The spectre of mass unemployment is starting to haunt us

Today’s topic is one that I hoped never to have to write. If we look back to the last century then mass unemployment scarred the economic landscape on several occasions and particularly so in the Great Depression. The credit crunch era initially brought higher unemployment but fortunately we managed to reduce that over time. Indeed from around 2013 we saw considerable improvements on that front in mnay countries. The leader of the pack in this regard has been Japan where the unemployment rate has fallen as low as 2.2%. The UK and US saw strong improvements too with the unemployment rate falling below 4%. More latterly the Euro area has seen unemployment fall too although its progress has been slower leading to its unemployment rate being more like 7%

That was the good news section of the labour market as employment rose and unemployment fell. Although there always was the issue of under employment as a cloud in the sky as we wondered what jobs were being taken and how employment is defined? The waters also had something of a shark in them as the strong quantity numbers were accompanied by at best weak real wage growth something my country the UK has been particularly affected by. Especially troubling is the way the establishment has responded which is to impose poorer measures of inflation  ( the Imputed Rent driven CPIH ) to flatter the figures and mislead the unwary. Along the way the economic Ivory Towers had plenty of troubles too as the unemployment rate fell below their definitions of “full employment ” and made their “output gap” theories crumble. I am sure many of you still remember when Governor Carney of the Bank of England signposted a 7% unemployment rate as significant before exhibiting the sort of behaviour that led to him being called the “Unreliable Boyfriend ”

The US

Last week this provided something of a forerunner of what we can now expect.As Politico points out below even that shock may have been an understatement.

Last week’s headline number of 3.28 million claims — itself a more than 1,000 percent increase — is also expected to be revised upward, in part because of stark discrepancies between data that states reported at the ground level and what the Department of Labor recorded.

Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity.Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity…..Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity.

So as you can see the situation in the United States looks as though it may be even worse than we feared even last week. The old saying that a week is a long time in politics is being outdone by economics at the moment.

The UK

Yesterday brought a moment to the UK which we had feared was about to arrive.

Nearly a million people have successfully applied for universal credit in the last fortnight, in a rush to welfare support that reveals the depth of the jobs crisis caused by the UK’s lockdown.

Despite the government’s job support schemes offering 80% of earnings to employees and the self-employed who cannot work, 950,000 people applied for the main income support benefit between 16 and 31 March. There are normally about 100,000 applicants for the benefit in any given two-week period.

Applications started flooding in as soon as Boris Johnson told the nation to stop non-essential contact with others and cease all unnecessary travel. ( The Guardian)

Care is needed here as these are social security payments rather than a labour force measure or indeed a claimant count but we do get a very string hint from the data here.Out of it there is at least a small positive.

The DWP said it had moved more than 10,000 staff to deal with claims and was recruiting more.

The numbers above compare to a situation only a couple of weeks ago when we were told this by our official statisticians.

For November 2019 to January 2020, an estimated 1.34 million people were unemployed. This is 5,000 more than a year earlier but 515,000 fewer than five years earlier. The small increase on the year is the first annual increase in unemployment since May to July 2012, and it was caused by a 20,000 increase for men.

Sadly we seem set to go through 2 million fairly quickly and maybe 3 million. However the numbers will need some interpreting because it looks as though those who are “furloughed” will continue to be counted as in employment. Personally I think it would be better if a new category was created.

Let me welcome the effort by the Office of National Statistics to produce some new data although sadly even the new weekly measures are of course now well behind the times.

Over a quarter (27%) of responding businesses said they were reducing staff levels in the short term in the period 9 March to 22 March 2020, while 5% reported that they were recruiting staff in the short term.

Spain

This mornings news from Spain was grim too.

MADRID (Reuters) – The rise in Spanish jobless numbers in March is the highest monthly increase ever recorded, Labour Minister Yolanda Diaz said at a news conference on Thursday.

The number of jobless jumped 9.3% from the previous month bringing the total number of unemployed people to around 3.5 million. That total number was still below record highs of 2013.

The recent better phase of economic growth for Spain had played its part in bringing unemployment down from a bit over 5 million to just over 3 million last summer. But sadly the mood music had changed and is now dark.

Comment

This is a grim phase with echoes of the 1920s and 30s. I fear for the unemployment numbers that will come from Italy which had its own economic problems ( the essentially 0% economic growth of our “Good Italy: Bad Italy” theme ) before the pandemic started. Some yesterday were promoting this as good news.

The unemployment rate slightly decreased to 9.7% (-0.1 percentage points) while the youth rate stayed stable to 29.6%.

Sadly they did not seem to have read this bit.

This press release is referred to February 2020, therefore it is related to the pre-COVID-19 health emergency phase.

Italy and many other countries are about to see a tsunami of unemployment and our best hope is that it will be brief.

Meanwhile maybe attitudes will change as the other day I looked up at a residential care home where a worker was assisting an elderly lady on her balcony. As she had no protective clothing I could see she put herself at risk. I was thinking of that as I read this from Sarah O’Connor in the Financial Times.

This precarious army labours around the clock. On Monday I spoke to a domiciliary care worker who visits bed-bound clients in their homes (she did not want to be named for fear of punishment by her employer). She was in the middle of a 10-hour shift, having worked 14 hours on Saturday and 14 on Sunday. “We’re all putting the effort in,” she said. She is paid £9.75 an hour at weekends and £8.75 in the week, which amounts to about £1,700 a month.

It got worse.

Unison, the union for many care staff, has been raising concerns about the lack of personal protective equipment. The care worker I spoke to had gloves but no mask; she had purchased her own hand sanitiser. Her company, which employs her on a zero-hours contract, would only pay statutory sick pay of £94.25 a week if she developed symptoms and had to self-isolate. “Before, I would have gone into work with a cold or a cough — now I’d have to stay off but then I don’t know how I would pay the bills.”

Let me say welcome back from maternity leave to Sarah who is easily the FT’s best journalist.

The Investing Channel

20 thoughts on “The spectre of mass unemployment is starting to haunt us

  1. Hello Shaun,

    I have always thought of zero hour contracts as evil and should be banned. Its piece work typical of the 1930’s . That even the Labour Party did nothing about it shows me that the working man/woman no longer has anyone to stand up for them.

    Forbin

    • Zero hours was in its infancy back in the early 90s when employment agencies started cropping up everywhere, and people were getting fired en-masse by companies upon turning up for work in the morning.

      As a contractor its pretty much all ive ever known.

  2. Hello Shaun,

    re: “The credit crunch era initially brought higher unemployment but fortunately we managed to reduce that over time. ”

    yes by fiddling the figures and tricks like universal University places ( to get degrees in the useless and banal ) .

    This time its going to be a lot harder to hide.

    btw , I find it’s even impossible to get even a telephone interview let alone a virtual one.

    Will I get a South Korean stimulus cheque ? I doubt it . Still there are worse off than me, god help them…….

    It’s going to get worse before it gets worse

    Forbin

    • Hi Forbin

      There was a genuine improvement but yes as I have blogged over time there has been some fiddling of the numbers. Recently I have been chatting to someone who had been unable to continue their past job as a carer ( very topical) due to an injury and was trying to switch to sales just at the wrong time 😦

      Anyway best of luck to you and I guess the rest of your family regret not listening to you about your father’s place.

  3. Hello Shaun,

    on a side issue I noticed shopping today at the local Sainsbury that the shelves have become bare again for bog roll, pasta , rice and eggs. Managed to get some UHT milk for the wife though after 3 weeks hunting (!).

    The stocking level is worse than last Thursday ( except for the milk of course ) but I’d thought that all the hoarders have already stocked up ?? Supply issues then ?

    Forbin

    • Hi Forbin

      I can only vouch for Tuesday here when the supermarket was pretty well stocked even having some eggs. I had upgraded myself to M&S thinking the behaviour might be better but as a couple walked into me it wasn’t and I may as well return to Tesco.

      Actually it was not the lack of eggs that bothered me as I am not a big egg eater but the absence of rice did. As to UHT milk I associate it with holidays abroad as a kid so am not really a fan but I did get a pack when I had my knee op in case I needed a reserve supply.

  4. Great blog and podcast as usual, Shaun.
    Tangentially to the main subject of your blog, you write that the establishment imposed “poorer measures of inflation ( he Imputed Rent driven CPIH ) to flatter the figures.” You or your readers may not all have noticed the latest installment in the Confessions series with Giles Fraser on UnHerd, where he interviews Mervyn King:
    https://unherd.com/confessions-with-giles-fraser-podcast/
    It is somewhat disappointing as King had groused about house prices being removed from the BoE’s target inflation indicator while he was still Governor but ignores it altogether in the interview when he enumerates at some length the reasons for the recession. He publicly expressed his willingness to see a net acquisitions approach to owner-occupied housing incorporated in the UK CPI during the recovery, even if he didn’t like the speed at which Eurostat was moving (who did?) and that approach was not his first choice. I suspect that the reason King seems to have gone mute now that replacing CPI with CPIH as the BoE’s target inflation indicator is being discussed is the approach to OOH he has favoured iss the opportunity cost variant of the user cost approach. It is conceptually very closely related to imputed rents even though in practice they often given very different results, so in his mind CPIH(RE) may be a reasonable substitute for what he would like to see. It’s still a pity that he wasn’t asked about it, though.

    • Just listened to King, while playing Civilisation. Amazing dose of hindsight brilliance, raising the obvious question: if you realised what was happening, why didn’t you do anything about it? We get that tired old canard of the Chinese savings “forcing rates down”, yet they managed to raise rates (too late of course) from autumn 2006, which was a contributor to the crash, and cut them very dramatically soon after, so where was the “savings pressure” then? He hopefully does not have corona, but a quick trip to the quack for amnesia would not go amiss.

  5. It is mass unemployment, because the clowns in charge have been trying to put off the evil day. It is strange that when I was covering economics in 2000 as an MBA unit, it was all about economic cycles, credit being consumption brought forward and savings consumption deferred. Now we seem to have been living in some kind of parallel universe, where there can be no recessions fake booms are okay), where no-one loses their job and house prices keep rising. Now, it seems they even think that no-one must die. Well, we all do and quite a few every winter, especially among the elderly. I see Eddie Large has supposedly died with corona – the fact that he was seriously overweight when he and his partner came to fame probably had nothing to do with it.

    So, the writing was on the wall anyway as many predicted recession last autumn. As I have said before, a rec con told me some time after 2008 that there were no mass checkouts due to the folk memory of the mass sackings and then contract reemployment of the 90s. Companies were going to hang on for better times. Of course, they have not come – loose financial policy driving up house prices saw to that. Despite immigration adding 0.5% to our population (yes, that’s all) and thus about 0.75% to GDP as most were young workers, coupled with debt-fuelled govt spending (the Tories have doubled the national debt since 2010), the economy was celebrated as producing 1% growth. Wages of course told the true story – ten years of stagnation as housing costs massively increased. The economy was “stimulated” by Help to Inflate Prices and rate cuts of 0.5%.

    We were all predicting a day of reckoning on here and in the meantime, the workforce had become very flabby. Lack of investment and trading plus an attitude of “that’ll do” (I was just watching a Grand Tour video in which Clarkson pointed out that Germany, home of long composite words, has no equivalent). Public sector workers – let’s not get started on them, but the clockwatching happens at my private sector employer now. Not got a clue about management or productivity -well, first it was recognition until that died and the Thought Police brought in ‘diversity’, A recession is part of the cycle – it is where the effective kill off the ineffective and the economy is better off for it. Well, now it has come – many on wage support will find they have no job to which to return. Everything that should have happened over 12 years will happen in about one – already weak consumption will be struck badly as unemployment rises. What will the politicians do? Well, the Big Lie has gone in for 25 years really, so we need to protect the people from the effects of the Big Lie. Stand by for lots of scapegoating …

    • ” Stand by for lots of scapegoating …”

      if by that you mean printing – then yes

      and lets not forget the Life Time Living allowance ( Life Pension or UBI )

      MMT ?

      Forbin

      • More immigrants (per Adolf in 1927) and the unemployed – who will be doing all the lowpaid jobs until it is someone in their own family to sent off to pick cabbages.

  6. Another bad day on UK death rates from the pandemic and in the US today not long ago over 6.6 million signed on as unemployed which was double last week !

    British Airways in talks to suspend 32,000 staff

    https://uk.investing.com/news/economic-indicators/british-airways-in-union-talks-to-suspend-around-32000-staff–source-2087387

    BOE doubled the size of its bond buying to 20 billion

    https://uk.investing.com/news/economy/bank-of-england-doubles-size-of-corporate-bond-purchase-programme-2087914

    I have been retied near 5 years now, but never seen anything like this in my lifetime, if I was back in business which I ran for over 50 years, it would unnerve me.

    I find it hart to believe China has no new infections the way the virus is spreading around the world and I see no end at the moment. However AI see far more unemployment in the UK many businesses that have shut up shop will not reopen.

    What is happening now could replicate the 1930’s crisis, its far worse than the 2008 banking crisis imo.

  7. Hi Shaun
    Thankyou for covering a touchy subject.
    Either the current system of massaging
    statistics continues or possibly reality,
    frightening or not, might prevail.
    Nationalising the banks is the obvious
    thing to do but not with the current or
    past retards in charge. Dare any country
    do it, I doubt that but I live in hope.

    JRH

    • Hi Peter

      I think you have a first there as I am not sure we have had any links from The Dun before. My eyes did alight on this bit.

      “While CEBR predicts base rate will increase from to 3 per cent by 2022 after being cut to just 0.1 per cent this month.”

      Not with the current crew in charge.

      The CEBR has an interesting choice of people with Vicky Pryce and well let me hand you over to Business Insider.

      “Douglas McWilliams, one of the world’s leading economists and a former advisor to UK Chancellor George Osborne and London Mayor Boris Johnson, was allegedly filmed smoking crack in a drugs den in Britain’s capital city.”

  8. The United Nations Secretary-General, António Guterres, has announced the creation of a fund for addressing the global coronavirus pandemic – and he is simultaneously asking nations to contribute the equivalent of at least 10 percent of the annual income of the entire planet to a massive “human-centered, innovative and coordinated stimulus package” that would be administered at the international level.
    Although Guterres doesn’t state it explicitly, he seems to be connecting the new fund, which he calls a “dedicated COVID-19 Response and Recovery Fund,” with the massive stimulus package plan, announcing both measures in the same press release.
    If countries were to accept the plan, the United Nations or some similar coordinating agency would be given the equivalent of approximately 8.7 trillion USD, an unprecedented amount that would be 2,900 times greater than the UN’s annual budget of 3 billion USD.
    The proposed plan would effectively place a global agency, presumably the UN itself, in charge of propping up the economies of the world during the coronavirus crisis, placing it in charge of 10% of global income.

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