Friday, December 05, 2008

Dramatic Decline In U.S Employment

The U.S. employment data took a turn from bad to worse. The payroll data indicated a loss of 533,000 jobs in November, following upwardly revised losses of 403,000 in September and 320,000 in October. The household survey data showed an even bigger loss of 673,000. The unemployment rate rose "merely" 0.2 percentage points (from 6.5% to 6.7%), but that was only because the participation rate fell from 66.1% to 65.8%. If the participation rate had stayed unchanged, the unemployment rate would have risen above 7%. The participation rate usually fall during slumps as many unemployed workers feel that it is useless to bother applying for jobs after having been rejected many times.

Hours worked in the private sector also showed a really dramatic drop of nearly 1% as not only were many jobs lost, the average work week for those who still have a job fell to a new low. This indicates that more and more people could be part-time unemployed (that means they have a part-time job, but would like a full-time job).

As before, the decline was moreover mitigated by higher government employment (meaning that the decline in private sector employment was even more dramatic) and a continued high number of jobs imputed by the flawed "birth-death" model.

The only thing bullish that I could find in the report was a surprisingly high increase in average hourly earnings of 0.4% compared to the previous month and 3.7% compared to November 2007. Considering the dramatic decline in energy prices, this means that real hourly earnings increased at least that much, and probably more. So those that still have a full-time job are enjoying a rising real income. It seems strange that wage increases are in fact accelerating even as demand for labor is declining fast and unemployment increasing. It could perhaps be that low-productive workers are losing their jobs at a higher rate than others, or it could be that causality is working the other way, that the workers employers are interested in are demanding higher wages, which means that fewer workers are hired but that those that are hired are getting paid better. But that is just speculation. If (with emphasis on if) it continues it would be worth looking into. I see no conclusive evidence for either explanation in the current data though.


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