Friday, February 1, 2008

Latest job report indicates need to extend unemployment benefits

The number of jobs in the nation fell last month for the first time in almost five years according to the Labor Department's latest employment report.

17,000 jobs were lost, led by losses in construction, manufacturing, good producing industries and state government.

Today’s report is the clearest signal yet that the economy has entered a recession and that Congress needs to include a temporary extension of unemployment insurance benefits in its fiscal stimulus package.

Averaging over the past three months, payrolls grew by a scant 42,000 jobs per month, compared to 169,000 a month over the comparable period one year ago.

The Labor Department also sharply lowered its estimates for employment in 2007 as a whole.

In November, for example, the government had said 115,000 jobs were created. That number was reduced to 60,000 in the latest report, far short of the 150,000 jobs that are required to absorb new workers entering the workforce.

Long-term unemployment—the share of workers jobless for at least half-a-year—jumped to 18.3%, compared to 16.2% one year ago. At the start of the last recession in March 2001, in contrast, the long-term unemployed made up only 11.1 percent of all unemployed workers.

The number of long-term unemployed is higher today (1.38 million) than it was in March 2002 (1.33 million), when Congress first enacted extended unemployment compensation after the 2001 recession. Unemployment benefits are cut off after 26 weeks in most states.

Another important indicator of slack in the job market was the increase in the share of involuntary part-time workers, a change that is also evident in the increase in the under-employment rate, the BLS's most comprehensive measure of under-utilization. At 9.0% last month, the underemployment rate was at its highest level in over two years and significantly above its year-ago level of 8.3%.

Workers’ salaries have also fallen in the last 12 months. The average hourly wage for rank-and-file workers — about 80 percent of the total work force — rose 3.7 percent since last January, below the pace of inflation.

These developments are a source of concern not only for these families but for the economy as a whole. They are a clear sign that extending unemployment benefits must be part of any fiscal stimulus package.

A temporary extension of unemployment insurance benefits would help the people hardest hit by the weakening economy and would boost the economy with one of the fastest acting and most effective forms of stimulus available. Unlike tax rebates, which can’t begin to go out until mid-May, extended unemployment benefits could start reaching workers and boosting consumption within 30 days.

The Senate has included extending unemployment benefits in its stimulus package. It is important for American workers and the economy that it be included in the final stimulus legislation.

3 comments:

John P said...

I hope that any extending of benefits will be temp. and that they will not end up being perm. extended. This will be another increase to a government program

Michael Rosen said...

John,

Federal law limits unemployment benefits to a maximum of 26 weeks.
In the past the federal government has extended them for a specific number of weeks to both assist the long term unemployed and to provide an effective stimulus.

No one is proposing to extend them permanently.

On the other hand, you should be concerned that President Bush and the Republican candidates for president are proposing to make the high income tax cuts passed in 2001 and 2003 permanent. This proposal is fiscally irresponsible. If passed, it would undermine the ability of the United States to compete in the global economy.

John P said...

Mike:

That is your opinion. There are many economists who disagree with you regarding the Bush tax cuts. I think they should be extended. The problem is with spending. We need to cut spending, not increase it. It is not right to take money from one group of people to give it to another. I think that some of the tax code is unfair. For example, carried interest should be at ordinary rates, not capital gain rates. I also would keep capital gain and dividend rates for people making less than $200,000 and raise them for AGI over $200,000.

People who are in the $150,000 - $500,000 got hit with AMT (especially people between $150,000 and $250,000), so they did not get full advantage, and in my case not much of an advantage of the Bush tax cuts. In addition, many of the tax exemptions for people in this range get eliminated, i.e. intemized deductions get phased out, IRA contributions are eliminated, personal exemptions are eliminated. One cannot just look at tax rates alone, remember their are numerous phase outs and eliminations that people at the higher end do not get.

I am a CPA, so see this first hand.