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Thoughts from the Frontline

Will the Real Unemployed Please Raise Your Hands?

March 20, 2013

This week’s letter will be a very short part of a book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the future of employment. It has taken longer to write than I initially anticipated, for a host of reasons, chief among which is that the future is not as obvious as I originally thought. Diving into the data has brought a few surprises. It doesn’t help that I have (probably to the frustration of Dunk, although he is way too polite to say it) changed the focus from “merely” what we need to do to create jobs (which is still an important part of the book) to what kinds of jobs will the future bring and who will get them.

But to understand the future of employment, we have to be able to measure what we mean when we say employment. And the data that we all too often think of as hard and fast is anything but. Is unemployment in the eye of the beholder? We know what we mean when we say our brother-in-law is unemployed. But does the government data mean the same thing? The answer is “maybe, sometimes, and it depends.”

I selected this part of the book not only because it is toward the beginning but also as a result of a conversation I had this week that got me to thinking about data and its usefulness. It is in this context that we will look at unemployment data.

But first, a quick comment on why this letter is not about Cyprus, which seems to be the topic du jour. I wrote four weeks ago, after my visit to Athens, that Cyprus would be a problem and to pay attention.

Can Someone Figure Out Cyprus?

The story changes every few hours. It is not clear what the Cypriot parliament will do. They could quite possibly simply say no, or change any number of things. The whole thing is patently ham-handed. It illustrates what I mean when I keep saying that the EU is making up the rules as they go along. Why take money from widows and then exempt the branches of…

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Laurence Saunders

March 29, 2013, 6:54 a.m.

The jobless recovery is fueled by business managers systematically migrating large swaths of business units offshore to bypass U.S worker expense/rights. Of course they whitewash this by saying cant find U.S workers.

Also, 90% of the advertised tech positions are really just cross-postings by numerous small business recruitment firms.

Dallas Kennedy

March 23, 2013, 2:55 p.m.

Thanks for the very informative discussion of how the BLS arrives at its employment numbers.

As Lakshman Achuthan of the ECRI has shown, the large seasonal adjustments arising from the wave of layoffs in late 2008 and early 2009 has impacted - forever - the BLS’ seasonal adjustments to employment statistics. It will take years before its “birth-death/seasonal adjustment” model shakes off most of this effect. Here is a large methodological defect that can’t be cured by just doing a trailing one-year average. Better is to make direct comparison of raw numbers from one month to the same month a year earlier.

The occasional large discrepancies between the household and establishment surveys are confirmed by discrepancies between the NFP numbers and GDP/tax receipts. Here’s another clear flaw.

John’s new discussion of the official inflation statistics attacks the other half of this pile of questionable official statistics. We haven’t yet reached in the US where Argentina is—where private economists are persecuted for publishing numbers more accurate than the government’s. Nonetheless, the blind and self-serving use of dubious and often misleading numbers by the government, the Fed, and the media is a scandal.

Phil Bock

March 22, 2013, 3:29 a.m.

John, I was reminded of your comments about Mayor Bloomberg, our huge deficits and growing national debt when I read about the current situation in Cyprus.  In your earlier commentary you suggested that those in power simply do not understand the seriousness of our situation.  Here’s another interpretation: they understand very well, but want to be re-elected and therefore do not force unpleasantness upon their constituents.  As a case in point, consider key events of the Bush presidency.  Congress and the president collaborated in fighting two wars and creating a new prescription drug benefit without rescinding or modifying either of the two tax cuts they had just enacted.  Americans were not asked to tighten the belt in any way. Re-election trumps all else! Sound like this might be the explanation for the woes of Cyprus?  Meanwhile, their constituents, like those in Greece, Italy, Spain and elsewhere take to the streets in protest against virtually any type of austerity measures.

Ivor Goodbody

March 20, 2013, 10:17 p.m.


Thanks for provoking thought, as ever.

You said: “The whole thing is patently ham-handed.”

I wonder.

Yes, cack-handedness is usually a better explanation than conspiracy. But I wonder about another possibility: that someone, somewhere floated the first version of the Cypriot bail-in as a trial balloon

1. to divert our attention from something more important
2. to get us to accept, however reluctantly, the principle that it’s OK to tax depositors to bailout creditors.

Notice how the proposal was immediately pruned back from the outrageous (taxing deposits from 1 Euro up) to the “acceptable” (taxing deposits from 100,000 up, ie beyond the old level of govt guarantee). This seems to have defused the potential for violent, revolutionary-type protest to “merely” the grumblings of the gilded “rich”.

Note too that these “rich” were carefully stigmatized IN ADVANCE of either proposal as Russian mafia and oligarchs, ie morally unworthy of our consideration. And note we were told that THIS was the reason any other scheme would be “difficult to sell to German voters”. Unless I’m mistaken, I haven’t seen Merkel herself link her own name to this suggestion.

So now we reach a situation where poor voters

1. feel relieved to be off the hook
2. feel some small sense of satisfaction and justice-being-done that the “crooks” who have abused their financial system will help to pay for its rescue.

In the meantime, most (not all) commentators seem to have forgotten that bondholders, who knowingly took the investment risk of lending to these banks, are YET AGAIN being let off the hook - only this time, at the direct expense of depositors who placed their money in the bank in good faith, believing it to be in safe hands. Or at least, safe from insolvency above the guaranteed level of 100,000 Euros and, even then, safe from arbitrary taxation by the government (rather than, say, as happened in the case of the British Government v Iceland, EXTRA protection being extended to depositors above the level of the guarantee).

Personally, I don’t find this any less outrageous than taxing 1 Euro depositors. If the banks or other financial authorities believed the money to be dirty, they

1. shouldn’t have accepted it in the first place
2. having accepted it, perhaps in good faith, should treat it in accordance with due legal process. I don’t know the consequences under Cypriot law, but supposing they had proof, I imagine those might include freezing and/or wholesale confiscation. THAT would have been justice.

THIS, on the other hand, is plain theft under the guise of legal authority.

But, if I’m right, as a PR manoeuvre (or maneuver), it’s brilliant.

Here we are all discussing how moral it is to relieve “criminals” of “ill-gotten” gains instead of doing what we should be doing:



March 20, 2013, 7:22 p.m.

Is there really much difference between a depositor paying a 10% levy to save his country’s banks, and a depositor receiving 2-3% less interest/yr over 4 years because of Federal Reserve action to keep interest rates down in order to save his country’s banks?

Charles Main

March 20, 2013, 3:03 a.m.

Thanks John for the latest newsletter on employment figures and for making the complicated simpler, even though it is still complicated.


Charles Main

March 20, 2013, 2:55 a.m.

Great newsletter John and thank you for making the complicated on employment figures simple.  I get it now, even though it is still complicated.