South By North Strategies, Ltd.

Not So Structural

James Surowiecki of The New Yorker summarizers the lack of evidence for the view that structural unemployment is the main problem confronting the American labor market.

The structural argument sounds plausible: it fits our sense that there’s a price to be paid for the excesses of the past decade; that the U.S. economy was profoundly out of whack before the recession hit; and that we need major changes in the kind of work people do. But there’s surprisingly little evidence for it. If the problems with the job market really were structural, you’d expect job losses to be heavily concentrated in a few industries, the ones that are disappearing as a result of the bursting of the bubble. And if there were industries that were having trouble finding enough qualified workers, you’d expect them to have lots of job vacancies, and to be paying their existing workers more and working them longer hours.
…
As it happens, you don’t see any of those things. Instead, jobs have been lost and hiring is slow almost across the board. Payrolls were slashed by five per cent or more not just in the bubble categories of construction and finance but also in manufacturing, retail, wholesale, transportation, and information technology. And take hiring: one of the industries that have been most cautious is the hotel and leisure business. Needless to say, there’s no shortage of people with the skills to be maids or waiters; there just isn’t enough work. Another sure sign of weak demand is that people with jobs aren’t deluged with overtime; hours worked have barely budged in the past year.

Economic Next Steps

Writing in The New York Review of Books, Paul Krugman and Robin Wells weigh the role the economic conditions played in the recent elections and consider how those conditions could be improved.

And there are steps that the White House could take without congressional approval. Democrats could pressure the administration to fix the inexcusable mess at the HAMP (mortgage modification) program—a program whose Kafkaesque complexity has in many cases made matters so bad for home owners that it has triggered the foreclosures it was supposed to avoid. In addition, mortgage relief would benefit the wider economy. Furthermore, the scope of mortgage relief could be made much wider if Fannie Mae and Freddie Mac were used to guarantee mortgage refinancing. Other proposals go even further: for example, that Fannie and Freddie engineer reductions in mortgage principals. All of this could be done, conceivably, by executive order.
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Democrats could also demand that the administration—specifically, the Treasury—act on the problem of China’s currency manipulation, which keeps the remnimbi artificially cheap compared to the dollar. While China’s actions are not the main factor in our economic woes, they are a factor. China’s unprecedented level of currency manipulation siphons off demand for US products that is much needed in our depressed economy, and shifts our imports away from other countries such as Mexico that are much more likely to reciprocate with purchases of American goods. The obvious American response is to threaten, and if necessary actually impose, countervailing duties on Chinese exports—a step that is backed even by strong advocates of free trade …

Around The Dial – Jan. 4

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

• Joseph Stiglitz offers a “New Year’s hope against hope.”
• The Baseline Scenario asks if economists should have disclosure rules.
• Paul Krugman worries about “deep hole economics.”
• Fed Watch describes the harm of a strong-dollar policy.
• Felix Salmon explains why geography matters to banking.

Hardly a Festive Time for Local Labor Markets

CHAPEL HILL (January 4, 2011) – The sizes of labor forces in communities across North Carolina continued to shrink in November, based on preliminary data released today by the Employment Security Commission. Compared to one year ago, labor forces were smaller in 81 of the state’s 100 counties and 9 of its 14 metro areas. Furthermore, 56 counties and 5 metros posted double-digit unemployment rates in November.

“Local labor markets across North Carolina continued to struggle in November,” says John Quinterno, a principal with South by North Strategies, Ltd., a research firm specializing in economic and social policy. “The ongoing contraction in the sizes of local labor forces is an alarming trend that indicates that the labor market is not yet on the road to recovery.”

Since the onset of the recession in December 2007, North Carolina has shed 6.8 percent of its payroll employment base (-281,800 positions) and has seen its unadjusted unemployment rate climb from 4.7 percent to 9.9 percent. In November, the state as a whole shed 12,500 more payroll positions than it added.

Every broad region of the state experienced weak labor markets in November. Unemployment rates exceeded 10 percent in 56 counties; over the past year, however, there has been a reduction in the number of counties with double-digit unemployment rates. Individual county rates ranged from 5.9 percent in Orange County to 18.6 percent in Graham County.

“Labor markets in non-metropolitan communities remain especially weak,” adds Quinterno. “Last month, 10.8 percent of the non-metro labor force was unemployed, compared to 9.5 percent of the metro labor force. More alarmingly, the non-metropolitan labor force continued to shrink. Between November 2009 and November 2010, the non-metropolitan labor force fell by 4.7 percent or 63,840 individuals. Many of those missing persons are effectively jobless.”

Last month, unemployment rates rose in all 14 of the state’s metropolitan areas. Rocky Mount had the highest unemployment rate (12.8 percent), followed by the Hickory-Morganton-Lenoir area (12.6 percent). Durham-Chapel Hill had the lowest rate (7.1 percent).

Because of the lack of seasonal adjustments, monthly fluctuations in local unemployment rates must be interpreted cautiously. A better comparison is an annual one.

Compared to November 2009, unemployment rates were lower in 80 counties and every metro area. Yet compared to a year ago, 56 counties and 5 metro areas had smaller labor forces. Among metros, Hickory-Morganton-Lenoir posted the largest decline in the size of its labor force (-2.7 percent), followed by Greensboro-High Point and Wilmington (tied at -1.1 percent). Asheville and Durham-Chapel Hill posted the largest gain (tied at +1.1 percent).

“Many recent improvements in local unemployment rates have been driven by workers abandoning the job market, not by job growth or improvements in underlying conditions” cautions Quinterno. “Labor force contraction is a sign of an unhealthy economy and shows just how weak the current recovery is. By the same point in time following the previous two recessions, the state’s labor force was growing.”

In the long term, any meaningful recovery will be driven by growth in the state’s three major metro regions: Charlotte, the Research Triangle, and the Piedmont Triad. Yet growth has been sluggish. Collectively, employment in these three metro regions has fallen by 5.2 percent since December 2007. The overall November unemployment rate in the major metros equaled 9.3 percent. Of the three areas, the Research Triangle had the lowest unemployment rate (7.9 percent), followed by the Piedmont Triad (10.2 percent) and Charlotte (11.2 percent).

“In the 14 months since the state’s labor market hit bottom, local job markets have recorded few improvements, apart from some short-lived gains resulting from public policy actions,” explains Quinterno. “The private sector simply is not generating jobs at a pace either expected at this point in a recovery or needed to accommodate all those who wish to work. As a result, some 64,000 North Carolinians have responded over the past year by leaving the labor force.”

For additional information on the performance of North Carolina’s local labor markets in 2010, click here to read South by North Strategies’ year-end analysis.

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