Unemployment Is Much Worse Than You Think

There’s another disturbing trend in the unemployment data (as if the headline rate wasn’t enough):

In the average recession, most job losses are attributed to temporary, cyclical factors–i.e., when the economy comes back, the jobs will, too.  In this recession, however, more than half of jobs lost are gone for good.

PIMCO portfolio manager Tony Crescenzi explains (charts from Bloomberg):

Structural rather than cyclical influences on unemployment are running well above normal during the current recession, as is highlighted by the percentage of the unemployed that are “not on temporary layoff.” 

Data from the Bureau of labour Statistics show that 53.9% of the unemployed were not on temporary layoff in August, up from 39.1% a year earlier and well above the 30-year average of about 34%.  The current level is well above the peak of previous cycles, which tended to move above 40% and was as high as 44.9% in May 1992. Many job losses are occurring in industries with broken business models and jobs won’t return quickly.  This will put downward pressure on wages.

In terms of numbers of people, data from the BLS show that 8.1 million people were characterised as “not on temporary layoff” in August, up from 7.880 million in July and 3.72 million a year earlier.  The not-seasonally-adjusted figure for “Permanent” job losers totaled 6.406 million, up from 3.609 million.  These figures represent a very large proportion of the roughly 7 million decline in nonfarm payrolls (the tally on payrolls is produced via a survey of business; the figures on unemployment and both the “not on temporary layoff” and “permanent” job losers categories are derived from the survey of households).


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