Backgrounder
The current recession began in December 2007, and is expected to last through Spring 2010. In all likelihood, it will last in excess of somewhere around 25-30 months. This will make it over double the length the 10-11 month average of recessions in the post war period. The only other economic downturn that is comparable in terms of length (but not intensity, for the moment)is the Great Depression. Length is is not everything though, and the second interesting aspect of this recession is how the impact has varied across states. The pain has been widespread, but certain states have been cut at deeper than others.
First, if we look at the national unemployment rate since 1999, we can see that the current rise dwarfs the increase in unemployment which occurred at the start of this decade.
The current recession began in December 2007. In that month, the national unemployment rate was 4.9%. In April 2009, it stands at 8.9%. This is a 102% increase. This means that for every 100 people that stood in the unemployment line at the start of the recession, there are now another 102 people in line with them. Some states have suffered much more than others though.
This was how things looked in December 2007.
This is how they looked at the end of March.
Note that there are differences in the scales. Overall unemployment has risen, but the there have been pockets of states that have done relatively well. The first runs north from Texas through the Plains states to Canada. The second surrounds Washington D.C., where Northern Virginia and the Maryland suburbs are relatively well off.
We can isolate the increase in unemployment. By doing this we see the extent to which each state is bearing its portion of the "unemployment burden." What I've done here is taken the total national increase in unemployment (4.67 million), and calculated each state's portion of the increase if it where distributed equally by the size of a state's labor force.
For example, let's take California.
California has 15% of the nation's labor force. So 15% of the 4.67 million increase in unemployment, would be 701,000. So if California is carrying it's share of the nation's unemployment increase it would have
unemployment in California would have risen from 1,078,600 in December 2007, to 1,779,600. The actual current number of unemployed in California?
2,079,900.
11.2%.
Now, let's take a look at Texas.
Texas has 9.6% of the nation's labor force. So 9.6% of 4.67 million would be 446,900. If Texas were carrying its share, unemployment in the state would have risen from 507,000 in December 2007 to 953,900 today. The actual current number of unemployed in Texas?
796,600.
In other words, unemployment in Texas has increased 35% less than it would have if it carried only its "share" of the national burden. If Texas had taken its "share" of unemployment, then the current unemployment rate would be 8%. The actual current rate?
6.7%
I think that I've gotten the point of this idea of whether a state is taking its share of unemployment across.
So now to a map to show how this plays out across the country.
Again, what sticks out is that there are vast swathes in the Plains states and in the Northeast that are not carrying their "share" of the unemployment burden. Two other areas are carrying more than their fair "share" of the country's unemployment burden. The first is the West Coast and the second is a region that runs from Michigan on down to Florida. The question that we should all be asking is: "Why are these states bearing so much more of the unemployment burden?"
The answer lies in the economic sectors where jobs are being lost.
Falling Sectors
I'm going to get straight to the point. There are only two economic sectors where employment has grown during the recession: Education/Health and Government. All other sectors have seen employment shrinkage since December 2007.
Overall, employment has shrunk by 4.93 million. The table below shows the distribution of this shrinkage.
If we exclude the two rising sectors (Education/Health and Government), we can see that 4 sectors make up over 4/5ths of employment shrinkage: Construction and Mining, Manufacturing, Trade/Transportation and Utilities, and Professional.
Another way to look at it is to use a pie graph to lay out the case.
The structure of employment in the US is being changed.
It really helps if we look at this as if the relative structure of employment had remained the same, and employment shrinkage equally distributed across all economic sectors.
What I've done here is calculate what it would look if employment shrinkage had been spread equally across economic sectors weighting for their percent of employment.
For example, if employment shrinkage had been distributed equally 275,862 construction and mining jobs would have been lost. In reality over a million jobs disappeared in this sector. In contrast, if employment shrinkage had been distributed equally 600,984 education and health jobs would have been lost across the country. In reality this sector gained 487,900 jobs.
Same contrast with manufacturing and government jobs. If employment shrinkage had been distributed equally 467,980 manufacturing jobs would have been lost. In reality over a million jobs disappeared in this sector. In contrast, if employment shrinkage had been distributed equally 758,984 government jobs would have been lost across the country. In reality this sector gained 487,900 jobs.
Will the Dead Cat Bounce?
What's the story here?
The employment situation is actually much worse than it appears. The impact of the recession on unemployment is being moderated by government spending. The problem is that much of the money being spent is being pissed away into sectors that don't need.
The prime example of this is the amount of money being directed towards keeping the financial sector afloat. Even worse, there have been job cuts here. It's just that the top earners who got us into this mess aren't losing their jobs. The financial sector needs to be nationalized.
Rationalization of the sector through the creation of a central government bank that provides the backbone of the financial system would encourage growth. Right now, "taxes" imposed by banks on economic transactions conducted electronically with debit or credit cards take revenue out of other, productive, sectors. This means that small businesses lose sales on non-cash transactions. There is a reason that our Founding Fathers placed the issuing of currency in the public sector. This is because the public sector is able to provide this service more effectively, and at lower cost than private companies.
Maintaining a system for electronic monetary transactions will require largely the same number of bank clerks as now. The main difference will be that the big money positions filled by the Harvard grads with houses in the Hamptons will disappear. The reason that our economy is in a tailspin is that these people have been allowed to eat working people's lunches for far too long.
They shrink the amount of money available to the government to take corrective action in the economy in two ways.
First, by skimming off the productive economy, they crowd out investment in productive sectors. Let's make this simple. The money being reinvested by the financial sector isn't being placed where it creates new jobs. Instead, it's either 1) being spent on consumption, or 2) it's being put into the "funny money" markets, aka derivatives.
Second, these people are among the largest political donors. People don't like to hear this, but Obama got a huge boost when the financial sector guys led by Robert Rubin aligned behind him. The Hamilton Project was these guys propaganda outlet, and they've supplied most of Obama's economic people.
The political agenda of the Wall Street Lobby is to keep taxes (particularly corporate taxes) low and undermining labor and environmental protections. These guys, for the most part, make money at other people's expense.
Both of these two factors I've raised come together to make a long term, government led recovery near impossible.
This is where the dead cat bounce comes in.
Right now, increased employment in sectors where the government is important (Education/Health and direct government employment) is moderating the impact of the recession. The problem is that this isn't sustainable.
First, the government earns revenue by taxing other sectors. So long as those other sectors are falling, the amount of revenue the government can bring will fall too. So the government is left spending more and bringing in less. And the trend accelerates over time. Nationalizing the financial sector, and redirecting the "taxes" collected in transaction fees into the government till would provide a stopgap measure.
But, more must be done.
Something has to be done to refloat the sectors where employment has shrunk the most. If nothing is done, the economy will bounce as it hits rock bottom, because government spending will bring it up from this low level. But over time, that recovery will be undermined as the tax base is eroded. The dead cat, e.g. the economy, will bounce, before it comes back to earth.
Refloating the shrinking sectors means using government money and expertise to direct investment into firms that makes them more competitive and reorienting firms into new markets. For example, the auto industry has likely fallen from a 16 million car per year base to a 9-10 million car base.
This means not only shutting down car assembly plants, but the supplier base. Auto suppliers are already supplementing earnings from supplying parts with a small trade in wind turbine components. If the government steps in to provide the financing for retooling, and to put companies together, then we can refloat employment in these sectors.
For example, instead of mulling a bankruptcy that shuts many assembly lines (and the attached supplier base) down, why not match up GM's industrial capacity with GE's emerging wind turbine business. Match the two, and have the government provide funding for rural electric cooperatives along the lines of what the government did in the 1930s, and you actually create green jobs. Green jobs don't happen on their own. The market doesn't do it on it's own. It takes government direction. This would do wonders to increase employment in the US manufacturing sector.
Second example. Our infrastructure is falling apart. We need to spend money on rebuilding roads, rail lines, and the electric grid. That could put workers back on the job in the construction sector. If the government set up local hiring halls coordinated through skilled trades unions (where available) and community centers (where not), then we could get these guys and gals back to work.
Rebuilding the rail network, and placing a high tax on road transportation of goods where rail is an option would allow us to cut oil imports. Same thing with encouraging better urban planning to make walking or taking the bus or train an option. This would create thousands of new jobs. Another option would be weatherization, where we put these guys to work putting in insulation and new windows in older homes. Cutting heating bills for lower income home owners and renters would put money into the economy that would almost certainly be spent now. That creates and economic stimulus.
All these things are being pursued as part of the stimulus plan, but the question is whether the scale is large enough. Think that we spent over a Trillion dollars to bail out banks that provide around 5% of jobs, while letting the construction and manufacturing sectors, which provide three times that number of jobs, hang out to dry.
By looking at the hard numbers on employment and unemployment produced by the government, we can show that it's employment shrinkage in these sectors that's driving the economic downturn. Turn them around, and you turn the economy around as well. The question is whether there is recognition of the need for aggressive action now, or if the dead cat has to bounce first.
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