macroeconomics inside job

8/20/2019 Macroeconomics Inside Job

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2UMM8R9

There are five significant &arts of the movie The first &art begins with begins how Ice'and, a

stab'e democratic societ% described as a'most attaining :end of histor% status;

This sma'', &ros&erous state of #!",""" &eo&'e became a bas4et case a'most overnight when its

three main ban4s were &rivati7ed and began borrowing three times the countr%;s 6ross Domestic


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ehman 0rothers, for instance he'd a :doub'e 8; rating when it

fai'ed and the mortgage 'ender Fann% Mae and Fredd% Mac he'd a :tri&'e 8; rating at the time of

the co''a&se

6o'dman=2achs so'd more than 5# bi''ion worth of CDOs in the first ha'f of !"" 6o'dman a'so

bet against the 'ow=va'ue CDOs, te''ing investors the% were high=/ua'it% The three biggest

ratings agencies contributed to the &rob'em 888=rated instruments roc4eted from a mere

handfu' in !""" to over E,""" in !""

Further neg'igence was evident in the 'everage of the 'argest ban4s which is the amount

borrowed re'ative to the ban4s; own mone% In some cases this ratio was ##?+, meaning that

some ban4s were borrowing ## times their own ho'dings 'eaving them ho&e'ess'% over=e3tended

when the bubb'e burst


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%nch, on the

edge of co''a&se, was ac/uired b% 0an4 of 8merica -enr%


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C6$

Man% of these economists had conf'icts of interest, co''ecting sums as consu'tants to com&anies

and other grou&s invo'ved in the financia' crisis


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T- FFCT2 T-8T COUNTRI2 -8G TO F8C FROM T- I22U2 8RI2

8 *O0 >O22

*ob 'oss in the 6reat Recession was b% far the most severe of an% recession since ))II In the

two %ears from December !""A to December !""@, the 'abor mar4et shed + of a'' &a%ro''

em&'o%ment 0% com&arison, in the dee& recession that began in +@.+, job 'oss, at #+, was

about ha'f as severe

2ource?


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Note? 2haded areas denote recessions

2ource? abor 2tatisticsB Current


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0 UNMO9MNT 8ND UNDRMO9MNT

It is im&ossib'e to ca&ture the strength or wea4ness of something as com&'icated as the U2

'abor mar4et with one number Therefore, it is im&ortant to 'oo4 not just at the unem&'o%ment

rate, but a'so at a host of measures of 'abor mar4et hea'th

Note? 2haded areas denote recessions

The chart above shows a more com&rehensive measure of 'abor mar4et s'ac4 than the

unem&'o%ment rate It inc'udes not just the officia''% unem&'o%ed, but a'so

Hinvo'untar% &art=time wor4ersJthose who want a fu''=time job but have had to sett'e for &art=

time wor4K and

Hmargina''% attached wor4ersJwor4ers who want a job, are avai'ab'e to wor4, but have

become so discouraged that the% have sto&&ed active'% see4ing wor4 and are conse/uent'% not

counted as officia''% unem&'o%ed


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8round !A mi''ion wor4ersJrough'% one out of ever% si3 U2 wor4ersJare either unem&'o%ed

or underem&'o%ed Im&ortant'%, this is a ver% conservative measure of the tota' number of

underem&'o%ed because it does not inc'ude wor4ers who have had to ta4e a job that is be'ow

their s4i'' or e3&erience 'eve'

The 6reat Recession has bro4en a'' records re'ated to duration of unem&'o%ment The chart

be'ow shows the share of the unem&'o%ed who have been job'ess for more than si3 months This

share has been over E" for a'' of !"+", far above its &rior &ea4 of ! in the summer of +@.#

Once wor4ers gets 'aid off from a job in this 'abor mar4et, the odds are stac4ed strong'% against

them finding another one an%time soon

Note? The 'ong=term unem&'o%ment rate is the share of the unem&'o%ed who have been job'ess

for more than si3 months

2ource?


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C *O0 2-ORT86

*ob see4ers outnumber job o&enings b% a significant marginJin 2e&tember !"+", the ratio was L

to + Im&ortant'%, this isn;t the number of a&&'icants &er job o&eningJthat number is much

higher, as one unem&'o%ed wor4er a&&'ies for man% jobs The L=to=+ ratio means that for four

out of ever% five unem&'o%ed wor4ers, there 'itera''% are no jobs

That is actua''% a substantia' im&rovement over 'ate !""@, but it is sti'' far higher than the worst

month of the &revious recession and over three times as high as in !""A, before the 6reat

Recession started

This chart shows &a%ro'' em&'o%ment over the !"""s 8s of 2e&tember !"+", the U2 'abor

mar4et sti'' had A. mi''ion fewer jobs than it did when the recession started in December !""A


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0ut im&ortant'%, because the &o&u'ation is natura''% increasing a'' the time, the U2 'abor mar4et

must add around +"",""" jobs ever% month just to 4ee& the unem&'o%ment rate stab'e From

December !""A to 2e&tember !"+", the 'abor mar4et needed to add around #E mi''ion jobs

sim&'% to 4ee& &ace with &o&u'ation growth, creating a combined jobs ho'e (&o&u'ation growth

&'us jobs 'ost$ of over ++ mi''ion jobs in that time To fi'' in that ga& in five %ears, the 'abor

mar4et wou'd have to add around #"",""" jobs &er month for that entire &eriod

Note? The &otentia' 'abor force is the actua' 'abor force &'us the Hmissing wor4er,1 &otentia'

wor4ers who, because of wea4 job o&&ortunities, are neither em&'o%ed nor active'% see4ing a

job

)hi'e the &revious figures have shown that, on aggregate, we have a huge jobs deficit, cou'd it

a'so be true that the 6reat Recession has caused &rofound structura' changes that the aggregate

numbers are mas4ing Is there evidence that &art of toda%;s unem&'o%ment is the resu't of firms

having job o&enings but can;t find a&&ro&riate wor4ers


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This chart shows the number of unem&'o%ed wor4ers and the number of job o&enings b% sector

If toda%;s unem&'o%ment is &redominant'% structura', then one wou'd e3&ect to find some sectors

where there are man% more unem&'o%ed wor4ers than job o&enings, and some sectors where

there are more job o&enings than unem&'o%ed wor4ers

In other words, for structura' unem&'o%ment to be a 4e% &art of overa'' unem&'o%ment, one

wou'd e3&ect to find 'abor shortages in some areas because em&'o%ers with job o&enings

cou'dn;t find suitab'e wor4ers

0ut there are no major sectors where that is ha&&eningJunem&'o%ed wor4ers dramatica''%

outnumber job o&enings in ever% sector In other words, the main &rob'em of the 6reat

Recession isn;t that the econom% is 'ac4ing the right wor4ers, but instead that it is, across the

board, 'ac4ing jobs


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D F8>>IN6 INCOM, RI2IN6


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The 6reat Recession has seen a substantia' rise in &overt% In !""@, one in seven &eo&'e were

'iving in &overt%, and one in five 4ids under the age of +. was 'iving in &overt% 9oung 4ids

have been the hardest hit, with near'% one in four chi'dren under the age of 'iving in &overt%

Racia' and ethnic minorit% fami'ies are much more 'i4e'% to be 'iving in &overt% than non=

-is&anic wor4ers, regard'ess of whether the econom% is in an e3&ansion or recession In the

6reat Recession, however, -is&anics in &articu'ar have seen 'arge increases in &overt% Rough'%

one in four -is&anics and 8frican 8mericans are 'iving in &overt%


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OT-R F8>>OUT2

)ith the bursting of the housing bubb'e, the dec'ine in the stoc4 mar4et, and the wea4ness of the

'abor mar4et, househo'd wea'th has ta4en a substantia' hit in the 6reat Recession The median

net worth of whites fe'' b% around a third from !""E to !""A, dro&&ing from around 5+L",""" to

around 5+"","""

The median wea'th of b'ac4s, historica''% much 'ower than that of whites, too4 an even bigger

hit, dro&&ing b% over three=/uarters, from around 5+",""" to around 5!,""" 8s most

8mericans, &articu'ar'% those under L %ears o'd, re'% on hea'th insurance obtained through the

wor4&'ace, it is no sur&rise that em&'o%er=s&onsored hea'th insurance fe'' dramatica''% in the

6reat Recession

The share of 8mericans under age L who are covered b% em&'o%ment=based hea'th insurance

fe'' from !@ in !""A to L.@ in !""@ 2ome of that dec'ine was offset b% increases in

&ub'ic insurance coverage, but neverthe'ess in !""@ there were L"A mi''ion &eo&'e, AL mi''ion

of them chi'dren, without an% t%&e of hea'th insurance

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