor’s degree or higher has stayed an even tempered 4.4% on average since June 2010, while those with an associate’s degree, or “some college” experienced an increase from an uncomfortable 7.5% to a level even higher than one year ago, of 8.4%. Même for those who have a high school diploma, but no college. These individuals are unemployed at a 9.5% rate, still lower than a year ago at 10%, but only marginally higher than those with “some college”. Interestingly enough, those employees with less than a high school diploma have seen an even-keeled 13% unemployment rate throughout the past year.

From this data we can draw two central conclusions. The first is that, everything being equal, the more education one has, the less likely one is to be unemployed; it is better to have a college diploma than anything else, as the unemployment rate of four year diploma holders has remained a remarkably low and stable 4.4% since last June. The second conclusion is that the marginal increase in the unemployment rate from May to June has hit those with “some college”, or a two-year associate’s degree hardest. This may be one of the reasons that for-profit career education schools, or 2-year degree factories, have come under close government scrutiny in recent years.

Any number of arguments can be postulated about why the unemployment rate has remained this elevated this far into the recovery and this writer has his own ideas, but conjecture is an unfortunate antidote to the problem of divining the future. The truth is that only the passing of time can clear the mist and lift the veil on the true causes of unemployment in America. The lesson that we can best derive from the statistics is that education, despite its rising cost, is still worth its weight in gold, but you’ll need at least bachelors, otherwise, don’t bother.