Twenty Million Jobless by the End of 2009

— Jack Rasmus

THROUGHOUT THE PAST year, U.S. government statistics have consistently underestimated and underreported the extent of joblessness. The techniques by which this has been done were described in prior articles on the subject by this author.  With November 2008’s Department of Labor report of 530,000 additional workers losing their jobs, it would appear that the government was finally reporting the true extent of rising unemployment in the United States.

Unfortunately, that’s still not the case.  The numbers were in fact larger, much larger.  So too significantly larger is the government’s officially reported unemployment rate of 6.7%.  Finally, projections by government, business and independent sources of the coming extent of unemployment in 2009 are also grossly underestimating the joblessness still to come.

The following analysis clarifies what really happened with unemployment in November 2008, what’s almost certain to happen with job loss in December 2008, and what will very likely happen to unemployment over the course of the coming year, 2009.  It concludes with an estimate of the cost of a jobs program that will be required to stem the massive job losses now accelerating and deepening throughout the U.S. economy.

2007-08 Unemployment Rise

From November 2007 to November 2008, the official level of unemployment rose from 7.1 million to 10.3 million, an increase of 3.2 million.  In all preceding nine recessions in the post-1945 period it took a minimum of three years to add three more million unemployed. However, for the first time ever, in the current recession unemployed levels rose that far in just one third the time, or one year.

Nothing like that kind of jobless rise has happened since 1930-31. That is one of various reasons why the current downturn is best described as an “Epic Recession.”

But even that official 3.2 million in joblessness over the past year is a gross underestimation.  It should really be a 5.3 million rise in unemployment from November 2007 to November 2008.  There’s two main reasons why.

First, in the way the U.S. government calculates unemployment, it does not count so-called discouraged and out of work and willing to work as officially unemployed. “Discouraged” means they are out of work and didn’t actively look for work in the preceding four weeks.  But they are just as unemployed, by any sane definition of the term, as a newly unemployed worker collecting unemployment benefits.  The total increase in this “discouraged” group over the past year alone was 700,000.  

Second, the U.S. government doesn’t count workers laid off from jobs but hired back as part-time employees as at least “half unemployed.”  If you work as little as one hour in the preceding month you are considered fully employed. Over the past year the ranks of those considered part-time, but wanting to work full time has risen by 2.8 million. More than 600,000 were added to this category in November 2008 alone. That means the equivalent of 1.4 million fulltime jobs were “lost” by conversion from fulltime to part-time work that aren’t counted at all in the official unemployment statistics as unemployed.

Thus, 0.7 and 1.4 million should be added to the official 3.2 million increase in joblessness over the past year, November to November, making a total of 5.3 million more jobless in just the past year.

From a level of 7.1 million at the start of the current recession in November 2007, we have now really risen to 12.3 million unemployed.  The official unemployment rate of 6.7% today should therefore be 8%, when the 12.3 million are estimated as a percentage of what the government calls the “civilian labor force.”  

But there are two surveys the government uses to estimate joblessness. One is called the Current Establishment Survey (CES), a survey of 400,000 plus enterprises every month that doesn’t pick up unemployment from very small businesses and the self-employed.  The other is the Current Population Survey (CPS), which does. While the CES registered the 533,000 added unemployed in November 2008, the CPS recorded 673,000 job loss from October to November 2008.

That’s 140,000 more unemployed, resulting in an actual 5.45 million jobs lost over the past year, not 5.3 million.  When official jobless levels are adjusted for part-time underemployment and discouraged jobless, there are therefore currently 12.5 million jobless in the United States as of the beginning of December 2008.

Projected Unemployment Increase

If we take the low end CES government survey of 533,000 jobs lost in November, add to it the 124,000 additional “discouraged” workers that month, plus the 715,000 part-time hired (357,000 equivalent fulltime laid off), the total effective jobless increase in November 2008 alone was 1,081,000 jobs! Once again, it is worth repeating: that rate of job loss is historically unprecedented in any post-1945 recession!

And we can expect a similar magnitude of job loss in December as well.  To begin with, the filings for new, first time jobless claims continued to rise dramatically from November into December.  November’s last new jobless claims tally was 509,000.  Economists were predicting 525,000 new claims in the first week of December, but the actual number of new claims for early December accelerated to 573,000!

Testifying before Congress, bureaucrats from the Department of Labor told Congressional committeepersons they had never seen such a jump in unemployment since the history of current employment data collection began in the late 1940s.  Not only is unemployment rising, but it is accelerating, and occurring all across the board in all industries and sectors.

It is important to note that this continued acceleration in December is occurring before Christmas season layoffs.  With the most dismal holiday sales occurring in three decades, it is likely that layoffs of Christmas employment will begin to occur around mid-month instead of later. At the same time, major company after company has begun announcing layoffs by the thousands, and sometime tens of thousands.  

Another 500,000 official layoffs in December, plus another 600,000 part-time hires (300,000 equivalent fulltime layoffs), and another 100,000 discouraged workers will result in possible additional one million job loss in December. That will raise the total jobs lost since the current recession began to more than 6.5 million.  Counting the 7.1 million when the recession began, that’s a total of more than 13.5 million!

Should the current Epic Recession continue on its current track, it will mean a minimum of another four million official unemployed and another minimum three million in discouraged-underemployed — or about seven million more jobless in 2009. Moreover, that total may actually be exceeded should the fiscal stimulus package introduced by Obama and the Congress amount to “too little too late.”  

The forces driving the continuing acceleration and spread of joblessness in 2009 are the following:

First, a most recent broad survey of 1,275 chief financial officers of companies conducted in early December shows their plans to sharply cut capital spending by more than 10% and to lay off an additional 5% minimum of their workforces as a group.  If these projections in the aggregate are representative of the economy as a whole, a 5% cut of the current roughly 154 million U.S. civilian labor force amounts to approximately another 7.7 million cut from job payrolls.

Second, it is quite likely that business massive hiring of part-time workers (three million in 2008) in the early phase of the recession will result in wide-scale layoffs of them in 2009, which will push up the official unemployment rate while reducing somewhat less the contribution of underemployed to the total rate. On net, however, it will result in a higher unemployment level in 2009.

Third, rising corporate defaults and bankruptcies are expected to increase tenfold or more in 2009, according to the rating agency, Standard & Poors. That major development will not only result in additional unemployed, but will have a further “chilling effect” on other companies who will tighten costs still further by layoffs.

Fourth, state and local governments will soon begin layoffs at a much faster rate in 2009 than they did in 2008, as more of them sink into deeper insolvency and some begin to default as well. At least 37 states, and thousands of local government entities, are identified as possible candidates for default and mass layoffs and/or fulltime to part-time job conversions.  Major among them are the large states with huge employment rolls, like California, Florida, Illinois, Pennsylvania, Georgia and Massachusetts.

Fifth, the likely coming default and government-directed or Chapter 11 reorganization of the auto companies, GM and Chrysler in particular, as well as scores of auto parts and supply companies, dealerships, and rental car companies, would mean hundreds of thousands of additional layoffs.  

Sixth, it is highly likely that consumer spending will collapse still further after the current Christmas holiday discount spending, driven by continued joblessness, home foreclosures and falling equity, collapse of 401(k) plans and stock equity, and other major demand factors.

Seventh, it is a growing, distinct possibility that the U.S. currency will fall precipitously in 2009.  Asian countries in particular, China included, are showing signs of responding in ways that may lead to a trade war. That would clearly negatively impact U.S. manufacturing, resulting in further manufacturing job loss in 2009.

Eighth, delays in implementing a fiscal stimulus plan by Congress-Obama will mean a mitigation of the preceding forces will not be forthcoming in 2009.  Similarly, if the package of stimuli in the legislation is insufficiently large, it will have insufficient impact on job losses.  

Costing A 20 Million Jobs Program

There will be 13 million-plus new unemployed to put back to work in 2009.  The U.S. Conference of Mayors has estimated a funding need for 11,391 projects requiring roughly $73.17 billion. This would generate, according to their estimate, 847,642 jobs.  That amounts to $86,321 per job created.

A far more efficient — and certainly more rapid — job creation strategy would be to hire state and local government workers, school employees, workers in service jobs, and in industries already growing, like health care, where the infrastructure already exists, or to introduce strategies to prevent the coming additional seven million layoffs (job retention) set to occur in 2009.

This is not to argue against infrastructure projects or jobs program, but to clarify that a jobs creation program needs to be broad based, not just infrastructure or emerging industries focused.  A program also needs to focus on job retention as well as job creation, and primarily on jobs averaging $50,000 a year or less. An effective jobs program also needs to match up jobs with the skills or those being laid off in large numbers, or about to be. Clearly some jobs will also require expensive and longterm retraining.

In conclusion, by the end of 2009 there will be effectively 25 million unemployed in the U.S. workforce: 15 million officially classified as unemployed, plus five million more discouraged or wanting to work if offered, and 10 million involuntarily working as part-time because they can’t find a fulltime job (equal to five million fulltime jobless).

To create jobs for just 20 million of the 25 million, at $50,000 a job will require a jobs program package of $1 trillion.  Anything less will clearly be too little, too late, and fail to stem the accelerating economic decline.

Copyright by the author.

ATC 138, January-February 2009

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