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This is a pretty good result – the United States unemployment rate is now at a 49 year low. It’s also a reflection of something that Richard Layard has been saying for decades now – there’s a fundamental difference between the US and most European economies. The US tends – tends note – not to have long term unemployment. That’s not something that can be said of most of the European ones. The why? Well, the US doesn’t have time unlimited unemployment benefits, much of Europe does.

Job growth slumps in September, but the unemployment rate hits the lowest level since 1969
The unemployment rate fell two-tenths of a percentage point to 3.7 percent, the lowest level since December 1969 and one-tenth of a percentage point below expectations.

By any of our usual measures this is full employment. This is also why we’ve just seen Amazon raising starting wages to $15 an hour, why Walmart, Target and McDonald’s have all raised their base wages recently. There’s just not any spare labour out there floating around to be hired. Either people out of the labour market must be tempted back into it, or workers must be hired away from the exploitation of some other capitalist. This is good of course, full employment is the workers’ best friend:

We would actually like real wages to be rising over time. Despite the thought that we live in a capitalist society, one attuned to making the plutocrats ever better off, the truth is a little different. Among all of the various things we’ve tried over the millennia this rough capitalism with free markets blend is the only thing that has managed to achieve the one desired thing. A serious, sustained and substantial rise in the living standard of the average bloke – or blokess. That’s the reason to support it and the reason why it does work was something understood by Marx. When we’ve full employment, when there’s no reserve army of the unemployed, then real wages will rise

All that crushing of unions has meant that we can indeed get that unemployment rate down to where it is:

Wages were also being closely tracked in Friday’s report and these numbers were in-line with expectations. Average hourly earnings rose 0.3% over last month in September and 2.8% over the prior year.

All of our conventional thinking on the subject does actually work. And as Layard has said about US unemployment, it is qualitatively different from that in Europe:

Now that we have learned to control inflation, the key macro-economic question has become
how to lower the sustainable unemployment rate. Provided this can be done without an
equivalent resource cost, this would raise the potential output of the economy.
But how? In Britain welfare-to-work has become the government’s most important
policy for lowering unemployment and expanding labour supply. But does it work? And
what lessons does Britain’s experience provide for other countries?
The rationale for welfare-to-work is simple. If you pay people to be inactive, there
will be more inactivity. So you should pay them instead for being active – for either working
or training to improve their employability.
The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into shortterm
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%
who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.

It may well be that in order to get to that low unemployment rate then the European unemployment support systems should become more like the US one. Time limited that is, 6 months, perhaps a couple of years when the economy is in the doldrums, then you get nothing, nothing at all. As, actually, pretty much does happen in one of continental Europe’s most flexible labour markets, that of Denmark.

Cut unemployment benefits, or at least the time span they exist, and cut unemployment. Sounds attractive really, doesn’t it?

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Spike
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“the US doesn’t have time unlimited unemployment benefits” — No, but in bad times, Congress debates bills to lengthen them, notably Pelosi’s “99 weeks” proposal (varying among states based on their unemployment levels), coupled by most Americans horror that it would take 99 weeks to find something useful to do (plus studies showing that they got serious around Week 98).

The improvement owes almost entirely to jawboning — Trump merely stating that being unemployed is not good. There has been no federal reform other than new willingness to approve state proposals for new requirements on the able-bodied.

Spike
Member

PS — Fox Business now reports that “The stock market recorded losses Friday, as traders reacted to the latest jobs report.” Though during the day, they were reporting that it was losing “as” traders worried about higher interest rates (a totally unexpected result of raising the Fed funds rate). The (mildly anti-Trump) business press, every day reports the stock market doing something “as” some policy changed; the reader is invited to interpret coincidence as causation. If the market move is counter-intuitive, replace “as” with “despite”.

Spike
Member

PS (from Bloomberg) — The writer gets extra credit, in the case of a falling market coincident with a fine jobs report, for speculating that salutary news will “force” the Fed to initiate a harmful policy change “to compensate.”

Alex Noble
Member

If you use the same method as was used to calculate unemployment in 1969, the current rate would be over 10%.

Apples and oranges.

The data is hiding in the labour participation rate.

Spike
Member

The US labor force is of record size in absolute terms, but we are still paying people not to work (a quarter million new claims each month), a system that implicitly rules that the ending of a work relationship is the employer’s fault (that is, pays for excuse-making and for delayed adaptation).