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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

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:

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