Long Term Unemployment: A Public Health Hazard

We hit record territory some time ago.  No matter how it’s measured, either absolute #’s or as % of labor force or % of population, we (the U.S.) has a level of long-term unemployment far greater than anything we have seen since the Great Depression.  see my post To Some, It’s a Depression for the specifics of just how bad.  Most economists are expecting this “recovery” to be another long, slow slog, meaning it will be years before we achieve full employment again.

But let’s forget the numbers and GDP for a moment,  and consider the individual and social consequences.  Don Peck writes in The Atlantic about How a New Jobless Era Will Transform America.

…The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years…

There’s real health effects.  One of the studies cited by Peck,  Job Displacement and Mortality: An Analysis using Administrative Data1 by Sullivan and Wachter, shows:

The effect on mortality hazards declines sharply over time, but even 20 years after displacement, we estimate a 10-15% increase in annual death hazards. If such increases were sustained indefinitely, they would imply a loss in life expectancy of 1.0-1.5 years for a worker displaced at age 40.

In  other words, long-term unemployment, most of which is not the consequence of individual decisions, is a disease that kills.

In reviewing the Peck article, James Kwak at Baseline Scenario observes:

My initial thought was that the financial crisis and recession might have a salutary effect because the middle class, faced with serious economic insecurity, might start worrying more about economic security (and identifying more with the poor and working class), instead of thinking that individual initiative alone would make them rich. I still think this is possible. Unfortunately, it seems to be unlikely. Peck cites economic historian Benjamin Friedman, who “argues that both inside and outside the U.S., lengthy periods of economic stagnation or decline have almost always left society more mean-spirited and less inclusive, and have usually stopped or reversed the advance of rights and freedoms.” The mechanism for this is simple: although some people may react to economic insecurity by realizing that their interests lie with labor rather than capital, other people will react by blaming their misfortune on immigrants, or minorities, or Jews, or gays, or — this being America — the government.

I am with Kwak on this one.  I am very concerned.  I see the Washington consensus and the political-media chattering classes, fully secure in 6+ figure income jobs, shifting their attention to “deficits” and “terrorism” and away from the real economic reform and stimulus needed to generate jobs.  This is playing with fire.  We need genuine investment (large-scale) in public goods & infrastructure: education, research, high-speed rail, highways, universal broadband. We it now.

China: Working Conditions & Globalization

Interesting Q & A on Labor Compliance in China. Did Anyone Learn Anything from Nike? from All Roads Lead to China.

what are the biggest compliance issues that exist in china?
The more common compliance issue in China is about working time. It is found in almost every factory as the Chinese law is quite strict (40 hours per week), but the reality is that the average working time is among the highest worldwide with around 70 to 75 hours per week.

The toughest compliance issue, bounded labour (i.e. young child labour),  is rarely an issue of big factories. Second to the issue of child labor though is that we regularly meet factories that pay workers once a year only, which essentially means that workers can’t resign from their job once they have started. This kind of practice leads workers to be fully dependent on the factory, even in case of major needs to change.

Do firms (buyers)understand the conditions on the ground? do they plan well?

Most of them don’t understand. Actually to be able to claim you are working with compliant factories only is already an evidence of lack of awareness of real situation.When I do training in companies on social situation in factories, I have people astonished by actual situation, and because many figures are not easily understandable , I spend a lot of time helping them understand the meaning of these figures.

Go read the whole thing.

Inventories & GDP Explained

A good explanation of the role of inventories (and inventory changes) in GDP, including examples from 2009. From Calculated Risk.

First, GDP is Gross Domestic Production. What is being estimated is “domestic production”, but what is being measured is mostly domestic consumption.

Right away we can see that if something is produced domestically and then exported, it will not show up in domestic sales. So exports are added to the equation, and imports subtracted. Investment and Government spending are also added to measures of consumption, and we frequently see an equation like this for GDP:

Y = C + I + G + NX
C: Consumption
I: Investment
G: Government spending
NX: Exports – imports.

But what about changes in inventories? The same ideas apply. What is measured are sales and changes in inventory, and then production is calculated:

Production = Sales + Changes in Inventory
The following simple table shows how this works, and how it impacts GDP.

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Why do we always find Goldman, Sachs where there’s trouble?

The Baseline Scenario concludes with a warning that Goldman must be dealth with:

And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action?  What is the priority here – a sustainable recovery and a viable financial system, or one particular set of investment bankers?

To preserve Goldman, on incredibly generous terms, in the name of saving the financial system was and is hard to defend – but that is where we are.  To allow the current government-backed (massive) Goldman to behave recklessly and with complete disregard to the basic tenets of international financial stability is utterly indefensible.

The credibility of the Federal Reserve, already at an all-time low, has just suffered another crippling blow; the ECB is also now in the line of fire.  Goldman Sachs has a lot to answer for.

What prompts this indictment of Goldman as public nuisance?  Greece’s troubles are threatening the Eurozone.  And how did Greece’s situation get out of hand?  Thanks to Goldman.  Shades of sub-prime and AIG credit default swaps. Here’s the full story.

At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company – implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial.  Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability.  (The blow-by-blow account is in Andrew Ross Sorkin’s Too Big To Fail; this is confirmed in all substantial detail by Hank Paulson’s memoir.)

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November.  These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets.  When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

A single rogue trader can bring down a bank – remember the case of Barings.  But a single rogue bank can bring down the world’s financial system.

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House.  It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues.  Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.

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