THE STASH SEPTEMBER 3, 2009
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Back in May, I wrote about recent research unearthing the fact that a substantial portion of the unemployment rate is driven not by job losses, but by slowdowns in hiring--a most counterintuitive result. The magnitude of this effect is the subject of some disagreement, but it would be fair to say that, on average, about 50-75% of the changes in the unemployment rate are caused by changes in the willingness of businesses to create new jobs.
I, and others, have used this to suggest that during downturns the government should do more to get businesses hiring again. But upon closer inspection by Federal Reserve economist Regis Barnichon, it turns out that the picture painted above doesn't hold during recessions. Specifically, Barnichon finds that "violent episodes" of job losses are
responsible for almost all of the movements in unemployment during the first two quarters after unemployment reaches a low
So when the unemployment rate does turn, those initial movements are due primarily to job shedding. Barnichon says that it takes about a year after a turning point for the lack-of-hiring effect to regain its influence over the unemployment rate. Consider the conventional wisdom partially restored.
1 comments
There is a huge reluctance to hiring new employees, and I think it will get worse before it gets better. The orignal post was correct, large companies have cut back hiring. They now are out-sourcing a large part of operations to other companies that specialize in these previously in-house activities like Security, IT, Administrative and Technical. And these outfits tend to move people around from project to project, not starting new hires. So what used to be General Motors and IBM hiring is now Manpower or EDS. Most people are watching Kelly Services or Manpower to see when the large businesses start their hiring again to get a head start on the recovery. But this avoids the issue on why the hiring is down at large corporations and up in the servvice industries. Corporate benefits are too rich, and job security to costly for direct hiring. Corporations are paying a premium for the flexibility to cut employees quickly, and avoid long term cost in pensions and health care. Until the high cost of employment is resolved, and the low cost of importing foreign made products is resovled in currency corrections, the country will not see significant hiring in the basic industries.
- CRS9TNR
September 3, 2009 at 4:45pm