Thursday, April 7, 2011

Jobless Recovery

β€œAn "acceptable" level of unemployment means that the government economist to whom it is acceptable still has a job.”
While officially the Great Recession is over, we are still in a jobless recovery phase where companies are doing more with fewer employees. Here's a news article cited by Instapundit:
β€œA Massachusetts employment organization has canceled its annual job fair because not enough companies have come forward to offer jobs. Richard Shafer, chairman of the Taunton Employment Task Force, says 20 to 25 employers are needed for the fair scheduled for April 6, but just 10 tables had been reserved. One table was reserved by a nonprofit that offers human services to job seekers, and three by temporary employment agencies.”
Why are companies afraid to hire? For one, sales are down with so many unemployed. There's just fewer dollars out there. Second, it's expensive to hire someone, see my post The hidden costs of employment. With taxes, social security, and other federal fees, it costs a company $74,000 to put $44,000 in Sally's pocket.

Third, some are afraid to hire the unemployed. The odds of hiring a "bad" employee is higher with the unemployed - who can tell if they were laid-off by dumb luck or for good cause. There are increasingly bold companies that say in their want ads that they will NOT hire anyone unemployed. Ouch!

Some effects on employment are counter-intuitive. In The World Is Flat Thomas Friedman argues that one reason for past economic success in America is that it's relatively easy to fire someone. In Europe it is practically impossible to fire someone for any reason, as a result many firms are very cautious in hiring. We're seeing some of that in America now with companies using more part-time or contractors instead of new hires.

Sometimes Federals laws damper hiring. In SuperFreakonomics the authors state that the Americans with Disabilities Act (ADA) of 1990 has discourage hiring of the disabled. Employers are afraid they will be subject to lawsuit if they fire someone who is disabled because of the law.

Another law that dampers hiring? The new Healthcare law which increases the cost that companies must pay to provide health insurance.

Bottom Line

How bad is unemployment? Unemployment Insurance is supposed to last for just 26 weeks. But given the state of the economy it's been extended and extended and extended to a present value of 99 weeks. And there are persons who have exceeded even that. One site claims a million people in the 99er club. People who have exhausted all four tiers of unemployment benefits, are no longer are eligible for any more money, and will no longer be considered unemployed in the official statistics.

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