Make That 34 Years

My article on world stock prices today includes the following paragraph, in which an economist commented on evidence that companies were cutting jobs:

Paul Dales, an economist with Capital Economics, pointed to the survey in forecasting that the February employment report will show a decline of 785,000 jobs when it is released on Friday. If so, it would be the largest one-month decline in employment in nearly 60 years.

A reader rightly takes me to task for that, saying that to compare figures over such long time frames one should use percentages.

On that basis, a decline of 785,000 jobs would represent a loss of 0.58 percent in a month. That would be the largest since the number of jobs declined 602,000, or 0.74 percent, in December 1974.
That is bad enough.

In terms of total jobs, the reference to almost 60 years ago was to a decline of 834,000 jobs, or 1.9 percent of those with jobs, in October 1949. That decline was largely because of strikes in the coal and steel industries, rather than to a severe recession.

Comments are no longer being accepted.

If Mr Dales thinks that employees on strike should be counted among the jobless, I suggest that he saunter through the National Labor Relations Act. Striking employees have NOT lost their jobs and the jobs have not ceased to exist on the employer’s payroll.

If he understands that concept, then including striking employees in order to inflate the number of job losers, particularly in 1949, is improper and done to create exaggerated data.

If he doesn’t understand the legal status of striking employees versus laid off or terminated employees, then what on earth is he doing analyzing employment data?

(And yes, I know all about the difference in legal and effective status of strikers. Early in my career, I was a trial attorney for the National Labor Relations Board that enforces the NLRA)

Floyd Norris replies:
Don’t blame Mr. Dales for that. I’m the one who came up with the history. My understanding is that for purposes of the employment figures, the question is whether a person was working during a particular week, not whether he or she is eligible for unemployment benefits or on strike or anything else. I brought it up because that month was a clear aberration in the data. If last month was very bad, it won’t be an aberration.


Okay, I’ll lay off Dales. LOL!

Most unemployment statutes draw – or use to – draw a distinction between terminated employees (temporarily or permanently) and strikers. As a rule, the unions, particularly the larger unions, had a substantial Strike Fund from which they paid the strikers so they would have some income. This payment thus disqualified them from receiving unemployment. Well that rule and the part of the rules about being ready, able and willing to take any job offerred.

It is the second part of the criteria for the definition of “unemployed” about being ready and able to take a job offerred that eliminates strikers from being counted as unemployed even in the household surveys. They have a job – they are just refusing to work until they get what they want. Ergo, they are not ready, able and willing, and nor have they severed their employment with their current employer so as to be classed as a job loser.

In an economic strike, strikers could be replaced but had to be kept on a preferential recall list. Happened but not frequently.

In a ULP (Unfair labor practice) strike – don’t ask, it is a highly technical definition that would take several paragraphs – the employer can hire temporary replacements but when the strikers agree to or offer to return to work, the employer must fire the replacements and take them back. Unions definitely tried to structure a strike as a ULP strike and usually succeeded.

How do the numbers break out for comparison purposed if you excluded the strikers? Since the steel workers and miners were a very large part of the workforce in 48-49, I suspect it would make a big difference.

And whether strikers are properly counted goes again to assessing the expectations of the job lossers & job leavers about their future employment prospects – that confidence in the labor markets stuff again since strikers fully expeceted to return to their jobs.

BTW, thanks for the BLS data you emailed me in early Feb. Did you get the material I sent back on it? (Just post a note here saying “yes” or “No” if you can’t find the email address.)

Undoubtedly Ann S (comment #1) has a point about the analysis of unemployment data, but it seems to me that she is a bit harsh in her own comment. The point that Mr. Norris made is a good one, which is that the current unemployment situation is horrific. What makes it unlike anything that we have seen in the post-war era is that the jobs that have been lost probably will not be coming back because the American economy itself is probably restructuring. Jobs in the construction of stand-alone houses, automobiles, as well as many jobs connected with air travel and the resort industry are likely to vanish forever. That is because the energy policy of the United States is now being reconceived to de-emphasize reliance upon foreign petroleum products. This implies less private travel, less air travel and hence stay-cations or vacations close to home. It implies mass transit commutes and the death of the “exurbs.” The restructuring, which may be for the good, will take time. We are in for a long siege, and this makes this bout of unemployment different from other post-WWII experiences.

The question is whether we are entering another Great Depression. Of course, if we are it will be less severe than the 1930s in several ways, due to the safety net and to depression era counter-cyclical economic policies. But it may be worse in other ways. It may be that the depression (if the currrent slowdown is a depression) will involve severe inflation as well as high unemployment. The inflation and relativiely high unemployment could be an economic consequence of the very safety net and restructuring policies that save us from the truly massive unemployment of the 1930s. Let’s all pray that it is not so, but let’s not just assume that it isn’t so. We are on pretty thin ice here, and Mr. Norris is absolutely right to point out that the unemployment stats are fearful.

Is it possible that unemployment figures are designed to illustrate how many people are collecting a paycheck and therefor have money to spend?

As a working class person I want to know how many people are unemplyoyeed and might compete with me for that next job that I might need

On the other hand, an economists wants to know how many people are collecting (are not collecting) a paycheck and are therefor able to spend money, pay their bills and buy that next unit of stuff.

As an employee I want to know, “What are the chances that I can stay employeed and collect a regular paycheck so that I can pay my bills.

An economists (the folks that count striking workers as unemployeed?) want to know how many poeple are colleciting a paycheck and therefor can spend money to buy cars. No paycheck, no money to spend, no money to spend, no economy to write about, but somehow they seem to continue to collect bonuses.

That is why our banking system is in the hole that it is in….the economists thought it was all about the money so they spun the system up till the pistons exploded….automotive metaphor?

And us working class fools bought SUVs and 5000 square foot homes we couldn’t afford because we believed them….the more the money folks spun the money supply the more we bought….the more we bought the more jobs there were….the more people employeed the more $$$ the money changes had to spin and the more they spun the money supply…..the more us working class stiffs bought more stuff……until the connecting rod broke and the engine exploded… us working class don’t have jobs and the bills don’t get paid and economists count how many people are not collecting paychecks and cannot buy stuff.

An economists job is to understand the $$$$, he counts how many people are without paychecks because that tells him something useful about the $$$$. That’s why they call him an economists.

The problem is not the absolute number or percentage number of job losses in a month. It’s that the amount in both cases will be accelerating as the months roll by. Maybe in some months the numbers will stabilize or decline slightly but over a rolling number of months the trend accelerates. That’s what will be frightening and increasingly depressing.

Norris is far off base with his mark to market article. The alternative is not marked to Alice in Wonderland. The appropriate alternative is marked to model. It is not the value of the assets that should be regulated but the models. If the models are constructed with the input of both industry and the Fed and a bi-partisan quarterly pannel decides what changes are to be made then the problem is substantially aleviated. The issue here is the velocity at which the marks changed based on asset prices and the lowest common denominator “trades” (sales) of various classes of instruments. Marking to model and regulating the model will leave open the possibility that commission participants are pressured into keeping asset levels above fair value. The system will not be perfect but it is better than what we have today. Models can be made somewhat (emphasis) flexible so that drastic conditions such as those underlying current markets can be smoothed to prevent forced fire-sale remarking of all like institutional assets.