While I'm Ranting ....

Bonddad makes a very very good point about unemployment today.

However, on the employment picture I'm not sure we're going to get really high unemployment. According to the NBER the last recession ended in November 2001. However according to the BLS, employment growth really didn't start meaningfully increasing until 2003. According to the BLS's employment level information, there were 137,778,000 jobs in January 2001 and 137,417,000 in January 2003 -- a decrease of 361,000. By January 2004 the total jobs numbers were 138,463,000. So the job market was seriously lagging after the end of the latest recession.

I have a working theory about the job market this expansion. Employers really held back on hiring this time around. Instead of mass hiring, they really worked at increasing their overall productivity and used that instead of a massive round of hiring. When it became more and more obvious that they needed more employees, employers added as few as possible, instead relying on the increase in productivity combined with fewer employees.

As a result, we now have a lot of employers who are wedded to a high productivity/low labor input model. But this model uses a very high level of employee/productivity interaction. That means any loss of employees will lead to bigger losses in productivity and therefore bigger losses in profit.

As a result, employers can't start a massive round of layoffs. Cuts to the labor force will happen very slowing if at all. As a result, we're not going to see sky high unemployment this time around, although we will see an increase.

This sounds about right and is the ironic flip side of the coin. The employment recovery has been tepid, but the unemployment fall will also be tepid. Add to this the fact that the job mix has changed from higher paying middle-class jobs to lower paying service sector jobs. Unemployment may not be the big problem it's been historically. But that doesn't mean that average people won't be under tremendous stress anyway.