Category Archives: Economics

Discussing Unemployment in 1913

Pigou A C.  “Unemployment”, pages 29-35.  Published 1913 by William and Norgate, London.  Lots of really good stuff in this book–lessons any person in the developed world can see and understand, many of which have been better quantified by recent research.  You can get the whole thing on The Internet Archive.

Pigou points out the long term effects of even relatively short durations of unemployment on individuals beginning halfway down page 32.  The same effects are being rediscovered (and measured) today.

AC Pigou Unemployment p29

AC Pigou Unemployment p30

AC Pigou Unemployment p31

AC Pigou Unemployment p32

AC Pigou Unemployment p33

AC Pigou Unemployment p34

AC Pigou Unemployment p35

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About Those Exploding SS Disability Benefits

There’s lots of fretting and frowning over the number of folks getting disability payments in the US these days. It seems like everybody’s in on it–established magazines, conservative pundits, educated economists have good theories to explain it, NPR (with a pretty engaging piece), and even WonkBlog has gotten in an explanation (demographics + tough job market, in case you were wondering).

My piece on long-term unemployment got me to wondering–how many long term unemployed, marginally attached, and discouraged workers are leaving the workforce permanently and winding up on disability insurance? In my own work life I’ve known people who really could have qualified for a disability award. But in a solid labor market they were able to find employers who were willing/able to accommodate some special needs. When times are tougher, accommodation above ADA requirements often goes away. So a working person who is technically disabled is pushed out of the workforce by market changes. If I’ve witnessed it myself it can’t be too uncommon. This led me to ask how much it’s going on, and if it’s higher now than in the past.

Fortunately, the Social Security Administration makes figures on disability awards easily available. They also publish the month-to-month number of disability beneficiaries back to 1985, which I copied into Excel and graphed:

 Number of SS Disability Beneficiaries With Trendlines

Number of SS Disability Beneficiaries With Trendlines

I was able to discern four trends in monthly awards in the data:

  1. An average rate of about 4800 awards per month in the late 1980’s
  2. That rate to almost 20,000 per month in the early 1990’s
  3. The rate declined slightly in the mid- and late- nineties and then slightly rose in the aughts
  4. The average monthly awards fell by 38% to about 12000 awards per month in April of 2012 to present

I attribute the increase in awards in 1990 to a cultural change–Americans began to be more aware and more accepting of individuals with disabilities. Disability accommodation came to be seen as a Civil Rights issue, culminating in the first President Bush signing the ADA. It makes sense that Americans would be more willing to apply for disability benefits, and that the government would be more willing to award them.

Bottom line, folks are bringing up the “explosion” in disability benefits 23 years too late. The rate increase was in 1990. And for the last 15 months, the rate of new awards being added is down, and down by a lot. Sometimes it feels good to go against the conventional wisdom, and this is one of those times.

A piece of Jessica’s art:

Daisy aka "Baby" by Jessica Turnbow

Daisy aka “Baby” by Jessica Turnbow

Is Long-Term Unemployment THE Problem

Since the late 1970’s the number of US workers unemployed for 27 weeks or more has generally lingered between one and two million, even during recessions. The ’08-’09 recession and recovery period were different: long-term unemployment exploded to a peak of 6.7 million in April of 2010. It lingered above six million for 17 months before falling in October 2011. Since then the level has declined steadily, but very slowly.

Unemployed 27+ Weeks 1977 to 2013 -- BLS data

Unemployed 27+ Weeks 1977 to 2013 — BLS data

There’s a tendency with noisy data to look for linear trends, but I don’t think it’s the right way to analyze long term unemployment. To begin, looking for a job is a job in itself, and when a person is locked out from formal job–>paycheck ways of earning a living, he or she has to find other ways. That means getting public assistance, asking help from friends, family, and community organizations, doing side work or day labor for cash payments, etc. These all take mucho time, and generally have a very low return. For this reason, I assert that being long-term unemployed can be thought of as an occupation in itself. The corollary is that long-term unemployed folks returning to work is a form of occupational mobility.

In addition, if you’re employed there’s a pretty good chance you know very few (if any) long-term unemployed folks…..Unless you’re very active in your church, community, and social networks like LinkedIn, of course. Even then, you’re probably locked out of regular interaction by circumstance. This isn’t a value judgment–it’s just the nature of human interactions. Long-term unemployed people tend to network with others in the same circumstance and share information. Connections tend to play a gigantic role in finding formal work in a slack labor market, but reducing the pool of the long-term unemployed leads to disconnection for those remaining in it. While it would be nice to think that the long-term unemployed would be able to pull their unemployed friends along, this just isn’t the case. Instead, the rate of job finding in the remaining pool slows as information sharing is reduced.

When examining the long-term unemployment trend post-recession, there are two distinct pieces–the relative steady state beginning in April 2010 and the decline beginning in October 2011. Because of the dynamics I described above I decided the best way to analyze + predict from the measured data was with a deterministic trend; as a first-order ODE specifically. I took the measured data beginning in September 2011 and worked out a long-term predictive trend based on it:

Long Term Unemployment With Trend

Long Term Unemployment With Trend

The data smooths out to a disturbing trend where an average of 1.715% of the pool of long-term unemployed individuals find work or exit the labor force in any given month. If we assume the recovery continues as it has, the number of people long-term unemployed will decline to about 2.07 million when the current US President leaves office–a number higher the previous ceiling of 2 million and way above what’s been normal during expansions. In my opinion, this shifts the long-term unemployment problem from being just an economic problem to being a political problem. It will be very troublesome for the next Democratic Presidential nominee to have to defend this kind of economic record, and will be an issue the Republican nominee can seize upon.

Of course, “the recovery will continue as it has” is a big assumption. I’ve run the trend line out longer than the data I’m using, which is pretty gutsy to do. However, data from prior expansions show this is a reasonable expectation, and the trend seems to have reached a steady, if undesirable, equilibrium. Anything can happen in the next couple of years to grow the job market, but if history is an indicator, just growing the job market won’t be enough. What will really be needed are more entry level jobs in every industry. As I mentioned previously, entry level jobs have been in short supply, and are simply needed in general. Can the long term unemployed–with all the stigma that has been unfairly attached to them–be expected to compete successfully with the already working? I don’t think they can. In my opinion this is an economic problem that requires a political solution–one that could come in many forms–from tax credits, to paid placement, to direct hiring. If the current administration doesn’t successfully address it, the next one will have to.

The finest GagVid I’ve seen this week….Don’t worry, it’s clean:

Job Disatisfaction, Quits:Openings (Q:O)

American workers are notoriously dissatisfied with their jobs when compared to their international peers. Part of the problem is compensation–if a fifth of people paid less than $50K a year “hate” their jobs, and median compensation is $34K (1), then high dissatisfaction is unavoidable. As Ross and Saturay showed, Dissatisfaction —> Disengagement —> Lower Productivity via net categorical behaviors. Translation: Happy, engaged employees come up with surprising ways to produce, while the dissatisfied ones come up with endless ways to goof off and/or sabotage the organization. This leads to gajillions of B2B services (20 in just one Google search), surveys, and good idea self-help articles on increasing employee engagement. (Personal opinion: The work time is a sunk cost, so getting the most out of it has to be a priority–being engaged is better than the alternative. Of course, that’s sometimes easier said than done.)

From a high altitude perspective America’s work culture has hinged on many dynamics, but I’ve only got time for two–

1. A person at any nearly any stage of life who wants to be self-sufficient can find work within a reasonable period.

2. If at any point you decide you hate your job/life/other you can just move on to other opportunities.

These reach back to the founding of the British and Spanish colonies–they were mainly comprised of people who needed work. It’s woven into our many waves of immigration, the Homestead acts, the post-WWII inclusive military, Pell Grants, student loans, and the community college system–even into abolition of slavery, and the ongoing extension of rights + opportunities to a growing citizenry. Is it possible that high rates of job dissatisfaction have been made viable in the US because markets and managers have been able to convince the truly ticked-off to move on? To greener pastures hopefully, but any pasture will do.

Here’s the problem though–people aren’t moving on these last few years, satisfied or not. Workers, even the dissatisfied workers, seem to have sunk their teeth into any job they’ve got and they’re not letting go. It seems to me that if workers aren’t getting paid particularly well, and many are burnt out on their work, they ought to be willing to quit if there are openings. So I mmmbopped over to JOLTS at the BLS and pulled the openings and quits. In an amazing mathematical feat known as division, I calculated and graphed the ratio of Quits to Job Openings (Q:O ratio). First the monthly data:

Quits to Openings Monthly Ratio calculated from JOLTS data

Quits to Openings Monthly Ratio calculated from JOLTS data — Click to View Full Size

The BLS’s treasure chest only goes back to 12/2000, but there’s definitely a trend of declining Q:O. To the extent Q:O is a proxy for occupational mobility it matches with the academic research. Here’s what the annual averages show:

Q to O Annual Averages Calculated from JOLTS Data

Q to O Annual Averages Calculated from JOLTS Data

Two notes on the annual average trends: First, the ratio increases during recessions. This is because the number of job openings (denominator) declines more than quits (numerator). Example: Job openings in 01/09 were down 38.0% from openings in 01/07. Quits were down by 33.5% in the same period. Second, the ratio trended down in the ’02 to ’07 recovery. The downward trend during the ’09 to ’12 recovery accelerated to 1.71 times that. I partly attribute this to worker anxiety about the overall job market. It’s also due to high selectivity in screening and hiring processes. The slight increase in the 2013 data is due to rise in both the number of job openings and the number of quits. In short: an improvement.

Something to keep in mind about job satisfaction–it’s not just about money or attitude. It’s about circumstances and ambition as well. Many workers are bored in their current careers and would like to try other things. For example, I know a few engineers who would like to move into more creative work or teaching. I know people who are in very demanding jobs and would like to have a family, and need to change their careers in order to do it. Life changes, needs change, and people need markets that allow them to adapt.

This brings me to the problem–America is in a very unusual labor market, where there are very few entry level positions in nearly every industry. It’s hurting many workers who are currently employed, whether they are dissatisfied or just having to put up with the dissatisfied. It’s hurting young people very badly, and the long-term unemployed even worse. And yes, it’s hurting employers as well.

But here’s what I’m getting at–this cannot go on forever. It flies in the face American culture, so it will be fixed. It’s started to improve already, and I bet this will accelerate over the next two years. If it doesn’t occur by “natural means”, I’m sure it will come in the form of a political solution. What do you think?

(1) Assumed total compensation = (net compensation)/0.8

Krokodil was a Russian satirical magazine that ran from 1922 to 2006. A 1952 cover:

Krokodil 1952 Issue 27 Cover

Krokodil 1952 Issue 27 Cover

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