Anyone who with a social science statistics class in their past will remember the phrase “correlation is not causation”. It means that when two things happen at close to the same time we cannot assume that one causes the other. Or even that the two are related. This is something I have been thinking about lately because I see two things happening at about the same time and I wonder how much one is related to the other.
I am talking, of course about the interesting timing between improving employment numbers and the warm up to the next presidential election. It seems quite convenient that economics statistics are improving at the same time that President Obama desperately needs something positive for which to claim responsibility. Anyone who reads my posts know I am a stats geek, and it will not surprise them that I did a little digging.
Remember the “99ers” – the people whose unemployment benefits were running out last year? These people have been receiving unemployment benefits for almost three and a half years. The generally accepted rule of thumb seems to be that six months of unemployment is the break off point for giving up on the possibility of employment in a traditional job. Anyone unemployed for that long is unlikely to ever find a job. It may not be fair, and it may not be right, but that seems to be the way it is.
So what is happening to these people?
For one thing, many of them are transitioning from the statistical category of “marginally attached”, meaning they would take a job if one were available, to the category of “disabled”, meaning that they are not physically or mentally able to work. Former workers receiving disability benefits have increased 1.2 million since 2008, an increase of 17% (Isidore 2011).
It is not a moral judgment to point out that these people will likely receive disability payments for the rest of their lives. Not only do we lose their productivity, but we also have to support them. These people have to survive, but supporting people who have no place to stand in the economy will be an additional burden while we build a new economy. Some of these people probably will contribute to our economic future by turning their skills and talents to creating new inventions or participating in the emerging global “grey market”. Unfortunately, though, the majority of them will likely be a drag on economic growth for decades.
Maybe the answer is bringing industry back to the United States. Remember the rosy reports about the return of industry? I looked into that claim and found out it is true. There has been a modest increase in factory jobs in the last year or so. The problem is that few people want to take such jobs, even though they pay very well, and few factory owners want to hire older displaced workers, even though it is illegal.
Why are young people not jumping into these high paying factory jobs? Because they are not stupid. They read the same economic projections the rest of us do and they know that the future of industry in the United States is dim (Kavilanz February 27, 2012). The Bureau of Labor Statistics predicts that production jobs will decrease by 1.2 million between 2008 and 2018 – the biggest loser of any labor sector by far (BLS October 3, 2010). Traditional American industries need labor for its last gasp before completely disappearing, and there are not many takers.
However, a new kind of industry is emerging. Unfortunately, it does not require labor, at least in the sense that we have always thought of industrial labor. Here is a peek into the future of American industry:
"This factory is designed to be fully automated, meaning theoretically it requires no human intervention at all," said Eric Choh, general manager at the facility run by semiconductor maker GlobalFoundries. The company is hiring engineers and programmers who are still needed to mind the machines. But "compared to 20 years ago, today we don't need a lot of labor," said Choh. (Lange. February 26, 2012)
So is there any good news? Well, yes, but you have to take your good news wherever you can find it. Remember, instead of a recovery, an entirely new economy is under creation. It will be far different from the one that collapsed in 2008 and will challenge our concepts of what a job is, what labor is and how wealth is created.
Housing prices seem to be finding their bottom. That is good news, but it does not mean that home sales or construction is “recovering”. It means that that the price of long vacant homes has dropped to point where investors are showing a little interest. The right house, in the right place, with low repair costs, might be able to get sold for a profit. Contrary to what we hear from desperate real estate marketers, the housing industry is not on the verge of resurrection. Many of these homes have been vacant so long they need expensive repairs, and some have deteriorated so much that they will probbly never find buyers. A real estate salesman here in Tucson told me about showing a house that had been untended so long that the ceiling in the living room had caved in, and there is a video on You Tube of an abandoned Scottsdale house that rattlesnakes are now calling home (You Tube November 22, 2010).
Long-term unemployment might also be near its bottom point. The portion of unemployed who have been without a job for more than 27 weeks has been increasing dramatically since 2008, but has been holding steady at about 45% for the last few months. Some of this might be due to more people shifting to disability status, but there is no way to tell for sure. There is no doubt that deaths of the long term unemployed are also a contributing factor, but again there is no way to tell how much of an influence this has on the overall numbers. No matter what the cause, a leveling off of long-term unemployment is a good sign. Maybe we have reached the peak numbers of long term unemployed. That does not mean that they will find jobs again, but we should acknowledge that their numbers might be stabilizing.
There may nothing dramatic to celebrate, but we can take a bit of encouragement from some of these numbers. However, we might have to adjust our thinking to the realities of the new economy. In the past, poverty has been associated with urban centers and affluence with suburbs. In the future, the reverse might be something we need to accept. Each of those long abandoned homes in the suburbs represents several more in which the owners are barely getting by. Meanwhile, city centers in places like San Diego, Seattle, Portland and Austin are experiencing a renaissance. Quite possibly the real estate wealth of the future will be in the inner city and suburbs will contain patches of impoverished homeowners and, increasingly, renters.
Politicians put a self-serving spin on economic statistics; that is their job. We should not accept what they tell us at face value, but we should not ignore positive developments either – even if they are something short of “on road to recovery”.
BLS (October 3, 2010). Occupational Outlook Handbook, 2010-11 Edition. Overview of the 2008-18 Projections. Available at: http://www.bls.gov/oco/oco2003.htm
Isidore, C. (June 5, 2011). America's hidden unemployment problem. CNN/Money. Available at: http://money.cnn.com/2011/06/01/news/economy/disabled_workers/index.htm
Kavilanz, P. (February 27, 2012). A $100,000 factory job. What's uncool about that? Yahoo Finance. Available at: http://finance.yahoo.com/news/100-000-factory-jobs-whats-145600750.pdf
Lange, J. (February 26, 2012). Analysis: U.S. factory jobs rebound seen destined to fizzle. Reuters. Available at: http://analysis-u-factory-jobs-rebound-201437276.pdf
You Tube. (November 22, 2010). Rattlesnake Den inside Scottsdale Garage. Available at: http://www.youtube.com/watch?v=Wf5puynSYOI