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Over 5 Million Non-Existent Jobs: How $1.3 Trillion In Student Debt Broke The "Birth/Death Adjustment" Model
One of the main reasons why the BLS has been massively overestimating job creation ever since great financial crisis, is due to the well-known birth-death adjustment, aka the CES Net Birth/Death Model, which quantitatively is shown on the chart below, has resulted in the "addition" of some 5.3 million jobs, that don't actually exist, but are merely modeled by the BLS which continues to assume the same new business creation/destruction dynamics that existed before the crisis.
The is a big problem with this core assumption, which has follow through effects not only for domestic fiscal policy, but also monetary policy (and explains why despite a 5.1% unemployment, there is zero wage growth, thus keeping the Fed pushing the ZIRP accelerator pedal years later), for the simple reason that as of this moment it is dead wrong.
Here is what Gallup CEO, Jim Clifton, wrote several months ago looking at the trends in new business creation and destruction in the US.
We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.
The U.S. Census Bureau reports that the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.
As Clifton adds "you may not have seen this graph before" and for good reason: it destroys the most sacred assumptions held by the BLS' cubicled actuaries and various tenured economists locked up in their ivory towers: namely that the number of US business startups outnumbers the number of failures. This is no longer true!
Here is what the above chart shows: until 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number suddenly turned upside down. There has been an underground earthquake. As you read this, we are at minus 70,000 in terms of business survival. The data are very slow coming out of the U.S. Department of Census, via the Small Business Administration, so it lags real time by two years.
Gallup adds that business startups outpaced business failures by about 100,000 per year until 2008. But in the past six years, that number suddenly reversed, and the net number of U.S. startups versus closures is minus 70,000.
So what is causing this historic shift in US business creation.
The are various answers, the most obvious of which is that the US never actually left the 2007 depression, whose effects continue to be papered over, literally, with some $13 trillion in global central bank liquidity, which have made life for the richest 0.1% better than ever at the expense of the middle class.
But the biggest culprit is also the one which over the past 7 years has become America's latest credit bubble, last check rising to $1.3 trillion in debt: student loans.
This is what Gallup finds when looking at the future of collapsing U.S. new business formation:
... the country can't look to people coming out of college to reverse this trend because too many of them are strapped by student loan debt. Results of the 2015 Gallup-Purdue Index -- a study of more than 30,000 college graduates in the U.S. -- provide a worrisome picture of the relationship between student loan debt and the likelihood of graduates starting their own businesses.
Among those who graduated between 2006 and 2015, 63% left college with some amount of student loan debt. Of those, 19% say they have delayed starting a business because of their loan debt. That percentage rises to 25% for graduates who left with more than $25,000 in student loan debt. According to the National Center for Education Statistics, nearly 16.9 million bachelor's degrees were conferred in the U.S. over the past 10 years -- a time frame that mirrors Gallup-Purdue Index analysis of recent graduates between 2006 and 2015.
Putting these sad statistics into numbers, Gallup calculates that over 2 million graduates have said they have delayed starting a business because of their student loan debt. If even a quarter of them had done so, we would quickly recoup our average surplus of 120,000 new businesses annually.
It would also mean that the BLS's Birth/Death model would once again be accurate. However, as a result of record student debt, which is increasing at an accelerating pace of over $100 billion per quarter, not only is the birth/death adjustment wrong, but its "contribution" to the total number of jobs should be inverted.
Which, incidentally, would reflect far more accurately the woeful state of the US labor market.
Finally, we know we are spot on right with our assessment that student debt has become the primary culprit holding back the jobs (and businesses) recovery, because two days ago none other than Ben Bernanke said Bthat "student debt no threat to U.S. financial system."
And that is all you need to know why the biggest threat to the US financial system is none other than student debt (after the Federal Reserve itself, of course).
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so many words to state the obvious - zzzzzzzzzzzz.............
exactly why DOES this obsolete Federal Agency have a budget and employees with salaries and pensions?
BLS and many other agencies merged into a bigger an more powerful agency: BDPL : Bureau of Domestic Propaganda and Lies.
Hey watch your tone Big Guy! It's totally legal propaganda now...
We need a BIGGER Gubmint --- Vote Hillery!
She ain't got shlt on Sanders. Now Sanders is the man to go full retard and break the system.
I completely endorse Hillary for POTUS 2016.
(been a while, feels good)
((beer me))
Look at the bright side. The education for money business is BOOMING. Professors and admin are raking it in. New facilities, everywhere! New stadia. ( stadiums?)
Ra Ra, Sis boom ba!
Wow, something horrible happened in 2008. I wonder what that could have been.
It happened in 2005, not 2008. .
It happened in 1999 when Clinton signed those bills that unleashed bankster mayhem on the economy.
Greenspan 2003-04.
Need to go back to 1913 if we are being factual...
Trust me, without all of this data my coworkers and family would call builshit and force me to write a damned white-paper to prove it. It is definitely important to back up your statements with multiple levels of evidence to take away ammo from the insta-fire skeptics.
1. Take out student loan
2. Buy staws
3. ??????
4. Profit
1) Take out student loan;
2) buy Gold;
3) just walk away.
nice article. of course, most intelligent people have known for years that student debt was an issue.
This same student debt is a big reason why first time home buyers are non-existent.
People can only support so much debt, especially in light of the surge in low wage job growth. And, those poor college loan suckers are shackled to hilt. Thus, you can continue to expect no growth in first time home buyers, no growth in new business creation, no growth in retail.
And that, ZHers, is what the bankers have done to Amerika (with the help of university elites and congress, of course).
I think debt generally, I mean saving the housing in 2008 means the very same students, already loaded with debt and no good job prospects also have live with their parents simply because of the lack of affordable housing which has been also a driver for ever higher rents knowing that these poor folk have to live some place.
Better hope they don't have a family fall out!
Blame the 109th Congress in 2005. Their bankruptcy changes made all student loan (not just govt' loans) immune to bankruptcy. So banks started making those loans all over the place, and America died.
The democrats have been planning this for some time. First they give school loans to just about anyone. Then, as defaults increase, they move more and more of the default burden onto the taxpayer. Now that the taxpayers are mostly on the hook anyway, why not free college education for eveyone, including all those illegal aliens (which will just entice more to come here). It will massiviely increase the cost of education and waste billions, if not trillions of dollars every year, further eroding the economy.
all the regulators need to do is to exclude student loan payments from the dti when deferred or to include the income based minimum payment of 10% in the dti. Right now, i think, income based repayment plans are not usable in the dti calculations which means 1 or 2% of the outstanding balance is used and does indeed eliminate first time buyers.
What would Barney do?
https://www.facebook.com/barneyfrank
Assumes Income.
You can thank Dodd-Frank as well; hard to keep a business going through the lean times when your bank cuts you off. Meanwhile the HFT cocksuckers enjoy truckloads of cash at 0%. Bassackwards.
Student debt? No big deal. Bernie will fix it and everything will be free too.
s/
I wonder where he will get the money...
Seriously though, if he wins, I am giving up any further work on growing my business. Why hire people if taxes explode and 60%+ of our labor goes to FSA?
You change, you start a buisness that is Gov't supported on encouraging people to get the free shit. We know it can't last and will break down. In that situation the only way to fix it is to speed up the demise of it by having everyone participate in it.
Here's someone to help you... :>D
Birth/death: You're just a slave in between.
- Vermin
Hey, isn't Gallup the outfit that interviewed 100 Russians on the steps of the Kremlin as to whether they thought Putin was a good guy? Then they broadcasted to the world that the entire planet thinks Putin is really swell. That Gallup?
Top shelf people. Top shelf...
Today on the radio news at the top of the hour I heard that unemployment filings are the lowest they've been in 42 years. Then the announcer said that the stock market was up.
What happens when people lose eligibility to file for unemployment? A lot of people have this false belief that they can just go on welfare and live it up. But there is no such welfare system.
Things should start getting interesting soon.
Those people move over to SSI, but that's going into the red sometime next year......oops?!
Most states now have paid consultants that look for any excuse to move a person for "welfare" to "SSI disability", because SSI comes from the feds only, and other welfare programs are partially paid for by the states.
The cosultants are supposed to evaluate disability eligability fairly, but they are paid based on number of recipients "moved to disability", so I'm sure they stretch the truth, a lot.
We need a Marshall plan for small businesses.
Problem is that it will turn into a Bankster Bailout
Two guesses who are the Nazis?
Less Government..........
Well maybe the debt Jubilee could be managed by the little guys..................
No, no Marshall plan thank you.
Not to mention JP Morgan sells off its entire Canadian credit card operations to ScotiaBank.I smell someone who needs money fast in NY in order to pay more fines.
We have 50,000,000 extra folks who could be employed as cannon fodder. Forward!
.
WHY DOES THE GOVT MODEL ANY NUMBERS?! This drives me absolutely crazy. Just put out the raw numbers and let the private sector dissect them whichever way they want. The govt knows when new tax id's are created, and when dead businesses file. They know of every single human being on payroll, and which company they work for - literally every one. And yet we're relying on surveys, models, seasonal adjustments, sampling, and assumptions.
Get a student loan then get to Coobah. Open a gay nightclub. Shoot lasers toward Key West taunting those gays.
was there any congress critter who opposed giving the banks the blank check preventing student loans from being discharged? ---which ultimately will have to occur as this will never be able to be paid off
i just saw an article that said boehner was largely responsible for this and that he was the largest beneficiary of those who wanted this. But IIRC I thought it was Hillary!
This article seems to presume that this an unintended consequence, or policy failure. What if this is simply a
consequence of a concerted effort by TPTB to "corporatize" the nation? Look at Wal-mart. How many mom&pop
discount, dry goods, general merchandise, etc... stores have been shut down over the decades? What became
of those folks, run out of business? Does this contribute to inequality? How much money velocity was sacrificed
by concentrating this much wealth? Now we see Wal-mart getting into eye care, pharmacies, banking, telecom
cashless payment services, etc... How much is enough? and yes I realize they are creating jobs, but of what
comparable quality?, many of which are working poor who have to suck gov. tit to make ends meet. Hell,
this is just one example, I'm sure we can think of many other industries that have experienced the same shifts.
...and as an after thought, consider the exponential rise in healthcare costs. This further cements Big Corps'
grip on the labor market and stifles competition. How many folks have viable business ideas, but due to family
medical issues, or the fear of issues arising, can't or don't put those ideas into action, because they're beholden
to their healthcare plan, which consequently, on average, is shifting more of the cost burden onto the worker.
....further, I'd be curious to see what proportion of gov. regulations are lobbied for and enacted simply to throw
up more onerous hurdles for upstart ventures that threaten entrenched corporate interests.
You have to crack quite a few books to learn about all of them, but the full scale of protectionism and cronyism is quite deep.
For example, have you ever noticed how the old Main Streets of most towns had buildings close together and not much parking, while many newer stores are spaced out with more parking than realistically needed? The vast blacktops are in fact put there by regulations that cover the number of parking spaces for a given store size. A city's choice to grandfather you in or not determined whether you could stay in business, and since the new building style spread shopping out, all-in-one big box stores became favorable.
Next, why is there so much suburban sprawl and why has there been a rise in commuting to work over the last few decades? Here again, promoting highways and punishing trains was part of an MIC and auto company deal, and the "sprawl" in housing is largely created by the FHA only approving loans to certain types of houses.
Still another issue is that of eminent domain. A number of stores actually require property tax variances and eminent domain in order to be profitable, and usually a city government can be coaxed to go along with it.
If you dive deeper to see the entire iceberg, you will find good intentions paving the road to hell, mixed with half baked ideas to force people to work and consume more. It will be, ahem, "interesting" to see what happens when these become unaffordable for most people; a lot of cities will need to be re-built if they do not want to burn.
Actually, the horrible thing happened in 2005-2006. 109th Congress. Republicans took controll of House, Senate, and WH.
The bankruptcy law changes in 2005 turned "private student loans" into "slavery loans" or "death loans." If something goes wrong, the only escape from them is death. And lenders have incentive to issue these loans with abandon because they "own" you until you die or somehow pay off the debt.
Don't the immediate family have to still pay even in the event of the debtor's death?
No, unless your family co-signs.
10-4
My ex co-signed a loan for her son. His father got bagged 150K to send him to Columbia to "be an actor". Well, that didn't work out. So son made his case he needed further education. The old man was off the hook as son was an "adult" now, and said he was done shelling out for college (he had two other daughters to pay for as well). So son went back for more classes on the loan. After that, he wasn't interested in working anymore, becoming a professional slacker. That's what acting classes prepare you for I guess if you don't actually get an acting job. So he just drinks and smokes pot now. But that co-signed loan stayed on perfect track. So now mom lives on social security with a boyfriend who also depends on social security, and she has to make those loan payments. Times are tough. Oh well.
It's very sad. Because even after a student completes college, I have to question if he/she learned anything. Like the fact that he/she just got screwed. College: Your first step toward permanent servitude of the elite.
"Do you want a good job?"
"Yeah!"
"Okay, go graduate high school."
"Okay...hey, where's my good job?"
"Uh, sorry, I meant you need to graduate college."
"Okay, what should I major in?"
"Oh, doesn't really matter. You're building analysis and reasoning skills that anyone would kill for."
"Okay! Uh...hold on a second, where's my good job?"
"Oh that? Turns out we don't really need that many paper pushers, and we decided to hire the engineer from Bangalore at shelf stocker wages."
"How am I going to do pay my loans and start a family?"
"You should have thought of that when you decided to graduate high school."
Not only student debt. Some of my cliets have applied for bank loans and have a great problems getting the bank to approve their loans, or even extend their lines of credit. They are told this is due to the bank's underwriters and the federal and state regulations that make the loan criteria much tougher.
The article is correct, but omits an even larger factor. Namely, no sane individual would start a new business in the USSA today.
Which means, only totally insane individuals open new businesses in the USSA now, and totally insane business-people have a much worse track record of success. Is that a surprise? Hope not.
I disagree. I think the article is incorrect. Students without a pile of debt would likely be buying houses and cars but not starting a business. Other than student loans most banks do not loan money to unemployed former students without any experience to start a business. Even a nail salon has startup costs and if these grads had the money they wouldn't be getting student loans. Student loans are definitely one of the symptoms of the mess we are in but they are not the cause. Government is in the business of repressing other businesses, both small and large. If we don't solve that problem we won't get anywhere.
granted, there is more than one cause for the problems, but fired up and raring to go grads using self funding and bank of mom and dad were always a big player. now, the grads are scrounging for secure jobs to make that monthly nut and M&D are tapped out, as that was why the studend loan was needed in the first place.
look for big brother to use this as a means to "level the playing field": middle class grads are now debt slaves while free stuff army recruits are on the government dime and come out of school less encumbered.
If the Government declared a war on small businesses the problem would go away in a hurry
We all know that the numbers are total BS but the comment that these graduates are not opening businesses because of their student loans is just more BS. Anyone that tries to open a business without some experience behind it will almost always fail. It takes a load of money to get most businesses off the ground and even without their student debt, they most likely won't have the savings to invest to do anything.
The Birth/Death adjustment was just another way for the propaganda machine to make up jobs. Small businesses are dying all over the place due to government regulations, taxes, healthcare costs, the internet and shipping costs. Small business is being eaten alive by the internet, Amazon and the Chinese with their low costs and free shipping. Our government has allowed off shore companies to compete directly with retailers in this country and actually subsidize their shipping here in the U.S.
Student loans have become one of the biggest rip-offs in history. Hundreds of online schools that never should be accredited are charging these kids up to $500 a credit hour for a worthless degree. Our government have done nothing to stop this fraud knowing very well that this will bury a lot of students. It's the DNC's dream to impoverish all these kids before they even get going and turning them into welfare slaves for the establishment........
You have to get creative. For instance, I use the 14 mandated posters I have to have to cover holes in the wall. Thanks to the government, nobody knows I have holes in the wall. But that's mainly due to the fact the government takes away my time to fix them because I have to put up and maintain all these posters.