Friday, February 05, 2010

The Employment Report-Jobless Claims Discrepancy

January's U.S. employment report was in many ways very similar to the November employment report. A small decline in jobs according to the payroll survey, but with other indicators suggesting growth, including a significant increase in average weekly earnings and a big jump in employment according to the household survey.

This supports the view that the U.S. economy is growing moderately right now.

What is worth noticing is however that this report is inconsistent with the reports of growing number of people receiving unemployment benefits (including extended benefits). Compared to a year earlier, the total number of people receiving benefits have risen from about 7.6 million to 11.5 million, while the total number of unemployed is up less dramatically, from 11.9 million to 14.8 million. The number of unemployed without unemployment benefits has thus dropped from 4.3 million to 3.3 million. As a share of the unemployed, people with unemployment benefits rose from 64% to 78%. And while the number of unemployed fell the latest month, the number of people receiving unemployment benefits rose.

What is going on here? Because jobless benefit numbers are based on actual payments while the unemployment numbers are based on the less reliable method of interviews in the household survey, one part of the explanation is probably that the survey number underestimates unemployment for the latest month. The far weaker number from the payroll survey suggests that this is part of the explanation, at least with regard to the latest month's change.

Another explanation is that Congress have made the unemployment benefit system more generous meaning that people who by now would have lost their benefits in the past still have them now.

A third explanation is the one that Obama economic advisor Larry Summers suggested before he became advisor for Obama: the more generous conditions means that people with benefits are less motivated to get a job, causing the number of people with benefits to increase. Once they lose their benefits however, they are willing to take even jobs that they would prefer not to have because they think pay is too low or because they don't like the tasks that certain jobs consists of, causing the number of unemployed without benefits to drop.