(Click to enlarge.)

The most recent Bureau of Labor Statistics (BLS) data released this month show an increase in the number of job openings available throughout the United States, as reported by Catherine Rampell in the New York Times “Economix” blog. As of the end of September, there were 3.8 unemployed people per job opening, based on raw data. (Rampell reports a slightly higher ratio, based on seasonally adjusted figures.) These ratios use the official definition of unemployment, leading to a rather low count of the number of workers individually affected by the bad labor market. In the figure above, I compare the number of job openings with the number of unemployed people, using separate bars for each gender. In addition, I include bars representing two more groups that are covered by the BLS’s broad “U6 measure of labor underutilization” but not by the official unemployment rate: 1) those working only part-time for economic reasons; and 2) people who are “marginally attached to the workforce.” The latter group includes discouraged workers and many others who would almost certainly be working if the job market were sufficiently robust.* The green bar on the right shows the total number of people in all of these categories of underutilized workers—about 23.9 million, or 7.0 underutilized workers per job opening.

*Note: Click link below for definitions of these two groups
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Here’s one fairly standard reading of our economic policy challenge:  the economy needs more pump priming, the federal government has more than enough fiscal space to provide it, but for political reasons it won’t be forthcoming.  (If you needed further evidence of that last proposition, take a look at the latest House Republican job creation offering:  repealing a law designed to prevent tax evasion by federal contractors, paid for by kicking some seniors off of Medicaid.  Take a moment to gape at the boundary-probing cynicism.  This is the legislative equivalent of planting a giant foam middle finger on the White House lawn.)  So as far as aggregate demand goes, in other words, there’s little reason to think that the federal government will step into the breach (and as things stand, we expect the government to be withdrawing demand from this economy).  But a new one-pager by Pavlina Tcherneva (“Beyond Pump Priming“) suggests that the above reading of the situation is … too optimistic.

Even if the AJA, or some other form of aggregate demand injection is passed, there are serious limitations to relying too heavily on an approach that boils down to boosting growth and hoping for the right employment side effects.  Featuring a rather stark graph portraying the ratcheting up of long-term unemployment over the last several decades, the piece argues that there are shortcomings to relying too exclusively on pump priming (which is largely what the AJA is, aside from a small amount of infrastructure).

The alternative is to take dead aim at the employment outcomes we need—to directly target the unemployed.  Tcherneva explains why, instead of just trying to fill the demand gap for output, we ought to focus on closing the demand gap for labor, through public works and job guarantee programs that directly employ the unemployed.  Among the benefits of the latter approach are an ability to focus on particularly distressed regions of the country.

Read the one-pager here.

Pavlina Tcherneva was interviewed recently on Wisconsin Public Radio’s “At Issue” with Ben Merens and took questions from listeners.  She argues that while there are plenty of good job creation ideas available, it is ultimately the toxic political environment that is holding us back.  Beginning at the 33:54 mark, responding to a question about payroll taxes, Tcherneva pounces on the idea that the federal deficit should be a policy priority:  “in and of itself, the deficit should not be a policy objective.”

Download the interview here (begins at the 2:20 mark).

Nouriel Roubini argues at Project Syndicate that widening inequality lends itself to both economic and political instability.  In his latest policy brief, “Waiting for the Next Crash,” Randall Wray connects some of these same dots, tying the rise of “financialization” and soaring household debt levels to stagnating median incomes in the US:

…as finance metastasized, the “real” economy was withering—with the latter phenomenon feeding into the former. High inequality and stagnant wage growth tends to promote “living beyond one’s means,” as consumers try to keep up with the lifestyles of the rich and famous. Combine this with lax regulation and supervision of banking, and you have a debt-fueled consumption boom. Add a fraud-fueled real estate boom, and you have the fragile financial environment that made the [global financial crisis] possible.

Partly inspired by the work of Hyman Minsky (the Minsky Archives here at the Levy Institute, incidentally, are in the process of being digitized), Wray recommends a set of policy changes that are aimed at righting this imbalance between finance and the “real” economy.  These include restructuring (shrinking) and re-regulating (with strict limits on securitization) the financial sector, and an “employer of last resort” policy that would offer a guaranteed job to everyone willing and able to work (federally funded, with decentralized administration).  The ELR would not just be aimed at addressing the catastrophic unemployment problems associated with a cyclical downturn like the one we’re in now, but at creating a force pushing toward full employment at all phases of the business cycle.  (You can read the brief here.)

Update:  Read the IMF’s recent contribution to the inequality debate here and here.

The National Journal asks whether we can learn something about addressing unemployment by studying elements of the unemployment insurance systems of other OECD nations, many of which make re-training a key part of transitioning from UI back to employment.  The American Jobs Act (dead man walking) contains a “bridge to work” provision that would include similar job training and apprenticeship programs (already in place in Georgia and North Carolina) as a means of aiding the long-term unemployed.  The Journal interviewed Dimitri Papadimitriou for their piece, who suggests that while a “bridge to work”-type program would be beneficial, this sort of thing would amount to (at best) nibbling around the edges of the unemployment problem:  “Papadimitriou cautioned that without a more general economic recovery, simply training unemployed workers doesn’t guarantee jobs.”  (read it here)

“Bridge to work” might be a positive addition to the social insurance system, but we shouldn’t mistake it for a “solution” to our unemployment problem.  As Papadimitriou illustrates in this Strategic Analysis, we should not expect unemployment to come down without a massive influx of demand, whether foreign (exports) or domestic (higher government deficits).

This morning, it was announced that Thomas Sargent and Christopher Sims are the winners of the 2011 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (link to New York Times article here; link to official Nobel economics site here). Sargent and Sims’s approach is often thought to imply, among other things, that monetary or fiscal stimulus is unlikely to be of very much benefit to an economy, even one in deep recession.  Of course, the Levy Institute, as a proponent of the Keynesian approach, almost always disagrees strongly with this view on macroeconomic policy, though extreme pessimism about Keynesian stabilization policies is only one possible implication of Sargent and Sims’s extensive oeuvres.

Moreover, the technical aspects of Sargent and Sims’s work are also crucial to neoclassical macroeconomics, and their influence is felt in many ways. Of special interest to me as a researcher is their work on vector autoregressions (VARs), which has led to literally thousands of studies in academic journals, even some authored by heterodox economists. (Sims’s seminal contributions to the VAR literature are the main Sims accomplishment cited in the Nobel committee’s “scientific background” paper for today’s announcement.)

Nonetheless, as with any research in the social sciences, the VAR approach to empirical work in macroeconomics has been subjected to many critiques and revisions since Sims (and to some extent Sargent) got the VAR ball rolling in the late 1970s and early 1980s. continue reading…

According to Floyd Norris at Economix.  Norris includes this chart, comparing our ongoing shedding of state and local government jobs to the one in the early ’80s:

I haven’t been looking at any employment reports lately, but I can only assume that this has sparked a massive boom in private payrolls.

The prevailing anxieties of elite opinion are focused relentlessly on the deficit and debt, with sporadic bouts of indigestion reserved for the slump in jobs.  This is a complete reversal of what ought to be the case.  But let’s say you really can’t get over the idea that there’s no major short-term economic problem currently being caused by high deficits.  Well then, if you are such a person, you ought to be deeply concerned that the economy is operating below potential.

Rep. Chris Van Hollen recently requested an estimate from the CBO (hat tip TPM) regarding what portion of the federal deficit can be attributed to cyclical factors—e.g. the non-recovery in the job market.  The answer:  roughly a third.  There’s nothing new here, but it is an excuse for futile repetition of the following upshot:  attempts to cut the deficit right now are self-defeating, to the extent that they drag down growth and employment.

Gennaro Zezza has been all over this.

Rania Antonopoulos, director of the Gender Equality and the Economy program at the Levy Institute, has a blog post up at Direct Care Alliance making the case for adding social care investments to the American Jobs Act, citing the large employment effects of direct job creation programs in early childhood education and long-term care for the elderly and chronically ill.

A version of this idea showed up on the DC legislative radar recently, in the form of a jobs bill that includes a “Health Corps” and “Child Care Corps” among its provisions for direct job creation (see items 5 and 7).

Since graphical information manages to fail less spectacularly at getting people to change their minds, here are three graphs; one addressing what we ought (not) to do, one addressing what we are doing, and the other what we can do.

The first comes from the IMF, compiling 30 years of evidence showing that fiscal contraction reduces both employment and incomes:

The second is a graph of changes in government purchases of goods and services in the US, showing dramatic fiscal contraction in a very crucial part of government spending:

The third is a graph of the real rates on 5-year Treasuries, showing that the federal government can borrow at negative real rates to reverse the above fiscal contraction:

I’d like to say more, but the research suggests that doing so in non-graphical form might be counterproductive.