patrick.net

Discouraged Workers Complicate Fed's Response to Jobless Fall
http://www.bloomberg.com/news/2011-04-10/discouraged-workers-stop-bernanke-from-taking-much-comfort-in-jobless-fall.html

A few good quotes from this article:

Alan Krueger, a former Treasury official, argues that policy makers shouldn’t be tightening monetary policy in the face of depressed employment and elevated long-term joblessness.

“I would like to see QE 2.5,” with the Fed completing its second round of quantitative easing in June and then buying more Treasury securities thereafter, said Krueger, who is now a professor of economics at Princeton University in New Jersey.

Ha! Big surprise there... BUT

The flaws in the labor market were aggravated by the recent recession but didn’t start there, according to Krueger. The employment-to-population ratio in the last expansion, which began in 2002, never reached the 64.7 percent peak it attained in 2000 during the previous upturn.

Rising income inequality and sluggish wage growth during the last expansion also suggest that the labor market’s troubles are ingrained, Spence said. Average hourly earnings showed little growth from 2002 to 2007 when adjusted for inflation.

AND

The ratio [of people employed to the population] is a better measure of the jobs market because, unlike the unemployment rate, it isn’t affected by changes in the size of the labor force, said Edward Leamer, a professor of management, economics and statistics at the University of California at Los Angeles.

And this is why the employed, and the current job market, are not really in particularly good shape either:

A study he [Spence] did with New York University researcher Sandile Hlatshwayo showed that virtually all of the growth in employment between 1990 and 2008 was in the nontradable sector of the economy, which isn’t subject to international competition. Government and health care together accounted for almost 40 percent of the jobs added.

Employment growth in that sector is likely to slow as government spending is restrained, the authors argue in a paper for the Council on Foreign Relations in New York. Value added per person grew 0.7 percent a year in the period studied, which explains why wage gains for these types of jobs were limited, they say.

Taken together, what does this all mean?

Value-added in the tradable arena, which includes manufacturing and financial services, grew by an average 2.3 percent a year, allowing these employees to enjoy bigger compensation increases. The sector as a whole added few net jobs, though, as manufacturers in particular moved production overseas, Spence and Hlatshwayo wrote.

“The American dream is being seriously tested right now,” Leamer said. “It’s an emergency for the middle class.”