[OPE] Rising unemployment

More than 80,000 job losses were announced around the world this week as the global recession tightened its grip in virtually every business sector.
http://www.ft.com/cms/s/0/c08dcf20-b7f3-11dd-ac6d-0000779fd18c.html?nclick_check=1

If that continued for a year, you would have 5.8 million extra unemployed - however, job losses tend to have a cumulative multiplier effect, and in addition there are new entrants to the labour market. I think it is not unreasonable to suppose that US unemployment could even reach 10% of the labour force at the end of 2009 or in 2010, though a stimulus package could lower it - i.e. a net total of about 5 million job positions are at risk. I think when Mr Obama says the economy needs to create 2.5m jobs by 2011 it sounds good, but he is underestimating the numbers. According to BLS, total US non-farm employment for example fell by 240,000 in October; a net total of 1.2 million US jobs were lost in 2008 so far. Official unemployment is at 6.5% of the labour force. There are officially 144,958,000 US employed and 10,080,000 US unemployed (non-farm) now (farm employment is about 1 million), which gives an average ratio of one unemployed for every fourteen employed right now; in some regions it is higher. This average ratio could conceivably evolve to 1:10 within two years, depending on what is done.

According to the OECD, the average unemployment rate in the OECD area, estimated at 5.9 percent of the labour force this year, is forecast to climb to 6.9 percent next year and reach 7.2 percent in 2010. http://www.oecd.org/document/62/0,3343,en_2649_34487_41667006_1_1_1_1,00.html It works out to a net increase of 10 million extra unemployed in the OECD countries, across two years. The ILO adds a net extra of another 10 million unemployed in the rest of the world.

In other words - and this is forecasted by others as well - the medium-term perspective is a durable, longer lasting increase in the aggregate level of unemployment, which implies in aggregate less personal disposable income and lower personal savings. Of course, the official percentage refers to a fraction of the total labour force, but I think the more appropriate equation is the ratio of unemployed to employed workers.

In the UK, unemployment is at 1.8 million but reportedly could rise to 2.9 million by 2010 - the UK unemployment rate now is about 5.8% of the labour force. Since the UK labour force is about 31 million, this would mean about one in ten workers out of work in 2010, or an unemployment rate of 9% - 10%.

Even so, Pew research found no evidence that "fundamental American optimism" has eroded in the face of the financial crisis. http://people-press.org/report/458/economic-crisis

Of course the official figures typically underestimate true unemployment levels, as becomes apparent when we compare the total employed to the total census working-age population.

Jurriaan

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Received on Sun Nov 23 14:44:28 2008