Vermont Tiger: Vermont: Myths and Realities I

Vermont’s manufacturing sector is as important, and large, in this state as it is nationally,  It’s not true that Vermont’s manufacturing sector is smaller than in most states nor is it true that manufacturing is shrinking, at least in terms of output.  That the number of workers it takes to produce that larger amount of output is falling is primarily due to productivity, not to firms shipping their production offshore.  Rising productivity in manufacturing or anywhere else in the economy is a sign of health, not of decline.

http://www.vermonttiger.com/content/2011/03/vermont-myths-and-realities-i.html

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New Jobless Claims Jump by 37,000 After Hitting 2-Year Low

The rise is partly a result of seasonal factors but also reflects the job market’s weakness.

via FOXNews.com – New Jobless Claims Jump by 37,000 After Hitting 2-Year Low.

 

Public vs. Private Pay

 

Teachers benefit from job-saving stimulus spending

The White House says more than 1 million jobs have been saved or created so far, a figure that is so murky it can never be verified.

via Teachers benefit from job-saving stimulus spending – WCAX.COM Local Vermont News, Weather and Sports-.

If I had to choose one quote that summarized the story from this report it would be this one (emphasis added).  If I had to choose one word, then it would be “murky”.

There is so much from this report that is worthy of a more careful analysis that I think I’ll make a second post with a more thorough analysis (not that I am an ‘expert’ analyst).

 

Stimulus: To Create and Preserve

In a report due out this week, Vermont officials will conduct the first statewide tally of jobs “created or preserved” by the federal stimulus package. But the figures necessarily will fall well short of the 8,000 jobs projected by federal economists at the outset of the American Recovery and Reinvestment Act.

The final calculations won’t be ready until late this week, but Vermont “recovery czar” Tom Evslin says he’s certain the total won’t come close to what was predicted. That doesn’t necessarily mean that many jobs weren’t created or saved; there’s just no way to document the effect.

via Stimulus job tally: Don’t get hopes up: Rutland Herald Online.

Apparently, we’ve changed the language from “create and save” to “create and preserve”.  From the best I can tell from reading this article the change in phrase is coming from the federal government.  What is it that they hope to achieve?  Who are they hoping to fool by changing the words?

In other news, Vermont has a “recovery czar”.  Vermont has a “recovery czar”?  Anyway, he uses the old terminology of “created or saved”.  So which is it?

Either way, I’ve been pondering whether or not “saving” or “preserving” jobs is a worthy endeavor (assuming it is even possible to measure).  It probably depends on what you mean when you say jobs.  If you mean some one working (no matter what their task), then saving a job means keeping that person employed no matter what the financial considerations to the employer.  If you mean a specific task, then saving a job might mean hanging onto to a task that is obsolete and thereby inefficient for the employer.

So, if you go by definition number one, then it seems compassionate to try and “preserve” jobs.  You want people to be employed.  Is it possible to save a such a job?  Too much pizza this weekend is clouding my thinking, so I’ll have to give that answer some more thought.

If you go by definition number two, then it is counterproductive to “preserve” a job.  Employing someone in a role that is no longer needed is not productive and is therefore an unnecessary cost.  Saving jobs in this case is actually costing money that could be used in other, more productive, ways.  A classic definition of economics by Lionel Robbins: Economics is the study of the use of scarce resources which have alternative uses. In this case, the money being used by the government has an alternative use: being spent and/or saved by the taxpayer who sent it to the government in the first place.  Of course, the government could just print more money, ending the scarcity problem, but in the process that would distort the value of money and create inflation problems.

Whether you’re intent on saving people from unemployment or saving roles from extinction, the use of the taxpayer stimulus money is not going to have the intended outcome of stimulating the economy.  We’re living through the proof of that right now.

 

State trims about 80 jobs, saving $7.4M in payroll, benefits: Rutland Herald Online

80 jobs equals $7.4 million?  That averages to $92,500 per job.  Even if you account for the cost of insurance in that figure that is still a lot of money by Vermont standards.

“While I am certainly appreciative that they are looking first at vacancy savings and retirements the fact is that nobody had to lose their jobs at all,” Kraus said. “It didn’t have to happen.”

via State trims about 80 jobs, saving $7.4M in payroll, benefits: Rutland Herald Online.

Jes Kraus is the director of the Vermont State Employees Association.  This is the type of thinking that has led to $200 million budget problems.  Nobody had to lose their job at all?  Really?  Does she also think that money grows on trees?

 

The Economics of Extending Unemployment Benefits

For anyone interested in a good analysis of the consequences of extending unemployment benefits would produce (bold emphasis mine)…

Counter-productivity sets in when the incentives of an insurance policy become unbalanced. Insurance policies alter the incentives individuals face and have the well-known perverse effect of nudging the very behavior that would lead to a payout of the insurance policy. That is, the problem of moral hazard. Economists have found unemployment insurance affects an individual’s incentive to find a job by changing the constraints and opportunity cost of finding a job.

Unemployment benefits reduce the incentive and the pressure to find a new job by making it less costly to remain without work. Consequently, workers with UI benefits look for new jobs less rigorously than do workers without them. The typical unemployed worker spends about 32 minutes a day looking for a new job.[1] Workers eligible for UI benefits spend about 20 minutes a day looking for work during their 15th week of unemployment. They look much harder when their benefits are about to end, spending more than 70 minutes a day job hunting in the 26th week of unemployment.[2] Since workers with unemployment benefits search less rigorously for work until their benefits are about to expire, it typically takes them longer to find new jobs. Labor economists estimate that extending the potential duration of unemployment benefits by 13 weeks increases the average amount of time workers on UI remain unemployed by two weeks.[3]

This has economic consequences. Workers do not create economic wealth during the additional weeks they remain unemployed. They save and consume less because UI replaces only a portion of their wages. Labor markets become less flexible because it takes more time for workers to transition from one industry or state to another. This hinders overall economic growth.

via The Economics of Extending Unemployment Benefits.

This is from the Heritage Foundation.

 

Job Loss Chart

Above is a chart (from The Business Insider) of the percentage of job losses during recessions starting from peak employment.  Here are some of my observations from the chart:

• While other recessions have started off with a more rapid loss of jobs, the current recession line is practically a plummet without even a lateral change, or leveling off.  Even the ‘deepest’ recession (1948) did not take a straight path to its lowest level.
• This recession has almost reached the same percentage of job loss as the ‘deepest’ recession of 1948.
• The longest recession (2001 –  the colors are hard to distinguish) since WWII took 46-47 months to regain the lost jobs but the loss only dipped to a low of -2.0%.  This recession has already lasted 18 months and the job loss has gone to almost -5.0%.  So at roughly a third of the time of the longest recession, we are at over twice the job loss number.
• The one bit of good news (call it hope) is that the ‘deepest’ recession took only 5 months to regain the lost jobs.  Let’s hope that some miraculous confluence of events will manifest itself through our political (eh hem) leaders so that we can experience a similar 5-month recovery of jobs.

The laughter you hear over the thought of our political leaders making meaningful changes to economic policies is nervous laughter.  The likelihood of those leaders stumbling upon an effective economic policy is next to none, but the need for them to find it (and find it soon) is great.

The 2010 elections are 15 months away.  That puts us only two thirds of the way through the longest recession.  There will still be time.

 

Barbitulus

Apparently, not all of the Democrats are dancing to Obama’s tune regarding the consideration of a new stimulus bill.  House Majority Leader, Steny Hoyer (D-MD) says that the time is not ripe for another stimulus package.  This article even suggests that Hoyer is a little concerned that the first stimulus bill has been slow to create jobs.  Oh?  Really?

Anyway, here is a good political cartoon that summarizes how ‘effective’ the first stimulus package has been: