Friday, July 24, 2009

No jobs, no growth

"It might take years for the labor market to fully recover as well: Most members of the Federal Open Market Committee said they expected it "to take five or six years" to bring the unemployment rate down to its long-run potential of around 5%.

Job losses have slowed, but they haven't stopped. The unemployment rate is expected to peak near 11%, according to Roubini. With a current jobless rate of 9.5%, there are now nearly six unemployed people for every job opening. For the first time since the Depression, most of those who are unemployed have lost their jobs permanently.

With so much competition for jobs, wages are dropping. The total wage bill for private industry has fallen at a nearly 5% annual rate over the past six months, the largest decline in the 50 years those data have been kept.

The only thing adding to income growth right now is government transfers, either from automatic stabilizers such as unemployment insurance or from the tax cuts in the stimulus package. Income from private sources declined in all 50 states during the first quarter.
The stimulus has now ramped up. While more money will be coming from Washington each month, the level won't increase. Economist Dean Baker of the Center for Economic and Policy Research figures we need $1 trillion in extra stimulus per year to drive the employment back to 5%, but we're getting only about a third of that.

The worst of the economic crisis is now behind us, but that doesn't mean the economy is all fixed."


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