South By North Strategies, Ltd.

Weak Labor Demand = Long Unemployment Spells

A research letter from the Federal Reserve Bank of San Francisco analyzes the causes of the  increasing duration of spells of unemployment …

The analyses discussed here suggest that weak labor demand is the primary explanation for prolonged unemployment duration observed in the recent recession and recovery. The weak recovery of employment is similar to the jobless recoveries that followed the 1990–91 and 2001 recessions. This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. The shift towards jobless recoveries probably reflects a reduction in temporary layoffs during cyclical downturns. Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.

Around The Dial – January 31, 2012

Economic policy reports, blog postings, and media stories of interest:

• Marshall Auerback sees “Anschulss economics” at work in Europe.
• Robert Frank argues that “higher taxes help the richest, too.”
• Robert Kuttner asks if the administration’s financial investigations are serious.
• An op-ed in The Washington Post wonders if working less would  benefit Americans.

Put The Cork Back In The Champagne

Dean Baker does not buy the received wisdom regarding the most recent GDP report …

The long and short is that there was likely little change in the underlying rate of growth from the third quarter to the fourth quarter. The winding down of the stimulus, coupled with the negative impact from the Japan earthquake brought growth to a near halt in the first half of the year.
…
Now that the stimulus has almost fully unwound we are back on a growth path of around 2.5 percent — pretty much the economy’s trend rate of growth. This means that we are making up little or none of the ground lost during the recession. That is a really bad story.

Watching The Trains Collide

Paul Krugman “troubles deaf heaven with his bootless cries” against austerity …

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.
…
What an utter disaster.

Around The Dial – January 30, 2012

Economic policy reports, blog postings, and media stories of interest:

• Andy Kohut says economic unfairness is what angers Americans.
• Felix Salmon sees Lawrence Summers get bottled up.
• Matt Taibbi wonders if “Obama’s ‘economic populism’ is for real.”
• Fed Watch sees the zero interest rate policy as “pushing on a string.”