San Francisco Fed Admits Bernanke Powerless To Fix Unemployment Problem

Tyler Durden's picture

That the fine economists at the San Fran Fed are known to spend good taxpayer money in order to solve such challenging white paper conundrums as whether water is wet, or whether a pound of air is heavier than a pound of lead (see here and here) has long been known. Furthermore, since the fine economists at said central planning establishment happen to, well, be economists, they without fail frame each problem in such a goal-seeked way that only allows for one explanation: typically the one that economics textbooks would prescribe as having been the explanation to begin with. Today, is in some ways a departure from the default assumptions. In a paper titled "Why is Unemployment Duration so Long", a question which simply requires a brief jog outside of one's ivory tower to obtain the answer, Rob Valleta and Katherin Kuang, manage to actually surprise us. And while we will suggest readers read the full paper attached below at their leisure, we cut straight to the conclusions, which has some troubling observations. Namely, they find that "the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. The shift towards jobless recoveries probably reflects a reduction in temporary layoffs during cyclical downturns. Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs."

Oddly enough, this is actually a correct assessment: the mean reversion "model" no longer works as the entire system has now broken, and since the administration changes rules from one day to the next, companies are not only not investing in their future and spending capital for expansion, and hoarding cash, but have no interest in hiring: an observation that previously led to a surge in profit margins, yet one which as we pointed out over the weekend, has now peaked, and margins have begun rolling over, even as the rate of layoffs continues to be at abnromally high levels, meaning all the fat has now been cut out of the system. Yet it is the following conclusive statement that is most troubling: "These special factors are not readily addressed through conventional monetary or fiscal policies." And that is the proverbial "changeover" as the Fed has just acknowledged that both it, and Congress, are completely powerless at fixing the unemployment situation. In which case is it fair to finally demand that the Fed merely focus on just one mandate - that of controlling inflation, and leave the jobs question to the market, instead of making it worse with constant central planning tinkering which only makes it worse by the day?

Full note:

Why Is Unemployment Duration So Long?

By Rob Valletta and Katherine Kuang

During the recent recession, unemployment duration reached levels well above those of past downturns. Duration has continued to rise during the uneven economic recovery that began in mid-2009. Elevated duration reflects such factors as changes in survey measurement, the demographic characteristics of the unemployed, and the availability of extended unemployment benefits. But the key explanation is the severe and persistent weakness in aggregate demand for labor

Unemployment duration—the length of time that workers are unemployed—reached alarming levels during the recent recession and  showed little or no sign of easing through late 2011. The comparison between the recent downturn and the 1981-82 recession is particularly stark. Although the unemployment rate peaked at a higher level in the 1981–82 recession, the average duration of unemployment has been running much higher in the recent episode. Prolonged spells of unemployment cause substantial hardship. People who are unemployed for a long time struggle not only with a loss of financial well-being, but also with a likely deterioration of their re-employment prospects.

In this Economic Letter, we examine unemployment duration in detail, considering why it has been so high in the recent recession and recovery. Although changes in the measurement of duration and demographic characteristics of the unemployed have contributed to rising unemployment duration over the past few decades, the recent spike is due primarily to the combination of massive job losses and a subsequent recovery marked by weak job growth.

Measures of long-term unemployment

Estimates of unemployment duration are based on data from the Current Population Survey (CPS), a monthly poll of 60,000 households conducted by the U.S. Census Bureau for the Bureau of Labor Statistics (BLS). The CPS is the source of official labor force statistics, such as the unemployment rate. Individuals who are identified as unemployed—people without a job who are actively seeking one, or those on temporary layoff—are asked to report the number of weeks they have been unemployed.

The CPS duration measure has undergone several changes in the maximum recorded value allowed. In January 1994, the maximum was increased from 99 weeks to approximately 117 weeks. A further increase to a maximum of five years was introduced at the beginning of 2011. The 1994 survey changes also included a questionnaire adjustment that slightly raised measured unemployment duration for individuals who are unemployed in consecutive survey months (see Valletta 2011).

Figure 1
Measures of unemployment duration

Measures of unemployment duration

Note: Data are seasonally adjusted. Percent of long-term unemployed is the number unemployed for more than six months as a share of the labor force.

Sources: BLS and authors' calculations

Figure 1 plots three series based on reported unemployment duration from the CPS: average duration; median duration; and the incidence of long-term unemployment, that is, the number of workers unemployed for longer than six months expressed as a share of the labor force. All three series have reached unprecedented highs for the post-World War II period. Average and median duration reached levels about twice as high as their peaks in the early 1980s downturn, even though the peak unemployment rate in the earlier recession was 10.8% compared with 10.1% in the 2007–09 recession. Similarly, the long-term unemployed as a percentage of the labor force reached a high of about 4.4% in mid-2010 and hovered around 4% during much of 2011, well above the high of 2.6% in the early 1980s. Since early 2010, the long-term unemployed have consistently accounted for about 40–45% of all unemployed individuals.

The increase in average duration in 2011 partly reflects the impact of the recent measurement change, which raised the average duration of unemployment by about three weeks as of June 2011 (see U.S. BLS 2011). However, three weeks is small relative to the elevated average duration noted above. This suggests that factors affecting the labor market itself, not changes in measurement, are primarily responsible for the increase in unemployment duration over the past few years.

Sources of rising duration

The changing demographic characteristics of the labor force are one potential source of rising unemployment duration. For example, workers under the age of 24 tend to experience short unemployment durations despite high unemployment rates because they frequently move in and out of the labor force. The substantial decline in the labor force share of young workers over the past three decades caused unemployment duration to rise independent of economic conditions. Aaronson, Mazumder, and Schechter (2010) assessed the contribution of changes in age and other workforce characteristics, concluding they could account for only a small portion of the higher duration observed in 2009 compared with the early 1980s recession.

Another factor that may help explain the recent surge in duration is the extension of unemployment insurance (UI) benefits from the normal 26 weeks to a maximum of 99 weeks for most eligible workers. This program was authorized from late 2009 through 2011, and recently extended for several additional months into 2012. However, estimates from Aaronson et al. and other research (see Daly et al. 2011 and Rothstein 2011) suggest that the contribution of extended UI to prolonged durations has been modest.

Figure 2
Nonfarm employment relative to pre-recession peak

Nonfarm employment relative to pre-recession peak

Sources: BLS and authors' calculations.

The limited impact of workforce characteristics and extended UI suggests that other factors bear primary responsibility for the recent spike in unemployment duration. The most obvious one is the severity and persistence of employment losses compared with past recessions. Figure 2 shows employment patterns during and after the last four U.S. recessions, in each case measured relative to the pre-recession employment peak. At the recent employment trough in early 2010, employment was down 6.3%, compared with a cumulative decline of less than half that during the early 1980s. Moreover, employment has recovered little following the trough, growing on net by less than two percentage points through late 2011. That’s about 10 percentage points below the growth path from the early 1980s recession.

It is likely that the recent pattern of massive job losses and a weak jobs recovery is the primary explanation for elevated unemployment duration. The contribution of these elements can be examined more formally by performing a regression, a standard statistical technique for measuring the relationships among variable factors. We follow the approach of Aaronson et al. (2010), who calculate the extent to which rising duration can be explained by changes in characteristics of the workforce. We extend their approach by incorporating measures of cumulative employment losses. For each month of CPS data on individual unemployment duration, we calculate the percentage change in payroll employment relative to the pre-recession peak and include it as an explanatory variable in our statistical exercise. We use payroll employment for each individual’s state of residence for this calculation (see Valletta 2011). The data used are for periods covering the latest recession and its aftermath, and the corresponding periods from the early 1980s recession. These are matched by counting months forward from the pre-recession employment peak. The recent duration data are adjusted for the 1994 and 2011 changes in survey measurement.

The results of this exercise indicate that changes in workforce characteristics and cumulative employment losses largely explain the excess unemployment duration of recent years compared with the early 1980s. For example, 15.7 extra weeks of unemployment duration are observed for the 12 months ending in August 2011 compared with the corresponding period ending in January 1985. Of that, slightly over a fourth, or 4.1 weeks, is accounted for by changes in workforce characteristics. Nearly a half, 7.5 weeks, is accounted for by the greater extent and persistence of employment losses in the recent recession. The remaining unexplained portion of about 4.1 weeks is only slightly larger than the estimated 3.5-week effect of extended UI discussed in Daly et al. (2011).

These results strongly suggest that weak labor demand plays a key role in prolonged unemployment duration. But they do not directly disprove explanations related to the supply of labor, such as mismatches between worker skills and employer skill needs. Mismatches may cause available jobs to go unfilled and thereby hold down employment growth. In this case, our variable measuring cumulative employment losses reflects labor supply frictions as well as weak demand.

Figure 3
Ratio of unemployment to vacancies

Ratio of unemployment to vacancies

Sources: BLS and authors' calculations.

We can separate supply and demand factors by incorporating a direct measure of labor demand into the analysis to replace our employment growth measure. Our direct measure of labor demand is job vacancies, essentially the hiring employers want to do rather than the hiring they actually do. The number of job vacancies is available in the BLS Job Openings and Labor Turnover Survey (JOLTS) data available for months beginning in December 2001 (see Valletta 2005 for a method of estimating the number of vacancies for prior periods). We use the ratio of the number of unemployed individuals to the total number of job vacancies at the national level to measure labor market tightness or net demand. The higher the ratio, the weaker is the demand for labor relative to available supply.

Figure 3 displays the series. After reaching a post–World War II peak close to 7 in 2009, the ratio has declined somewhat. But, through July 2011, it has been only slightly below the peak reached in 1982. When this variable replaces cumulative employment declines in our statistical analysis, the results suggest an even larger role for weak aggregate labor demand. The ratio of the total number of unemployed workers to job vacancies accounts for about 11.5 weeks of the 15.7 extra weeks of duration in 2010–11, explaining virtually all the increase in duration when workforce characteristics are also taken into account.

Conclusions and implications

The analyses discussed here suggest that weak labor demand is the primary explanation for prolonged unemployment duration observed in the recent recession and recovery. The weak recovery of employment is similar to the jobless recoveries that followed the 1990–91 and 2001 recessions. This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. The shift towards jobless recoveries probably reflects a reduction in temporary layoffs during cyclical downturns. Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.

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ZeroPoint's picture

Meanwhile, Obama trumpets his latest free trade agreement with third world hellhole Vietnam.

 

Clueless Economist's picture

Why should we be worried about the Fed's inability to bring the unemployment rate down, when President Obama has a "lasar like focus" on jobs?

 

wanklord's picture

What’s all the uproar?
It seems that most of Americans never bothered themselves to learn living within their means, save some money, plan for the future, get a decent education and avoid credit at all.

The blame must be placed specifically on the so-called Baby Boomers, a failed generation who really enjoyed the prosperity of the 50s and 60s; instead, they focused all of their deprived intellect in experimenting with all types of drugs and having very promiscuous sexual lives. These people have done nothing for this country and now they are so scared of potentially not being able to collect their government entitlements (paradoxically, they are the majority).

Therefore, America as a broken society is now paying the consequences of its own greed, lack of common sense and stupidity.

Someone said that Americans are just a bunch of stupid animals easy to manipulate and subdue. The sooner the US economy collapses the better, so the ignorant populace will finally learn NOT to live beyond their means – and stop blaming the government, since they don’t give a crap about people’s grievances.

Manthong's picture

There is plenty of work to do..

throwing Solyndra glass tubes into the dumpster.

 

macholatte's picture

 

As President Obama crafts a reelection income equality message aimed at punishing the rich and rewarding the poor, his own government finds that the 46 million living below the so-called “poverty line” live and spend pretty much like everyone else.

Says Rasmussen, “About 40 million Americans are officially defined as living below the poverty line. Yet most of those have adequate levels of food, shelter, clothing and medical care. Sixty-three percent of American adults believe such a family is not living in poverty,” he writes. “Only 16 percent believe that a family is living in poverty if it has two color televisions, cable or satellite TV, a DVD player, and a VCR, but that’s what the average family living in poverty has as defined by the U.S. government,” he adds.

http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/feds-%E2%80%98poor%E2%80%99-consume-rich/348206

The Big Ching-aso's picture

 

 

They may be powerless to fix unemployment but there's no phucking doubt about it they're damn good at increasing it.

economics1996's picture

These rich Yids want to kill 6.8 billion and live the Star Trek life style.  Unemployment and an affirmative action dolt are the first step.

Chuck Walla's picture

The desperate vote for those who promise cash aid or some kind of relief.  Il Duce cannot get re-elected unless he buys the votes.  He cannot "guide" a revolution without a revolutionary situation. Lenin explains this quite clearly in his writings. 

battle axe's picture

Well aren't we just a ray of sunshine....

eatthebanksters's picture

Fuck you asshole...I had saved and was living well within my means with a conservative investment strategy and low leverage...all my investments were unfortunately in real estate.   I did'nt lose everything but lost enough that I am hurting. I'm a highly educated 55 year old male that can't find work (and I have no problem working hard) so I am creating a new business out of what I have left.  Unfortunately between government ineptness and corruption in the public and private sectors, many were taken advantage of so that a few might benefit.  Don't worry, America is full of guys and gals like me...we'll get it sorted out, kick out the fuckers that messed things up and become an economic power again...it's the American way.  

Sounds like you're projecting your sad life onto us...keep whining bitch, at least we do something about it.

oddjob's picture

I think you have underestimated the colossal mistep of your generation and the coming consequences.

economics1996's picture

I am just a old fart just wanting this shit to go hot so I can get some payback.

JW n FL's picture

 

 

to tar and feather.. or not to tar and feather... this is the question.

Raging Debate's picture

That's the spirit! Some humor in framing the argument to boot!

donsluck's picture

I beg to differ. The problems really came to a head when the US administration and congress conspired, against almost all public input, to a $700 billion giveaway to the banks as Bush departed, and as continued by Obama.

There is no fighting corruption at the highest levels, except through revolution (which I do not support!!!)

hedgeless_horseman's picture

 

 

eatthebanksters says:

...a conservative investment strategy and low leverage...all my investments were unfortunately in real estate...

 

 

...I did'nt lose everything but lost enough that I am hurting. I'm a highly educated 55 year old male that can't find work...

 

...America is full of guys and gals like me.

Indeed, it is.

STS813's picture

If you're not already aware of the method and your real estate is owned in physical form (not REITs), enter this phrase in your search engine of choice: "cost segregation accelerated depreciation".  Please note; don't be fooled by firms or individuals stating they know the method, as there are only a handful of firms in the country who truly specialize in this field.  By choosing not to use a specialist, you could be exposed to substantial risk.  Do some research, go with a reputable firm and you may be able to salvage some of your net-worth, while retaining the rest of your real estate holdings.  The method isn't cheap, but the benefits far outweigh the cost.  With my previous career in CRE investment sales, I had a number of clients who benefited from this.... Good Luck!

Ruffcut's picture

Become a economic power again?  All ponzi schemes come to an end.

Half of everything you have is leveraged ponzi bullshit.  Pensions, savings, investments, gold and pewter, ALL PREDICATED ON REAL GROWTH, THAT WAS NOT REAL AT ALL.

There is no reset button. The banksters have fucked it up, but good. When house flippers were cashing in on ponzi, it was someone elses debt, that is not being paid back. And to add insult to injury these assholes sold their ponzi debt as money good to any sucker they could find.

Empire again? My aching ass, hardly. Go to obobble and ask for more hopium to but on your soggy corn flakes.

Things that go bump's picture

Sorry, but we won't rise again in your lifetime or mine.  People in our age bracket are going to die broke and before our time when the rug is pulled out. Then, in a few generations, when most living now are dead, they'll do it all over again to our grandchildren and great grandchildren.

Matt's picture

I'm not sure that putting all your money into real estate qualifies as a conservative investment strategy ...

economics1996's picture

Real Estate was the "safe" investment until the Yid mother fucker Greenspan saw the new housing numbers in 2001-02.  Then he saw how much his fucked up wife hated Bush.  Then the mother fucker put 2 and 2 together.  Then we had 1% interest rates for 2003-04.  And the rest is history.  America stabbed in the back by fucking Yids.  Who would have thought it?

grid-b-gone's picture

The Boomers are the first generation to have paid into entitlement programs for their entire careers. They and their employers are the demographic that has paid 100% of Reagan's SS tax increase to "save" Social Security.

Many Boomers did not even vote or work until the 70's, so saying they partied it up in the 50's and 60's is a spurious connection to today's problems.

Boomers want to know where that lockbox is. 

The core problem began in 1913 and was expanded by FDR's programs.

Most of these progams are Ponzi in nature. The real winners were workers who only paid into the program for a few years and then collected (starting Jan 1940) while 16 were paying in for each receiving benefits.  

The plan really ran off the rails with the Republican Congressional and Executive sweep of this century. Instead of governing as fiscal conservatives, they threw a pork party, justifying it with Keynesian and Supply Side theory that excess spending somehow leads to greater demand.

Thus began the series of bubbles that have consumed much of the retained capital of the U.S.

Like eatthebanksters, I now understand that being a small business owner is one way to tap into pro-business benefits and escape the U.S. employee challenge that has to compete directly with labor worldwide.

Boomers are just as angry as the poster/ranter because we know we can't help our children as our WWII parents did, entitlements will be eroded, and job prospects will be limited for our children. 

I missed it personally, but yes, that period between the pill becoming legal and AIDS must have been awesome. Never saw that as a rant subject before. Boomers ruined that for you, too?

economics1996's picture

Everyone thinks the Silent Generation and GI Generation are the baby boomers.

WillyGroper's picture

>>>>>The blame must be placed specifically on the so-called Baby Boomers, a failed generation who really enjoyed the prosperity of the 50s and 60s; instead, they focused all of their deprived intellect in experimenting with all types of drugs and having very promiscuous sexual lives. 

 

Wanker, How many times are you going to post this crap? Did ur mother turn tricks at Woodstock with livestock to get paid for her meth addiction?

JW n FL's picture

 

 

in the past 30 - 40 years is when this shit too hold..

it took a decade of planning..

and a decade to execute...

but the executing parties of this cluster fuck are the baby boomers.

and thats the fact jack!

Careless Whisper's picture

 

 

The Careless Whisper Afternoon Update & Threadjacking Because Drudge Needs Help Today

 

 

Report Says Entertainment Industry Booming, Independant Artists Benefit From Internet

http://thehill.com/blogs/hillicon-valley/technology/207361-report-downpl...

FL City Uses Scanners On Garbage Trucks To Monitor Residents Recycling

http://www.miamiherald.com/2012/01/30/2615334/south-florida-city-to-keep...

Colombian President Says Decriminalize Drugs To Bust Violent Drug Cartels

http://latino.foxnews.com/latino/news/2012/01/30/colombian-president-bro...

Catholic Church Refuses To Obey Obamacare; Won't Pay For Abortions

http://www.theblaze.com/stories/we-will-not-comply-catholic-leaders-dist...

LA Sheriff's Captain Accused Of Helping Crips Drug Gang

http://www.latimes.com/news/local/la-me-captain-investigation-20120128,0...

Detroit Accused Of Towing Random Cars To Boost Revenue

http://www.detroitnews.com/article/20120130/METRO01/201300358/Outrage-gr...|topnews|text|FRONTPAGE

NYC Government Protects Privacy Of Its Purchases By Sticking With Typewriters, Shuns Computers

http://www.nypost.com/p/news/local/mayor_qwerty_li_secret_6mIgFex6qoJ0fs...

Music VIDEO Of The Day; "Hot Couture" By Manila Luzon

http://www.youtube.com/watch?v=_gdbbHr1d2A

falun bong's picture

off-topic troll please go away

Careless Whisper's picture

I don't have to obey your Canadian censorship rules that you have been brainwashed into believing. If you don't like my posts, just scroll past them.

brewing's picture

let me correct that - just troll past them...

JW n FL's picture

 

 

Thank You!! for the GREAT!! Links!!

Keep Up!!the FANTASTIC!! Sharing of Information!!

signed, Christian Constitutionalist

Hugh G Rection's picture

Not to worry. WW3 will create a million jobs.

Sudden Debt's picture

No, as Sharks with freaking laser beams attached on their head trainers.

 

JW n FL's picture

 

 

Best one Liner I have seen in a GOOOOOOOODDDD LONGGGGGGGGG while!!

Thanks!!

Liquid Courage's picture

"laser-like focus" ? A laser, of course has a very small focus, so I guess he's admitting that he "can't see the forest for the trees".

Then again, maybe he just wants to vaporize those pesky unemployed workers.

"I'm Barak Obama, and I approved this idiotic and inappropriate metaphor."

Raging Debate's picture

Liquid, the quote was from the Austin Powers parody of Goldfinger, called Goldmember: Check out this video on YouTube:

http://www.youtube.com/watch?v=Pozlp_wnkRk&feature=youtube_gdata_player

If you haven't seen this move you might like it. Very funny.

The suffering out there isn't funny. Some stewards immersed in it adapting to the difficulties choose humor to deal with it though as it can be laugh or cry. For me it's a little of both.

Good luck and God bless all the Stewards and their Wards. The load is awful heavy but at least we got friggin sharks with friggin laser beams on their heads ;)

mattu13048's picture

That's what Armada Markets wrote in their latest weekly market forecast. The Fed is desperate. 6 years of ZIRP has brought us nothing. 

Poetic injustice's picture

To first poster:
Equal with equal, dontcha think?

ACP's picture

That's no excuse to not print money!

Besides, who says Bernanke's goal is to reduce unemployement?

Clueless Economist's picture

Yes, I agree fellow Keynseian, brilliant minds think alike!

The only solution to the debt problem, is more debt"

-Economics Nobel Winner, P Krugman  

Bunga Bunga's picture

The ideas of those outstanding geniuses have been by no means understood by science, technology, politics and society so far. Applying their revolutionary ideas on medicine per instance would heal mankind from cancer: Organisms have simply to grow faster than their tumors. There will be a time when people learn, accept and apply the brilliant Keynesians rules in medicine, technology, physics, math, astronomy aso.

V in PA's picture

That would make a great t-shirt. :)

lesterbegood's picture

The Fed no longer has any power outside of the G5 countries and a few client states. By the way, has anyone checked the expiration date on the Feds corporate charter?

francis_sawyer's picture

By the way, has anyone checked the expiration date on the Feds corporate charter?

I'd be more interested in getting a roll call head count in "who's in" & & "who's out" in terms of renewing that charter before the elections...

I doubt we'll see that roll call anytime soon...

Debt-Is-Not-Money's picture

You mean the 99 year charter that ends 12-21-2012?

Is that for real?

Doomsday for the Fed?

If this is real, what do you think they will do before then, and what's it likely to be?

lesterbegood's picture

TITLE 12 > CHAPTER 3 > SUBCHAPTER IX > § 341

 

§ 341. GENERAL ENUMERATION OF POWERS

 

Upon the filing of the organization certificate with the Comptroller of the Currency a Federal reserve bank shall become a body corporate and as such, and in the name designated in such organization certificate, shall have power—

First. To adopt and use a corporate seal.

Second. To have succession after February 25, 1927, until dissolved by Act of Congress or until forfeiture of franchise for violation of law

francis_sawyer's picture

Why Is Unemployment Duration So Long?

Because the PAY is better... Go figure...