Looking Further Into the Job Market
Raymond James
Scott Brown
August 31, 2010
The job market has been a critical focus in the economic recovery. We tend to concentrate on net employment figures (overall payroll gains or losses). However, there’s a lot going on under the surface. The underlying details hold the key to why the economic recovery is going to be gradual.
In normal (that is, good) economic times, initial claims for unemployment insurance benefits might run about 320,000 per week or 1.3 million per month. That sounds like a lot, and it is. Moreover, not everyone who loses a job files a claim for unemployment insurance benefits. The high level of claims reflects seasonal variation in employment (the school year, the holiday shopping season), but also a fair amount of flux.
The Bureau of Labor Statistics compiles gross job figures in its report on Business Employment Dynamics (BED). These figures are released with a lag (the BLS recently released data on 4Q09). The unadjusted numbers reflect the seasonal pattern in job creation and destruction. The adjusted figures point out some interesting and unexpected items. In the 2008-09 recession, job destruction appears to have been no worse than in the 2001 recession. The difference is that job creation was a lot lower in the recent recession. Moreover, job destruction was higher during the booming labor market of the 1990s. The difference was a much greater pace of job creation. In the 1990s, we lost a lot of low-end jobs and added more high-end jobs (technology, particularly cell phones and the Internet, played a big part).
Recently, weekly claims for unemployment insurance benefits have moved somewhat higher. Most likely, this increase reflects either the layoffs of census workers or classification errors related to the extension of unemployment insurance benefits. However, the claims data may be influenced by shifts in job creation. If job creation is high, as it is during a strong economy, laid off workers are more likely to find new work and are less likely to file a claim for unemployment insurance benefits. The opposite happens when job creation is low.
The BLS’s BED data also include breakdowns by size of firm. Small firms, those with fewer than 50 workers, typically account for more than half of gross job gains (they also account for more than half of gross job losses). Small firms accounted for about a third of net job gains during the two previous economic expansions, a relatively small share of the net job losses in the 2001 recession, and a larger share of net job losses during the more recent economic downturn.
There’s a long-standing debate regarding the relationship between firm size and growth of the firm. A recent research report by John Haltiwanger, Ron Jarmin, and Javier Mirada indicates that once you adjust for the age of a firm, small firms are likely to grow no faster than large firms. It’s the age of the firm that matters. Newer firms tend to growth more rapidly than older firms. This research has important consequences for the current environment. Someone starting a business is likely to pledge a home as collateral. With home equity down, you should see fewer business start-ups. In turn, the job creation machine isn’t going to be revving up anytime soon.
(c) Raymond James
