If you’re highly qualified, how come you can’t get a job?

By Neil Patrick

How can it be that so many highly skilled people are unemployed, while employers claim they cannot find people with the right skills?

Over the weekend I was reading The Third Industrial Revolution by Jeremy Rifkin. Although this book is about the economic, environmental, technological and social issues we face today, within its covers there is an explanation of this apparent contradiction.

And understanding this is of critical importance to anyone who wishes to prosper in their career over the long term.

We’re on the cusp of a new industrial era

Jeremy Rifkin has identified that industrial epochs are characterized by two determining factors. These are the dominant energy source and communication media.

So, the first industrial era was powered by coal and the prevailing communication medium was the printed word. Society organised itself around these…coal powered transport and industry and provided heat and light to homes and businesses. Print communicated everything from newspapers and novels to instruction manuals and bibles. All were committed to print.

The second industrial era is now in its death throes. This was driven by oil and the dominant communication mediums were radio, television and the telephone. In case you've not noticed, the oil is running out fast and TV and radio have ceased to be the dominant media they were in the last 60 or 70 years. Oh and it seems telephone landlines are becoming less and less popular too.

Rifkin believes that the third industrial era will be based on green energy and the internet. This change will have massive implications for the types of jobs we all do. The effects of the transformation will impact every one of us, not just those working in energy, communications and media. And there is clear evidence in many of the events that have unfolded over the last few years that he is right.

Rifkin even argues convincingly that the current financial crisis was a symptom of the end of the second industrial era, rather than the cause of it.

We’re all potential victims of accelerated obsolescence

So not only are we currently undergoing a transformation of society itself, the technologies which will define our society in the 21st century are undergoing a revolution too.

And because the pace of technological change is accelerating, very few people can assume that their skills will be current for much more than 10 years or so.

Google didn’t exist in 1995. Back then I would search the internet using a long forgotten search engine called Dogpile. Today, if a business doesn’t rank high on Google searches, it’s increasingly invisible and rightly or wrongly judged as second rate.

The credit industry was dominated by credit cards until 2008 and the financial collapse. Try finding a job today if you’re a credit card professional. Despite the credit crunch starting almost 6 years ago, one of the biggest UK credit card issuers, MBNA has been contracting now for years. It currently employs around 3,000 staff, down from 4,224 in 2011.

Yellow Pages was a huge global business for decades. But despite trying to shift its business online, it’s facing an inexorable decline in its relevancy. Not only that, it fails on environmental grounds too. The Product Stewardship Institute claims local governments spend $54 million a year to dispose of unwanted phone books and $9 million to recycle them. Phone books use low grade glues and are therefore difficult to recycle, and they often clog recycling machinery.

There’s no job security in established businesses either

Of course the decline in the fortunes of businesses is nothing new. What is new is that the speed at which a firm can move from established business and secure employer to contraction or even obsolescence. And if your career is tied up with one of them, your skills can become worthless very quickly.

The U.S. Postal Service suffered 30,000 layoffs in March 2010. Sears/K-Mart layed off 50,000 in January 1993. IBM layed off 60,000 in July 1993. And General Motors layed off 47,000 in February 2009. And these are just some of the biggest. For every one like this, there are hundreds of smaller less well reported downsizings and closures.

Organisations are very good at disguising their difficulties right up until the last moment. Are you really tuned in to the real situation at your employer? You need to be.

So if you are planning to work until you are 65 or beyond, you can fully expect that you’ll need to completely reinvent yourself at least 4 or 5 times over during your career. Note that I say ‘reinvent yourself’ not just change jobs…

Peter Weddle makes this comment on the ASQ blog. This is his take on it:

"Today’s turbulent economic environment has changed the way employers fill their vacant positions. Instead of using their traditional approach — hiring a person who is qualified for a job -they have turned to a new strategy that is best described as “talent staffing.” As a result, tens of millions of decent, dedicated and capable people — men and women who have successfully worked their entire lives — are now unemployed, unsuccessful in their search for a new job and unable to figure out why. No one has told them that the rules of the game have changed".

Do not confuse this with the economic downturn

It’s tempting to think that our recent woes are because of the recession. And that if and when things recover, we’ll all be much more secure in our jobs. Think again.

This isn’t a temporary state of affairs, it’s a paradigm shift which will continue to accelerate over the coming years and decades. It is this speed of change which means that often, skills which were cutting edge as recently as four or five years ago, can be obsolete today.

So you need to keep not just your skills but your TALENT up to date. And that’s the crux. If you are employed, you can fully expect that your employer isn’t going to react very enthusiastically to a request for a couple of weeks off work.  You're asking them to pay for you to learn some new stuff that may very well not be relevant to the job you are doing today, but which may be critical to the job you’ll need in say three or four years’ time…

If you are looking for work, you need to understand that employers will only hire individuals who have all of the skills to do a job and the state-of-the-art knowledge required to use those skills effectively on-the-job. They seek better-than-qualified persons to do a job, and they expect superior performance from them and from their first day of work.

This means they expect you to be the custodian of your talent value. That’s down to you not them.

What is talent?

Ironically, even though millions of people in Europe and the US are now unemployed and looking for work, a large percentage of employers believe there is a shortage of individuals with talent. They are quite wrong to think this of course. But perception is reality whether it is right or wrong.

Peter Weddle defines talent thus:

In practice, employers have defined a person of talent to be someone who has one or both of two attributes:

They have a skill that is critical to organizational success and a track record which demonstrates their ability to use that skill effectively on-the-job.

and/or

They perform at a superior level on-the-job which sets a standard that encourages their co-workers to upgrade the calibre of their work, as well.

The tragic irony is that employers do little or nothing to help their employees develop and hone their skills and talents for the future. So the moment you get hired is the moment your talent value starts to slowly but inexorably erode. You can be sure that your employers will only invest in you if they perceive a more or less immediate return on that investment.

What can you do about this?

Employers want to hire all-stars. Not just people who are good at what they do, but people who are clearly the best at that task. And the only way you can be such an all-star is if you are working with your talent.

First, make sure you know where your talent lies. Talent is not skill. Talent is an inherent capability, a natural capacity for excellence at a particular type of work. Talent is as individual as you are. But it cannot be universally used. No talent is compatible with all work, but every talent can be expressed in more than one career field. It can be developed to perform in one environment today and another tomorrow. But before you can do that, you have to understand precisely what you are talented at.

Second, make sure you are working in a career field and for an employer that enables you to express your talent. Employers aren’t hiring your skill, they’re hiring what they think will be your total contribution to their organisation. And right now if you have a job and your work isn’t allowing you to demonstrate your true talent, then it’s time to be looking elsewhere, even if you think your current job is OK.

Thirdly if you’ve identified your talent then you must do everything possible to nurture it, especially if you are not able to do this in your normal job. Because this isn’t something you can achieve in a few weeks or months, doing this while you are employed is vital.

Finally, you must step back and take the long view. The prospects for your firm and industry affect you. Directly. Whilst it’s easy to think that when Lehman Brothers collapsed in September 2008, it was an unpredictable event, the truth is that there were signs at least one year earlier that the firm was in financial difficulties. Moreover, five years earlier, in 2003, it had suffered an $80 million penalty from the SEC for using its researchers to unduly influence market prices.

Yes, it’s unfair that the rules of the game have changed. And yes, it’s even more unfair that employers never bothered to tell anyone about it. But if you step back and understand what is going on, you’ll be better equipped to deal with the reality. And if you fully embrace the reality, you’ll seek and find and the work you really love and build a sustainable career with it.

Why the Euro is bad for jobs, admits EU Commissioner

By Neil Patrick

Yesterday I read something I thought I’d never see. Lazlo Andor, the Hungarian economist and EU Commissioner for Employment and Social Affairs has admitted that Europe’s single currency has created ‘increased unemployment and social hardship’.

Back in November 2012 here, I criticised Mr Andor for failing to acknowledge the social impact of the EU’s policies on employment. Essentially, I felt the EU policies he was presenting then would result in a deterioration of employment opportunities, particularly in the weaker EU member states, since most people cannot easily move freely around the EU for work.

Yes there may be few legal migration barriers, and a minority of young and educated people have moved to find jobs. But is a 50 year old Greek shopkeeper with a failing business really going to up sticks and set up business in say Helsinki? I doubt it.

In an astonishing turnaround, Mr Andor has published a 496-page report this week, entitled ‘Employment and social developments in Europe 2013’. It argues that the surrender of national sovereignty and local currencies has led to a lack of flexibility in tackling the economic and jobs crisis.

This will be viewed as heresy by his peers

He has thus turned heretic in EU circles, but it is refreshing to see such an admission of policy failure coming from the heart of the European Commission itself.

Essentially, the problem admitted to in the report is that with the loss of the ability to devalue national currencies, the poorer Eurozone members in particular have been forced to drive down living standards. For example in Greece, average incomes have reduced by more than 30%. This collapse is unprecedented in Europe since the great depression of the 1930’s.

The report concludes, “In the absence of the currency evaluation option, euro area countries attempting to regain cost competitiveness have to rely on internal devaluation (wage and price containment). This policy, however has its limitations and downsides, not least in terms of increased unemployment and social hardship.”

Worse, the single currency is impeding recovery

The criticism of the European Central Bank and the Commission’s own policies continues in the report, stating that internal devaluation isn’t working and indeed has fueled a continuation of the recession in the Eurozone, which has fallen seriously behind Britain and the US in terms of economic growth.

(In a more or less simultaneous announcement this week, the IMF upgraded the UK's growth forecast from 1.9% this year to 2.4%, whilst UK unemployment levels were reported with glee by the government to have fallen faster than expected to 7.1%).

Martin Callahan, leader of the European Conservative and Reform Group of MEPs said, “Wage compression and weakened economic stabilisers in individual member states spilled over into others in the form of weaker external demand.”

The report charts a gulf emerging between north and south in the Eurozone. The average unemployment is 17% in southern countries compared with 7% in the northern countries.

Mr Andor has urged the EU to reform its policies to deliver “…a fairer distribution of costs and benefits among the participating member states”.

The recession is far from over in the southern Eurozone, but if this report is acted upon, instead of rubbished, perhaps we'll see some more sense coming out of the EU and ECB. Mr Andor is to be congratulated I think for having the courage to speak out against the idiotic policies created by his own employer.  I take back every criticism I laid at his feet and hope that his stand gains support rather than a backlash from his peers.

Exodus on Wall Street

By Neil Patrick

Whilst some would have us believe it, not everyone working in the financial sector is a villain. To condemn a whole group for the misdemeanors of a few is naive and simplistic. The people who work in the financial centers around the world are a very diverse group. They include lawyers, analysts, compliance managers, IT specialists, HR and training people, accountants.

They compete to get and keep their jobs just like everyone else. They face demanding challenges at work just like everyone else. In fact the challenges they face are much more stressful than many. When large sums of money are directly involved, it’s a certainty that you will be under a lot of pressure to perform. Consequently, a good number of them are actually completely burned out by the time they are in their mid-thirties.

And much of the money that they earn is spent in businesses where they live, like food, services, retail, residential and cars. The money earned in financial businesses plays a big part in providing work for others - and is a big contribution to the city’s tax revenues.

Today, like many others, these people are seeing their jobs and prospects significantly downscaled. The savage cuts in headcounts in the wake of the 2008 collapse have left financial centers with their expensive offices much emptier than they were six years ago. And the remaining staff with a lot more work to do.

JSquish

Take Wall Street for example. The Big Apple’s fabled financial district is steadily becoming more of a tourist hub than a financial hub. New York’s share of jobs in the securities industry dipped below 20 percent earlier this year to an all-time low, according to government statistics.

Moreover, jobs lost after the financial crisis are being replaced in the city at less than half the rate of the rest of the country. Two decades ago, New York was home to 30% of all such jobs.

The securities industry has recovered just 54% of the jobs lost nationwide after the 2008 financial crisis, according to the US Bureau of Labor Statistics.

But Wall Street has recouped only 23%. The workforce has been hollowed out - 167,000 employed at securities firms, down from 191,000 in 2008.

“The numbers say there are a lot of Wall Street jobs that don’t need to be in New York,” Barbara Byrne Denham, an economist who tracks the local business scene, told Crain’s New York Business. “That has all sorts of implications for the city’s tax revenues.”

Facing regulatory changes and with the advent of new trading technologies, the banks that long ago transferred lower-level personnel out of New York have started moving up the corporate ladder to put higher-paid people - such as investment bankers, analysts and financial advisers - in places like Tampa, Jacksonville and Salt Lake City.

So no-one is immune to the fallout from the collapse including the people who were closest to it. Perhaps it’s not altogether unlike what the military call ‘friendly fire’?



Some parts of this post were taken from an original article here:

http://nypost.com/2013/12/08/job-stream-from-wall-street-turning-into-a-florida-flood/

The invisible threat to all our futures

By Neil Patrick

I started this blog because I am convinced we babyboomers are in a period of unprecedented danger. And not only us, those that depend on us too. Like our kids. And our parents. And because no-one seemed to have any idea what to do about it.

Just about everything we grew up believing about jobs and careers and how our lives would unfold has been swept away in a perfect storm of recession, global economic power shifts, financial crisis, government failure and transformation of the workplace.

Our education in the 1960’s and 70’s was a reflection of a different world. This was a world in which the US and the western economies still held sway. And the education system was geared to providing a workforce which fed that economic machine with the human labour and skills it needed.

Only scraps remain of that world. Just look at Detroit and any other examples of the old world which are now little more than derelict monuments to a bygone era.

As a group, we are extremely poorly equipped to respond to changes of this magnitude. If you have a job, you may consider that all this is irrelevant to you. You may consider yourself lucky. In some ways you are. But do you genuinely believe you will still have a job in five or ten years’ time?

Whatever your answer to the question, the fact is you are almost certainly going to need one.

Today, we have governments that still do not accept that this collapse is irreversible. They cling to electoral manifestos which regardless of policy or position on the political spectrum, argue that their policies are the right ones to restore the situation to something resembling what we all grew up in.

Well, I believe that’s all hogwash. It is never coming back.

The reason politicians tell us that they know what to do to restore the old world order, is simply because saying anything else would make them unelectable.

Moreover, there is a cosy alliance in place between government and big business which maintains a status quo and is a perfect mechanism for protecting the personal interests of the political and business elites.

We are actually partly to blame for this. We abdicated our responsibilities wholesale to our governments many years ago. We put our faith and trust in them. You want education for your kids? Fine we’ll provide that. You want defence against real or imagined enemies? Fine, we’ll protect you. You want doctors and hospitals? No problem. Free education for your kids? Check. You want care for the elderly, and roads and railways and waste removal and a justice system and food hygene and pensions? Don’t worry, we give you all of these. The list is endless.

And that’s the problem. Because every government has attempted to provide all these things to ensure it retains or attains power, we have asked for and they have accepted a magnitude of tasks which they are almost bound to fail to deliver. Not only that, we have to pay for it.

So on the one hand we have an almost endless and growing list of government service obligations to citizens. On the other, we have to figure out how we can pay for this. And yup, you’ve guessed it. We can’t. The money (or more specifically, the credit) has run out. You can only borrow and tax so much before you reach breaking point.

And if your economy isn’t growing, your tax receipts are falling. But you’ve still got to pay for all those promises you made to the electorate.

That’s why the promise has become impossible for governments to keep. The promise was predicated on the belief that western business and economic growth could continue to outpace the rest of the world.

Western governments have dug themselves so deeply into debt that no amount of economic improvement will get us back to where we all want to be.

Yesterday I was sent a viewpoint from someone who I won’t name, but who has had many dealings with the political elites, which I think sums up perfectly the hidden nature of the forces at work in government – and underpins my belief of one of the key reasons we cannot expect to see significant change if we look to politicians (of ANY party) to be our saviours.

The tone is heavily ironic and talks about the UK system, but is broadly relevant to the governments of all western economies, so read with that in mind.

Why do we need a new political philosophy when we already have a perfectly good one? The trouble is that people don’t understand it so let me explain.

We have a democracy. This means that we choose from among a small cadre of hereditary leaders who select a head from amongst themselves. They are in a unique position to do this: they have been trained from secondary school (usually but not only Eton) to understand their entitlement. They are then trained at university (usually Oxford or Cambridge) how to exercise it, for the most part on Politics, Philosophy and Economics (PPE) courses.

They understand as none of the rest of us do that political leadership has nothing to do with purpose other than itself and nothing to do with us. They are not interested and, more to the point, experience has taught them that for a relatively small outlay in highly skilled lying we can be conned into anything. And if the worst comes to the worse they can find scapegoats for us to blame for any consequences that fall upon us. The workshy are blamed for unemployment, the homeless for shortage of housing, the poor for poverty, immigrants for almost everything.

They are pragmatists above all. They recognise that real power in the world lies with money and globally organised money in particular. So they look after the interests of “business” which really means very big business and finance. In return business looks after them. The price is very high: the lies with which to justify the upward distribution of power and wealth become increasingly transparent but it is not a real problem. We must after all select from among their number if we can be bothered to engage in the process at all.

So there you have it. A perfect system already exists. To oppose it creates the danger of instability which makes you a terrorist. Relax and enjoy.

You may think that what I have said so far is unduly cynical and pessimistic nonsense. You may even think it smacks of paranoia. After all I have presented no facts to support my opinion. Worse I have presented no practical alternative. Without facts and a real alternative, how plausible is my argument?

Those criticisms are all fair and reasonable. And that’s why I’ll be returning with more on this topic over the coming weeks.

For now though, I’ll just leave you with this question. Do you sincerely believe your government, or its opponents, really have a realistic chance of delivering anything resembling the sort of lifestyle we all grew up expecting over the next 20-40 years?

How to never lose your job (a reprise)

By Neil Patrick

In January 2009, Grant Cardone put up an article in the Huffington Post with this title.

To put that date in perspective, this was about one year after the start of the global financial crisis and 8 months after the collapse of Lehman Brothers.

I agree with some of his observations, but we now have the benefit of hindsight on events which have seen the unfolding of the worst financial and economic crisis since the 1930’s.

And this has shown that Grant’s viewpoint fell way short of the mark. Even in 2009, it should have been apparent that we were dealing with something other than a cyclical recession. We were (and are still) dealing with a systemic collapse.

So let’s take a look at what he proposed. He said:

There are two groups of people that will never be without work;

1) those working for companies and in industries that are selling enough product to keep them profitable.

2) Those people within those companies that contribute to the selling, yes the selling, of the products and services of that company.

Those that are able to drive revenue through the selling of the products and services of the company are the most needed and valuable people in that company. Warning: Assist the company you work for in bringing in revenue (selling products and services) or you are at risk of losing your job!

Fair enough, but to say such people will never be without a job is a massive over-generalization. And he hinted at this when he continued:

The question is, who will lose their jobs and who will not? If you notice the people that are losing their jobs today are attached to companies that are failing! Note - if the company doesn't do well, make profits, jobs are lost! (my emphasis). The next level will not be from failing companies but from those companies that don't want to fail! (sorry Grant, but I never came across any company that wanted to fail).

What he missed was the fact that (and I don’t care about the labels that economists apply here) we are not dealing with a recession, when everything gets tough for a while and then bounces back. In a recession, companies make less profit and have to scale back some of their expenditure, whilst trying to lift revenue.

Today is different. We are dealing with a systemic collapse. And in a systemic collapse, companies don’t just struggle, they die. In large numbers. And people's jobs die with them.

And whilst companies are failing every day, that’s a symptom not the cause of the problem. The root of the problem is massive over borrowing by western governments. Plus endless QE programmes by central banks that continue to deflate the value of our wealth and earnings. Plus much needed, but unaffordable healthcare programmes. Plus an ageing population. Plus soaring food and utility costs. Plus rising house prices at least in some regions thanks to misguided government interventions (yes, that’s you David Cameron).

Compared to this, the problems faced by businesses are miniscule.

The massive and naive gamble of western governments is that while contracting government spending, they can simultaneously boost the growth of private sector businesses. And it’s just not happening. Because governments are useless at this. They launch expensive initiative after expensive initiative. Every one sounds great with all the spin at launch. And then a year or two later they are quietly shelved when surprise, surprise they didn’t work.

So we are trapped in a Catch 22.

Western governments cannot spend their way out of recession. Their currencies are losing value and their assets are dwindling whilst expenditures continue to soar. Government bonds (misleadingly also called gilts) are showing diminishing yields as investors place less and less faith in the security of such instruments.

You only have to look at the situation faced by Portugal, Ireland, Greece and Spain to see what happens when a government’s borrowing options dry up.

But back to Grant:

Those that will never lose their jobs are those that go beyond the normal expected responsibilities and the duties of their post. Those that creatively extend themselves and take responsibility for assisting the company in revenue creation will never be let go. The job of selling the products and services of the company you work, will no longer be left to the sales force but become the responsibility of everyone that desires to continue to work for that company.

Sorry Grant, this may be true in a recession, but it’s just wishful thinking in a systemic collapse. It is of course also completely irrelevant if you work in the public sector where revenue generation is completely disconnected from the success or otherwise of your employer.

What happened to all those top selling people at Lehmans, at Bear Sterns, at MF Global, at Northern Rock? That’s right they lost their jobs with everyone else. And the subsequent devastation of the whole financial sector meant that only a minority could expect to find another similar job with another employer. And if you think that banking is not typical of the world of real jobs, what about all those folk employed by Detroit City who lost their jobs and/or pension rights? What about all those staff at Woolworths, Borders, Aquascutum, Comet and countless other retailers that have gone bankrupt?

So if no-one’s employment can be assured anymore, what are we to do?

The first fact to get a grip on is that there is no such thing as a secure job anymore. It makes not a bit of difference how good you are or how hard you work, your future is never assured. So despite Grant’s opinion, my belief is that not even the best sales people in the world can count on anything anymore.

Second, if you accept this first fact, you need to be preparing right now for the day when you lose your job. That means getting your borrowings down as much as you can and building enough reserves to ensure you can survive for at least 6-12 months with no income. At least then you are giving yourself enough time to hopefully find another job somehow.

But what is a job? Essentially it’s the means by which you earn the money to live and hopefully enjoy your life. And being employed by an organisation is only one of the ways you can do this. The numbers of entrepreneurs in their middle and later years are soaring right now. And whilst many report that they don’t earn as much as they used to, almost all report that they are happier and more fulfilled than when they had a ‘normal’ job.

All this means preparing yourself for the possibility especially if you are over 50 years old that you may never get another job again. But that’s not necessarily as catastrophic as it sounds. It might just be the greatest opportunity of your life. And this is how you can make sure you never lose your job, because you will own your job and your vision for your life goals. Not someone else’s. But you should be thinking about it right now and doing what you can to start developing your ideas and plans, because when the hammer falls, your clock will be ticking…

Why US jobs data is meaningless - well just plain wrong actually

By Matthew O’Brien

The real legacy of the Lehman collapse wasn't an economic meltdown. (That would have happened anyway.) It was three years of wrong information about the economy.

You know something is really boring when economists say it is. That's what I thought to myself when the economists at the Brookings Institution's Panel on Economic Activity said only the "serious" ones would stick around for the last paper on seasonal adjustmentzzzzzzz...

... but a funny thing happened on the way to catching up on sleep. It turns out seasonal adjustments are really interesting! They explain why, ever since Lehmangeddon, the economy has looked like it's speeding up in the winter and slowing down in the summer.

In other words, everything you've read about "Recovery Winter" the past few winters has just been a statistical artifact of naïve seasonal adjustments. Oops.

Okay, but what are seasonal adjustments, and how do they work? Well, you know the jobs number we obsess over every month? It's cooked, in a way -- but not how Jack Welch thinks. For example, the economy didn't really add 169,000 jobs in August. It added 378,000 jobs. But that 378,000 number doesn't tell us too much. See, the economy pretty predictably adds more jobs during some months more than others.

Things like warmer weather (which helps construction), summer break, and holiday shopping create these annual up-and-downs. So to give us an idea of how good or bad each month actually is, the Bureau of Labor Statistics adjusts for how many jobs we would expect at that time of year. This doesn't change how many jobs we think have gotten created over the course of the year; it changes how many jobs we think have gotten created each month of the year.

You can see how that smooths out the data in the chart below from Johns Hopkins professor Jonathan Wright's Brookings paper. It compares the adjusted (blue) and unadjusted (red) numbers for total employment going back to 1990.

But there's a problem. The BLS only looks at the past 3 years to figure out what a "typical" September (or October or November, etc.) looks like. So, if there's, say, a once-in-three-generations financial crisis in the fall, it could throw off the seasonal adjustments for quite a while. Which is, of course, exactly what happened. The BLS's model didn't know about Lehman. It only knew about the calendar. So it saw all the layoffs in late 2008 and early 2009, and interpreted them the only way it knew how: as seasonality, not a shadow banking run.

And that messed things up for years. Because the BLS's model thought the job losses from the financial crisis were just from winter, it thought those kind of job losses would happen every winter. And, like any good seasonal model, it tried to smooth them out. So it added jobs it shouldn't have to future winters to make up for what it expected would be big seasonal job losses. And it subtracted jobs it shouldn't have from the summer to do so. You can see Wright's estimate of just how much this changed the monthly jobs in the chart below, which I've annotated with when the Fed stopped and started its unconventional policies. Notice a pattern?

The Fed has stepped on the gas when seasonal adjustments have made the recovery look weaker than it actually was. And the Fed has stepped off the gas when seasonal adjustments have made the recovery look stronger than it actually was. Now, this is certainly suggestive, but it's not dispositive. As Wright points out, Fed economists are aware of Lehman's seasonal distortions: it's why they changed their seasonal adjustments for calculating industrial production.

But there is still a question how aware the policymakers on the Federal Open Market Committee are of this. Indeed, St. Louis Fed president James Bullard said one reason they didn't taper their bond purchases in September was weak data -- and that "sometimes the jobs report can change the whole contour of how the [FOMC] look at the data." (Though, to be fair, House Republicans threatening to blow up the world economy again was probably a bigger reason for the no-taper). In other words, bad data might be influencing the Fed's bad stop-start policy.

Just how bad are the data? Well, keep in mind that the jobs report's margin of error is supposed to be about 90,000. But these post-crisis seasonal errors have almost doubled it to about 170,000. That's right: the jobs report's real margin of error has been about as big as the average jobs report itself the past few years. 

Now, the one bit of good news here is this effect has already faded away for the most part. Remember, the BLS only looks back at the past 3 years of data when it comes up with its seasonal adjustments -- so the Lehman panic has fallen out of the sample.

Here are two words we should retire: Recovery Winter. It was never a thing. The economy wasn't actually accelerating when the days got shorter, nor was it decelerating when the days got longer. It was mostly growing at the same, kind-of-miserable pace. 

Of course, we journalists (myself included) scrambled to explain what turned out to be a spurious trend: it was the pentup demand for housing or cars or ... something that had the economy looking up every winter. Eventually some Wall Street firms, and journalists like Cardiff Garcia of FT Alphaville, began to suspect something was screwy with the seasonals. But in the meantime, everyone else showed off our infinite capacity for rationalization. There's always a story you can tell, and we certainly told them. After all, stories are more interesting than disclaimers about margins of error and seasonal adjustments.

Now, seasonal adjustments might not sound sexy, but there's nothing sexier than getting the jobs numbers right. They matter for the Fed. They matter for markets. And they matter for our own understanding of the economy.

The BLS can, and should, do better.

This post originally appeared here:

http://www.theatlantic.com/business/archive/2013/09/how-bad-data-warped-everything-we-thought-we-knew-about-the-jobs-recovery/279923/

USA: The jobs crisis carries on and our ‘leaders’ have no solutions

By Neil Patrick

I get really cross when I read pronouncements from regulators and bankers about the recession. The members of both groups are securely cosseted from actually feeling any of the real effects themselves. And each blames the other for the crisis. Regulators blame poor bank governance, bankers cite excessive and disruptive government interventions.

I believe both are right actually. It’s not rocket science to work out that these are not mutually exclusive. One does not preclude the other.

It’s actually a rather cosy mutual support mechanism, enabling each to pass responsibility to the other, whilst happily continuing to pursue their own self-interest.

But we need to look forwards not just backwards to restore growth to the US.

On Sunday, the former Federal Reserve Vice Chair, Roger Ferguson admitted the US economy is still suffering "lingering effects" from the financial crisis. Growth he said was too "modest" to bring down unemployment or increase labor force participation at a satisfactory pace.

(Well said Roger; we hadn’t actually noticed that).


We need to remind you who the bad people are (and that’s not us).

Of course, Ferguson did not offer any monetary or fiscal policy prescriptions for accelerating economic growth as he accepted the National Association for Business Economics' annual Adam Smith Award. Instead, he focused on the need to restore public trust in the financial sector and to improve corporate governance.

(That’s right Roger, this recession has nothing to do with out of control government debt, it’s those greedy heartless bankers we need to blame).

Ferguson has been mentioned as a possible successor to Ben Bernanke. Currently president and CEO of financial services firm TIAA-CREF, Ferguson told the NABE's annual meeting "we have continued on a path of modest growth in the U.S., and while we all would wish for more, it is a far better scenario than we might have imagined five years ago today."

(That’s really great news Roger, thanks).


Of course we cannot risk upsetting the (massively overvalued) equities markets…

He also said the "still-modest growth" pace - 2.5% in the second quarter but less than 2% so far in the third quarter - should not be viewed as acceptable. He said, “it serves as a reminder that today, five years on from some of the darkest days of the financial crisis, we continue to deal with its lingering effects."

"The unemployment rate remains stubbornly high and labor force participation low. The markets have been volatile in the face of concerns about the Fed's tapering plans."


…much better to continue devaluing the dollar

Although he mentioned concerns about the Fed "tapering" its large-scale asset purchases, Ferguson did not say how he thinks the Fed should proceed in scaling back its $85 billion a month in "quantitative easing" or how monetary policy could be applied to stimulate growth.

Rather, he said "it would be wise to turn our collective energies to ensuring that we never have to endure a crisis like that again."

(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).


And the solution is…lots more regulation

Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."

(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).

"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.

The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.

(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)

Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."

In saying "weak corporate governance" lay at the root of the financial crisis, Ferguson was referring to, among other things, commercial banks' increased "involvement in risky trading activities; growth in securitized credit; increased leverage; failure of banks to manage financial risks; inadequate capital buffers, and a misplaced reliance on complex math and credit ratings in assessing risk."

(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).


We’ll tell you how to run your business

Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:

"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...

"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...

(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).

"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."


I apologise for my mockery of Mr Ferguson,but…

Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.

We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.

195,000 new jobs in the US. But is this good news or spin?

By Neil Patrick

Last week, like many, I was keenly awaiting the announcement of the June US non-farm employment figures on Friday. And the headline figures were not too disappointing.

June 2013 non-farm private jobs growth came in at 195,000. The market expected 165,000. And understandably, the headlines were generally more positive than negative. The Wall Street Journal headline ran:

Job Gains Show Staying Power: Recovery's Gathering Momentum Drives Treasury Yields to a Two-Year High

USA Today ran with: Obama team: Recovery continuing

Whilst in Europe, the BBC reported (in its typical ‘yes, but’ fashion): Positive US jobs numbers add to rate rise speculation.

Commentators were generally upbeat too. Mark Zandi, chief economist of Moody’s Analytics said:

The job market continues to gracefully navigate through the strongly blowing fiscal headwinds. Health Care Reform does not appear to be significantly hampering job growth, at least not so far. Job gains are broad based across industries and businesses of all sizes.

Carlos A. Rodriguez, president and chief executive officer of ADP commented:

During the month of June, the U.S. private sector added 188,000 jobs, driven by gains across all sizes of businesses, and with small companies showing the largest overall monthly increase. Most notably, the goods-producing sector added 27,000 jobs in June, a marked improvement over the decline the previous month.

ADP’s analysis in summary was:

• Small and medium sized business created the majority of the jobs;
• Manufacturing and goods producing industries are not adding much to jobs growth;
• Most all, the jobs growth came from the service sector. The three month average of jobs gains improved – the rate of growth is accelerating. This month reverses the 4 month “less good” trend.
• May’s report (last month), which reported job gains of 135,000, was revised to 134,000 jobs. 

But I was less convinced than these expert commentators. Why? Because the US is still deeply mired a fiscal crisis that shows no signs of abating. Real economic growth remains elusive. Government debt is at unsustainable levels. The US and all the major world economies are more interdependent than at any time in history. Instability in the Eurozone remains an unresolved threat to the global economy and dangerous bubbles are continuing to inflate in all sorts of areas as diverse as commodities and student debt.

Equities markets continue to remain buoyant. But this is another bubble, supported by a flight from risk in the previously danger free bonds markets. So in my view equities prices are illusionary right now and do not represent the real prospects of the businesses concerned.

Of course, employment data is a rear view indicator. But looking at the ADP data, the overall trend for the year on year rate of growth has been literally flat since mid-2010. The year on year jobs growth has been in a tight range of 1.6% to 1.7% for the last 6 months and in June the jobs growth was no different at 1.7%.

So I decided to look behind the headlines and dig deeper into the data. I present this here so you can judge for yourself if you think such optimism is justified or not.

1. Non-seasonally adjusted non-farm payrolls rose 856,000 – better than last year, but 4 years showed better growth in the last 10 years.

2. There has been NO change in the number of unemployed

The BLS reported U-3 (headline) unemployment was unchanged at 7.6% whilst the U-6 “all in” unemployment rate (including those working part time who want a full time job) jumped up 0.5% to 14.5%.

BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)

3. Employment levels have been flat for three and a half years and the changes reported as signs of recovery are truly insignificant

Econintersect measures employment supply slack using the BLS unadjusted data base, shown in the graph below. Here you can see how insignificant the reported improvements really are (and how there has been little real change in the level of employment since the recession 'ended' ):

4. The total hours worked has flat lined since the middle of 2010.

Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked

5. Sustainable long term jobs have contracted whilst short term floating jobs have increased.

•  Average hours worked was unchanged at 34.5. A falling number does not indicate an expanding economy. This number has been in a narrow channel several months.
• Government employment contracted 7,000 with the Federal Government down 7,000, state governments down 15,000 and local governments up 13,000.
• The big contributors to employment growth this month were accommodation and food (57K), retail trade (37K) and administrative including temp services (36K).
•  The big headwinds this month was state government jobs (-13K) and education (-11K)
• Manufacturing was down 6,000, while construction was up 13,000.
• The unemployment rate for people between 20 and 24 decreased from 13.2% to 13.5%. This number is produced by survey and is very volatile – and this month’s degradation only reversed last month’s improvement.

6. Real earnings have stagnated at the lowest level for more than decade.

In June, average hourly earnings rose just ten cents to $24.01.

Private Employment: Average Hourly Earnings

So there you have what I consider to be the real numbers behind the headlines that show just how much the US jobs market remains stuck in an increasingly dangerous and precarious position. More than anyone I want to be able to report good news, but my conclusion is that we don’t really have any just yet and we should all plan accordingly.

Is this 1937 or 1929?

One person I consider especially fortunate to have within my circle of friends is Andrew Ginsburg in NewYork. I admire his blog greatly (link to it from the foot of this post). He comes at the issues from an apolitical common sense standpoint and his concern for humanitarianism is always to the forefront. His post below highlights concerns that I share about the current economic situation in the US. 

You can also follow Andrew on Twitter here @GinsburgJobs
 
The point I’d like add to Andrew’s comments is that the only option left to many now is that of self-help. If the government is unwilling or unable to create jobs we have to create our own. I believe this isn’t as impossible a task as it might at first seem. Global communication networks have enabled much bigger things than this to actually happen – just look at the Arab Spring. What it needs is commitment and a willingness for individuals to share and help each other, rather than just ourselves. 

I’ll return to this topic in a future post , but for now here’s Andrew:

Is this 1937 or 1929?

by AndrewSGinsburg

It’s actually a great question but either one means bad news for the United States of America. Most people know about 1929 the stock market crash and the beginning of the Great Depression. What many people don’t know is that in the period from 1929 to 1937 the stock market rebounded, the economy looked good and everyone thinking we were out of any economic danger decided to put in place major budget cuts. 

 

That’s what happened in 1937, budgets were slashed, no more stimulus. Some people thought the economy had recovered. But it hadn’t. The budget cuts that were initiated in 1937 kept the Great Depression going until after World War 2. 

 

So where are we today, cutting budgets to continue the Depression we are in, or just at the beginning? It’s hard to tell. I am not an economist so keep that in mind while reading this. But, from what I have read from leading economists today we are in a situation of unprecedented long-term unemployment as well as an economy that’s shaky. Last quarter it basically broke even; this latest quarter the growth was below economists’ forecasts.

And, today we see our elected politicians looking for severe budget cuts. No cancer treatment for the poor? Is the U.S.A. a country where only the rich get medical care? The so called sequester is a disaster in the making. It cuts everything, from defending and protecting our country to cutting aid for education and medical care. That’s exactly what happened in 1937 which plunged the United States back into the Depression, which we had never gotten out of. 

What got us out of the Great Depression was WWII; during WWII, we spent as a country 3 times the GDP; which today would mean $45Trillion per year. People attack Barack Obama for his stimulus not working as well as it should have. Well, in a $15 Trillion economy, one push of $800 Billion wont do that much. Many economists predicted that at the time. And they were correct. 

 

Today our economy is in a Depression. Hiring has been so slow that it can’t keep up with population’s growth. Last month 500,000 people stopped looking for work. These people didn’t stop because they wanted to stay home and watch TV, or they wanted to live off the government (their benefits had long run out). They stopped looking because there are no jobs out there and people got sick of applying and rejected. You hear lots of stories about the unemployed having a lack of marketable skills; this used to be called on the job training. 

Speaking from experience I know that companies are not eager to hire people; they are not eager to take a well skilled worker and utilize their skills, no matter what the salary, they are more likely to over interview people and then not hire anyone at all. It’s really an extreme disaster for both sides. For the unemployed it can be worse than a spouse dying; they are more likely to suffer ailments that employed people aren’t. For companies, they are trying to make do with less; have fewer employees, fewer expenses and more profit. 

But that’s not the way it works in the big picture. Those that are fortunate enough to have jobs live in fear of losing them. You don’t get the best work from people when they are walking scared and afraid of being unemployed. What you do get is higher profits and CEOs with extremely high pay, because this quarter did well. No one is looking at the big picture, as to what companies and people will look like a decade from now. High riding companies will likely lose their CEOs as they move on to a better paying job. Every day employees are left with the mess senior management makes and are often blamed for it. 

 

So, 1937 or 1929? Austerity will kill all growth in this country and push us back into a deeper recession than we are already in. And it’s really a depression not a recession. If it’s more like 1929 we are in for a horrible ride. We are just at the beginning of a horrible economic mess. Yes the wealthy will be fine and are protected. Wherever you fall on the economic scale do you want to see your fellow Americans suffering and possibly dying because they don’t have income/cash? 

Its time to learn from history. What we did in 1937 caused tremendous pain. President Obama should be out there pushing for stimulus and jobs bills; like he tried to do with gun control. The GOP has been despicable in their obstructionism but that means Mr. Obama needs to work harder. We need more jobs for the 89 million people who are unemployed or who don’t earn enough to survive. 

Today is the day, we need to all come together to put every American who wants a job back to work. The cost will be minimal compared to the alternative.
http://andrewsginsburg.wordpress.com/2013/04/30/is-this-1937-or-1929/

The Terrifying Reality of Long -Term Unemployment in the US

By Matthew O'Brien

 

Close your eyes and picture the scariest thing you can think of. Maybe it's a giant spider or a giant Stay Puft marshmallow man or something that's not even giant at all. Well, whatever it is, I guarantee it's not nearly as scary as the real scariest thing in the world. That's long-term unemployment.

There are two labor markets nowadays. There's the market for people who have been out of work for less than six months, and the market for people who have been out of work longer. The former is working pretty normally, and the latter is horribly dysfunctional. That was the conclusion of recent research I highlighted a few months ago by Rand Ghayad, a visiting scholar at the Boston Fed and a PhD candidate in economics at Northeastern University, and William Dickens, a professor of economics at Northeastern University, that looked at Beveridge curves for different ages, industries, and education levels to see who the recovery is leaving behind.

Okay, so what is a Beveridge curve? Well, it just shows the relationship between job openings and unemployment. There should be a pretty stable relationship between the two, assuming the labor market isn't broken. The more openings there are, the less unemployment there should be. If that isn't true, if the Beveridge curve "shifts up" as more openings don't translate into less unemployment, then it might be a sign of "structural" unemployment. That is, the unemployed just might not have the right skills. Now, what Ghayad and Dickens found is that the Beveridge curves look normal across all ages, industries, and education levels, as long as you haven't been out of work for more than six months. But the curves shift up for everybody if you've been unemployed longer than six months. In other words, it doesn't matter whether you're young or old, a blue-collar or white-collar worker, or a high school or college grad; all that matters is how long you've been out of work.

Help Wanted - If You've Been Out of Work for Less than Six Months

But just how bad is it for the long-term unemployed? Ghayad ran a follow-up field experiment to find out. In a new working paper, he sent out 4800 fictitious resumes to 600 job openings, with 3600 of them for fake unemployed people. Among those 3600, he varied how long they'd been out of work, how often they'd switched jobs, and whether they had any industry experience. Everything else was kept constant. The mocked-up resumes were all male, all had randomly-selected (and racially ambiguous) names, and all had similar education backgrounds. The question was which of them would get callbacks. 

It turns out long-term unemployment is much scarier than you could possibly imagine. 

The results are equal parts unsurprising and terrifying. Employers prefer applicants who haven't been out of work for very long, applicants who have industry experience, and applicants who haven't moved between jobs that much. But how long you've been out of work trumps those other factors. As you can see in the chart below from Ghayad's paper, people with relevant experience (red) who had been out of work for six months or longer got called back less than people without relevant experience (blue) who'd been out of work shorter. 

Look at that again. As long as you've been out of work for less than six months, you can get called back even if you don't have experience. But after you've been out of work for six months, it doesn't matter what experience you have. Quite literally. There's only a 2.12 percentage point difference in callback rates for the long-term unemployed with or without industry experience. That's compared to a 7.13 and 8.95 percentage point difference for the short-and-medium-term unemployed. This is what screening out the long-term unemployed looks like. In other words, the first thing employers look at is how long you've been out of work, and that's the only thing they look at if it's been six months or longer.

This penalty for long-term unemployment is unlike any other. As you can see in the chart below, job churn is another red flag for employers, but not nearly to the same extent. Applicants who'd gone through five to six jobs but had relevant experience were still more likely to get called back than those who'd gone through three to four jobs but didn't. And they had about as good a chance as those who'd only held one or two jobs but weren't experienced. In other words, there is no job-switching cliff like there is an unemployment cliff.

Long-term unemployment is a terrifying trap. Once you've been out of work for six months, there's little you can do to find work. Employers put you at the back of the jobs line, regardless of how strong the rest of your resume is. After all, they usually don't even look at it. 

Let's be clear. Ghayad's field study shows employers discriminate against the long-term unemployed. All of the fake resumes he sent out were basically identical. But firms ignored the ones from people who'd been out of work for six months or longer -- even when they had better credentials. Employers look at how long you've been unemployed as a better proxy for skills than anything else on your resume. In other words, more jobs-training probably won't help the long-term unemployed all that much. Even a stronger economy will only help them years in the future, rather than many years in the future. 

It's time for the government to start hiring the long-term unemployed. Or, at the least, start giving employers tax incentives to hire the long-term unemployed. The worst possible outcome for all of us is if the long-term unemployed become unemployable. That would permanently reduce our productive capacity. 

We can do better, and we need to start doing so now. We can't afford long-term thinking in either the short or the long-term.

http://www.theatlantic.com/business/archive/2013/04/the-terrifying-reality-of-long-term-unemployment/274957/

US jobless claims rising again - March 2013 update

Here’s Steve Peasley’s latest update on US jobless figures for March. Whilst Steve’s focus is as an investor and trader, I think this perspective is still valuable to keep up us to speed on what is happening in the general economy and why.

The US weekly jobless claims spiked to 385,000 during the Easter week. This was a surprise for some commentators since the ‘usual’ level has been running at just below 350,000 on average. There’s an argument from some quarters that this spike was caused by the Easter Holiday weekend. I’m not too sure about this as I think worries in other areas of the world, especially Europe, inevitably have a significant bearing on US business.

Despite strong stock market performances over recent months, Steve is advising his clients to move out of equities and into cash, as he’s convinced a market correction must happen soon now, sending stocks crashing down. I agree with this assessment. Although there have been several encouraging signs of a slow US recovery, on the other hand, growth of the US economy is also dependant on markets outside of the US and in the wake of the Cyprus episode, confidence in the Eurozone is looking increasingly fragile.

Reviewing the financial press this week, my own view is that the question on many people’s minds now is that after Cyprus, where will the next European melt down happen and when? Slovenia is a very worrying case. It has an overextended banking sector at 144% of GDP ( Cyprus was 'only' around 85%) and its non-performing loans have reached 15% of total assets in the wake of a construction binge (hello Spain and Ireland)…

My thanks as always go to Steve for his concise and insightful commentary.

Cyprus exposes a fatal flaw in Eurozone and why Italy may be next to collapse

By Larry Elliott

Europe could have dealt with Cyprus cheaply and painlessly with a pan-European body able to recapitalise the country's banks.

It had all started to look quite promising. The US was picking up, China had avoided a hard landing and in Japan the early signs from the new government's anti-deflation approach were encouraging. Even in Britain, the first couple of months of 2013 provided some tentative hope – from the housing market and consumer spending, mainly – that the economy might escape another year of stagnation.

Then Cyprus came along. The last two weeks of March brought the crisis in the eurozone back into the spotlight, and by the end of the month the story was no longer rising share prices on Wall Street on the back of strong corporate profitability or the better prospects for Japanese growth. It was, simply, which country in the eurozone would be the next to require a bailout.

The past few days has seen what Nick Parsons, head of strategy at National Australia Bank, has called the "reverse Spartacus" effect after the scene at the end of Stanley Kubrick's epic in which captured slaves are offered clemency if they identify the rebel leader. All refuse.

European Central Bank, Frankfurt

In the aftermath of Cyprus, it has been a case of "I'm not Spartacus". Four members of the eurozone felt the need to issue statements explaining why they were different from the troubled island in the eastern Med. We now know that Portugal is not Spartacus, Greece is not Spartacus, Malta is not Spartacus and Luxembourg, which has the highest ratio of bank deposits to GDP in the eurozone, is not Spartacus. As Parsons noted wryly, Italy was unable to say it was not Spartacus because it still doesn't have a government to speak on its behalf. Otherwise it would probably have done so.

Few of the independent voices in the financial markets take such attempts at reassurance seriously. Another crisis in the eurozone could be avoided, but only if those in charge (sic) act more speedily and effectively than they have in the past. As things stand, another outbreak of trouble looks inevitable.

Cyprus has enough money to get by for a couple of months, but by then will be feeling the impact of a slow-motion bank run as depositors remove their money at the rate of €300 (£250) a day. The economy has been crippled by the terms of the bailout, a Carthaginian peace if ever there was one, and the country's debt ratio is bound to explode.

Investors are already casting a wary eye over Malta, which appears to have been the short-term beneficiary of capital flight from Cyprus, but the bookies favourite for the next country to need a bailout is Slovenia, where the government is already making contingency plans for coping with bank losses.

By focusing on the eurozone's minnows, the markets are in danger of overlooking a much bigger potential problem. If attempts to put together a new government in Rome fail, Italy will be facing a second general election and in such a scenario opinion polls currently put Silvio Berlusconi ahead.

It is not hard to sketch out a sequence of events in which Berlusconi completes a political comeback, the markets take fright, Italian bond yields go through the roof, the European Central Bank (ECB) under Mario Draghi says it will only buy Italian debt if Berlusconi agrees to a package of austerity and structural reforms, the new government refuses and then calls a referendum on Italy's membership of the single currency. Italy has already had six consecutive quarters of falling GDP and is on course for a seventh, making the recession the longest since modern records began in 1960. So when Berlusconi says he cannot let the country fall into a "recessive spiral without end", he strikes a chord.

If policymakers are alive to the threat posed by one of the six founder members of the European Economic Community back in 1957, they have yet to show it. The assumptions seem to be that Cyprus is exceptional, that the ECB will ride to the rescue if it proves not to be, and that Europe will be dragged out of the danger zone by the pick-up in the rest of the global economy.

This is the height of foolishness. The factors causing the crisis in Cyprus are replicated in many other member states. The ECB's "big bazooka" – buying the bonds of struggling governments without limit – has yet to be tested, and because Europe is the world's biggest market, the likelihood is that the re-emergence of the sovereign debt crisis will seriously impair growth prospects in North America and Asia.

Economists at Fathom Consulting draw a comparison between the eurozone today and the UK at the very start of the financial crisis. Mistakes were made with the handling of Northern Rock because of fears that a bailout would create problems of moral hazard – in other words helping a bank that had got itself into trouble through its own stupidity would encourage bad behaviour by others. The systemic risks were not recognised, with disastrous consequences.

Similarly, the eurozone has not understood the systemic potential of the current crisis, Fathom argues, not least the "doom loop" between fragile banks and indebted governments. Austerity is making matters worse because cuts to public spending and higher taxes hit economic activity by more than they reduce government deficits. Public debt as a share of national incomes goes up, not down.

Austerity can work, but conditions have to be right for it. It helps if a country's trading partners are growing robustly, because then the squeeze on domestic demand can be offset by rising exports. It helps if the central bank can compensate for tighter fiscal policy by easing monetary policy, either through lower interest rates or through unconventional measures such as quantitative easing (QE). And it helps if the exchange rate can fall. Not one of these conditions applies in the eurozone, which is why the fiscal multipliers – the impact of tax and spending policies on growth – are so high. Put bluntly, removing one euro of demand through austerity leads to the loss of more than one euro in GDP.

So what should be done? Clearly, the self-defeating nature of current policy needs to be recognised. Countries need to be given more time to put their public finances in order. The emphasis should be shifted from headline budget deficits to structural deficits so that some account is taken of the state of the economic cycle, and the ECB needs to be ready with its own version of QE.

Simultaneously, work needs to speed up on creating a banking and fiscal union. Europe could have dealt with Cyprus cheaply and painlessly had there been a pan-European body capable of recapitalising the country's banks. Delay in setting up such a body threatens to be costly.

Finally, the eurozone needs to start talking with one voice. A bit of "I'm Spartacus" would not go amiss.


http://www.guardian.co.uk/business/economics-blog/2013/apr/01/eurozone-crisis-banking-fiscal-union

In Hard Economy for All Ages, Older Isn’t Better ... It’s Brutal

 

By CATHERINE RAMPELL

Young graduates are in debt, out of work and on their parents’ couches. People in their 30s and 40s can’t afford to buy homes or have children. Retirees are earning near-zero interest on their savings.

In the current listless economy, every generation has a claim to having been most injured. But the Labor Department’s latest jobs snapshot and other recent data reports present a strong case for crowning baby boomers as the greatest victims of the recession and its grim aftermath.

These Americans in their 50s and early 60s - those near retirement age who do not yet have access to Medicare and Social Security - have lost the most earnings power of any age group, with their household incomes 10 percent below what they made when the recovery began three years ago, according to Sentier Research, a data analysis company.

Their retirement savings and home values fell sharply at the worst possible time: just before they needed to cash out. They are supporting both aged parents and unemployed young-adult children, earning them the inauspicious nickname “Generation Squeeze.”

New research suggests that they may die sooner, because their health, income security and mental well-being were battered by recession at a crucial time in their lives. A recent study by economists at Wellesley College found that people who lost their jobs in the few years before becoming eligible for Social Security lost up to three years from their life expectancy, largely because they no longer had access to affordable health care.

“If I break my wrist, I lose my house,” said Susan Zimmerman, 62, a freelance writer in Cleveland, of the distress that a medical emergency would wreak upon her finances and her quality of life. None of the three part-time jobs she has cobbled together pay benefits, and she says she is counting the days until she becomes eligible for Medicare.

In the meantime, Ms. Zimmerman has fashioned her own regimen of home remedies - including eating blue cheese instead of taking penicillin and consuming plenty of orange juice, red wine, coffee and whatever else the latest longevity studies recommend - to maintain her health, which she must do if she wants to continue paying the bills.

“I will probably be working until I’m 100,” she said.

As common as that sentiment is, the job market has been especially unkind to older workers.

Unemployment rates for Americans nearing retirement are far lower than those for young people, who are recently out of school, with fewer skills and a shorter work history. But once out of a job, older workers have a much harder time finding another one. Over the last year, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers, according to the Labor Department’s jobs report released on Friday.

The lengthy process is partly because older workers are more likely to have been laid off from industries that are downsizing, like manufacturing. Compared with the rest of the population, older people are also more likely to own their own homes and be less mobile than renters, who can move to new job markets.

Older workers are more likely to have a disability of some sort, perhaps limiting the range of jobs that offer realistic choices. They may also be less inclined, at least initially, to take jobs that pay far less than their old positions. 

Displaced boomers also believe they are victims of age discrimination, because employers can easily find a young, energetic worker who will accept lower pay and who can potentially stick around for decades rather than a few years.

“When you’re older, they just see gray hair and they write you off,” said Arynita Armstrong, 60, of Willis, Tex. She has been looking for work for five years since losing her job at a mortgage company. “They’re afraid to hire you, because they think you’re a health risk. You know, you might make their premiums go up. They think it’ll cost more money to invest in training you than it’s worth it because you might retire in five years.

“Not that they say any of this to your face,” she added.

When older workers do find re-employment, the compensation is usually not up to the level of their previous jobs, according to data from the Heldrich Center for Workforce Development at Rutgers University.

In a survey by the center of older workers who were laid off during the recession, just one in six had found another job, and half of that group had accepted pay cuts. Fourteen percent of the re-employed said the pay in their new job was less than half what they earned in their previous job.

“I just say to myself: ‘Why me? What have I done to deserve this?’ ” said John Agati, 56, of Norwalk, Conn., whose last full-time job, as a merchandise buyer and product developer, ended four years ago when his employer went out of business.

That position paid $90,000, and his résumé lists stints at companies like American Express, Disney and USA Networks. Since being laid off, though, he has worked a series of part-time, low-wage, temporary positions, including selling shoes at Lord & Taylor and making sales calls for a limo company.

The last few years have taken a toll not only on his family’s finances, but also on his feelings of self-worth.

“You just get sad,” Mr. Agati said. “I see people getting up in the morning, going out to their careers and going home. I just wish I was doing that. Some people don’t like their jobs, or they have problems with their jobs, but at least they’re working. I just wish I was in their shoes.”

He said he cannot afford to go back to school, as many younger people without jobs have done. Even if he could afford it, economists say it is unclear whether older workers like him benefit much from more education.

“It just doesn’t make sense to offer retraining for people 55 and older,” said Daniel Hamermesh, an economics professor at the University of Texas in Austin. “Discrimination by age, long-term unemployment, the fact that they’re now at the end of the hiring queue, the lack of time horizon just does not make it sensible to invest in them.”

Many displaced older workers are taking this message to heart and leaving the labor force entirely.

The share of older people applying for Social Security early spiked during the recession as people sought whatever income they could find. The penalty they will pay is permanent, as retirees who take benefits at age 62 — as Ms. Zimmerman did, to help make her mortgage payments — will receive as much as 30 percent less in each month’s check for the rest of their lives than they would if they had waited until full retirement age (66 for those born after 1942). 

Those not yet eligible for Social Security are increasingly applying for another, comparable kind of income support that often goes to people who expect never to work again: disability benefits. More than one in eight people in their late 50s is now on some form of federal disability insurance program, according to Mark Duggan, chairman of the department of business economics and public policy at the University of Pennsylvania’s Wharton School.

The very oldest Americans, of course, were battered by some of the same ill winds that tormented those now nearing retirement, but at least the most senior were cushioned by a more readily available social safety net. More important, in a statistical twist, they may have actually benefited from the financial crisis in the most fundamental way: prolonged lives.

Death rates for people over 65 have historically fallen during recessions, according to a November 2011 study by economists at the University of California, Davis. Why? The researchers argue that weak job markets push more workers into accepting relatively undesirable work at nursing homes, leading to better care for residents.

http://www.nytimes.com/2013/02/03/business/americans-closest-to-retirement-were-hardest-hit-by-recession.html?pagewanted=all&_r=0