Sheep from Goats: the rise in long-term unemployment
<p>The graph in <a href="http://mercatus.org/publication/recession-brings-long-term-unemployment">this article</a> is most interesting.  The feature that fascinates me is not the huge crossover from short-term (0-14 week) to long-term (27 weeks or more) of employment, it&#8217;s the purple time series describing 15-26-week employment. It has spiked but is now dropping again.</p>
<p>I think I know what this means.  It&#8217;s the statistical face of the phenomenon I described in <a href="http://esr.ibiblio.org/?p=1752">Marginal Devolution</a>.</p>
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<p>You may recall that in that essay I described two friends of mine, one who&#8217;s been squeezed out of the labor market by the rising cost of employment and another who&#8217;s hanging on by his fingernails. I said &#8220;Increasingly itâ€™s not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that canâ€™t pull enough weight to justify a paycheck; itâ€™s the marginal ones, the mediocre, and the mildly dysfunctional.&#8221; And I pointed at a cause: &#8220;Weâ€™ve spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker â€” which meant the minimum revenue-per-employee threshold below which hiring doesnâ€™t make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped.&#8221;</p>
<p>I think this graph shows on the macro-level what happened to employment after the bubble popped.  </p>
<p>The size of the cohort experiencing a near-median out-of-work period between jobs peaked in mid-2009 and has now returned to historically normal levels. I have a strong hunch that this cohort is demographically stable as well &#8211; that is, it&#8217;s mostly the same <em>people</em> in 2010 that it was in 2000.</p>
<p>The dramatic crossover from short to long-term unemployment in the rest of the working population is, I suspect, the result of my two friends multiplied by umpty-bump million.  This is the job market exiling people who can&#8217;t generate enough value at work enough to cover the tax, regulatory, and deadweight costs of their employment.  And I mean that &#8220;deadweight&#8221; as a very broad category including the effects of minimum-wage laws, the Davis-Bacon act, union work rules, diversity mandates, and all of the other ways we pile social costs onto employers. Obamacare, of course, will be yet another and can be expected to depress employment still further.</p>
<p>Of course, this can&#8217;t go on.  It&#8217;s of a piece with the skyrocketing deficits even in G8 countries.  Latest word is that Great Britain is facing a Greek-style bond downgrade and a debt crisis in the near future; Spain is already there.  The state of California, which would be the sixth largest economy in the world if it were a nation, has done nothing to climb out of its budgetary hole because, really, what can it do?  Within the political assumptions and alignments we have now, no solution is possible.  A minimum of thirty-seven other states and the U.S. Federal Government are staring near-term bankruptcy down the muzzle for the exact same reasons.</p>
<p>The unemployment numbers and the deficit numbers aren&#8217;t simultaneously going crazy by accident.  They&#8217;re two facets of the same systemic illness, two major symptoms of what I have previously dubbed an <a href="http://esr.ibiblio.org/?p=1255">Olsonian collapse</a>.  It took us twenty years longer, but we&#8217;re now reaching the same crisis point the planned economies of the Communist Bloc hit around 1990.  The regulatory megastate is in the process of being destroyed by its own contradictions.</p>
<p>UPDATE: Those of you who think the last paragraph extreme should note that no less eminent an economist than Robert Samuelson is now writing on <a href="http://www.realclearpolitics.com/articles/2010/05/10/the_welfare_states_death_spiral_105503.html">The Welfare State&#8217;s Death Spiral</a>.  But I was there first&#8230; :-)</p>
