At first glance, employment appears to have held up reasonably well (at least until today’s job report). The latest reading on unemployment is 5.5%, which isn’t abysmal. But as Barry Ritholtz noted last month, the higher headline figure obscures a fundamental weakness. Employers may not be cutting jobs, but they are scaling back on the number of hours they’re allowing their employees to work. NYT:
All told, people the government classifies as working part time involuntarily — predominantly those who have lost hours or cannot find full-time work — swelled to 5.3 million last month, a jump of greater than 1 million over the last year.
These workers now amount to 3.7 per cent of all those employed, up from 3 per cent a year ago, and the highest level since 1995.
“This increase is startling,” said Steve Hipple, an economist at the labour Department.
“The unemployment rate is giving you a misleading impression of some of the adjustments that are taking place,” said John E. Silvia, chief economist of Wachovia in Charlotte. “Hours cut is a big deal. People still have a job, but they are losing income.”
Perhaps more worrying is the potential that things could slide. Inititally, employers who were unwilling to cut jobs only scaled back on hours. As things deteriorate further, we may reach a critical mass when employers decide that they can’t justify keeping people on the payroll at all:
Many experts see the swift cutback in hours as a precursor of a more painful chapter to come: broader layoffs. Some struggling companies are holding on to workers and cutting shifts while hoping to ride out hard times. If business does not improve, more extreme measures could follow.
“The change in working hours is the canary in the coal mine,” said Susan J. Lambert of the University of Chicago, a professor of social service administration and an expert in low-wage employment. “First you see hours get short, and eventually more people will get laid off.”
This morning’s read on initial claims may be the first indication that we’re beginning to enter such a cycle. Unemployment claims jumped to 448,000, well above the 395,000 consensus estimate. Unfortunately, this could only be an early sign of things to come.
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