Louis Proyect: The Unrepentant Marxist

October 30, 2012

What to make of the “encouraging” 7.8 percent unemployment rate

Filed under: economics,financial crisis — louisproyect @ 6:36 pm

When the news came out on October 5th that the unemployment rate had dropped to 7.8 percent, the Obama administration embraced the numbers as proof that its policies were working. The NY Times, one of the president’s most consistent supporters, reported that day:

The jobless rate abruptly dropped in September to its lowest level since the month President Obama took office, indicating a steadier recovery than previously thought and delivering another jolt to the presidential campaign.

The improvement lent ballast to Mr. Obama’s case that the economy is on the mend and threatened the central argument of Mitt Romney’s candidacy, that Mr. Obama’s failed stewardship is reason enough to replace him.

The Romney campaign counterattacked on two fronts. First, the candidate asserted that 7.8 percent is “not what a real recovery looks like”—a position that the left can share even as it opposed Romney’s neo-Victorian economic solutions. Second, its supporters claimed that the numbers were bogus. Chief among them was Jack Welch, the former CEO of General Electric, tweeting on October 5th: “”Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change number.”

Nobel Prize winner Paul Krugman used his op-ed perch at the NY Times to answer Welch:

Leading the charge of what were quickly dubbed the “B.L.S. truthers” was none other than Jack Welch, the former chairman of General Electric, who posted an assertion on Twitter that the books had been cooked to help President Obama’s re-election campaign. His claim was quickly picked up by right-wing pundits and media personalities.

It was nonsense, of course. Job numbers are prepared by professional civil servants, at an agency that currently has no political appointees. But then maybe Mr. Welch — under whose leadership G.E. reported remarkably smooth earnings growth, with none of the short-term fluctuations you might have expected (fluctuations that reappeared under his successor) — doesn’t know how hard it would be to cook the jobs data.

On October 11th, Jack Welch used the Wall Street Journal (what, you were expecting the Nation Magazine?) to defend his tweet:

The Obama campaign and its supporters, including bigwigs like David Axelrod and Robert Gibbs, along with several cable TV anchors, would like you to believe that BLS data are handled like the gold in Fort Knox, with gun-carrying guards watching their every move, and highly trained, white-gloved super-agents counting and recounting hourly.

Let’s get real. The unemployment data reported each month are gathered over a one-week period by census workers, by phone in 70% of the cases, and the rest through home visits. In sum, they try to contact 60,000 households, asking a list of questions and recording the responses.

Some questions allow for unambiguous answers, but others less so. For instance, the range for part-time work falls between one hour and 34 hours a week. So, if an out-of-work accountant tells a census worker, “I got one baby-sitting job this week just to cover my kid’s bus fare, but I haven’t been able to find anything else,” that could be recorded as being employed part-time.

Left economist Jack Rasmus, who shares the ex-GE CEO’s first name as well as his skepticism about the BLS statistics, wrote:

The current population survey (the 873,000) represents a statistical operation on raw jobs data that adjusts that raw (i.e. actual) jobs data by means of several statistical operations–i.e. seasonality, etc.—to get to the 873,000.  But before the raw data is statistically adjusted, another source of raw data is added to the initial data and only after that is the statistical adjustment carried out. This second source is jobs data estimated from assumptions about New Business Formation that are lagged up to nine months.

Here’s how it works. The labor department assumes net new businesses are formed nine months previous. That would be last November-December 2011. These data on new business formation are very inexact. It’s not actual new businesses but an assumed historical average of new businesses. So the past years in which new business formation was high is substitute for the more recent period when new business formation is in fact low, or even negative. It’s really a  shaky estimation process.

Doug Henwood responded to Rasmus but only to defend the legitimacy of the statistics rather than the Obama administration’s neoliberal economic policies:

This is completely wrong. The business formation estimates figure into the establishment survey, the monthly survey of almost 500,000 worksites – more info here:

  http://www.bls.gov/ces/.

That survey is the principal source of the headline job gain/loss figures. The household survey – of 60,000 households – is independent of the establishment survey. The unemployment figures and this CPS 873,000 figure come from the HH survey. It’s the result of asking people if they’ve been working, looking for work, neither, etc. More detail on the HH survey here:

  http://www.bls.gov/cps/faq.htm#Ques1

The HH survey has nothing to do with the establishment survey. There are no assumptions about new business formation at all. It just comes from asking people questions and adding up their answers. It’s very volatile – you need a change of 400,000 to reach statistical significance. The employment numbers bounce around a lot. You can get +800,000 one month and -500,000 the next. The raggedness evens out over the course of a year, but monthly changes should be taken with a grain of salt, or three.

Without mentioning his name, Rasmus seemed to have responded to Doug’s critique on October 10th, which led to a follow-up once again from Doug.

Speaking for myself (and who else matters?), I am ready to accept the statistics at face value but wonder if Jack Welch had a point on part-time work. I say this as someone with direct experience in the area since I am currently on unemployment, the benefit of having my position eliminated at Columbia University.

My unemployment benefits are $405 per week. If I didn’t have a spouse who was making a decent income as a tenure-track professor, I would be forced to re-enter the job market under duress especially if was not receiving social security benefits as well. So if I was a 40-year-old unemployed computer programmer, I might have landed a part-time job on a help-desk somewhere that paid $455 per week or so. This puts me $455 over the unemployment ceiling and thus not eligible for benefits. But how can you live on $455 per week when your rent is something like $1200 per month or so, the price of a modest studio apartment in New York. You are left with $100 per week for food, transportation, medical expenses, and entertainment, what have you.

As the BLS openly admitted, a spike in part-time employment contributed to the improved job figures:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

This is the greatest monthly increase in involuntary part-time work since September 2011.

To get a feel for the human dimension of those forced into the part-time arena, there is a must-read article that appeared in the October 27 NYT written by Steven Greenhouse, a relatively enlightened reporter who is rumored to be a red diaper baby. If I were teaching Marxist economics to college students, I would have them read this article that includes the following:

While there have always been part-time workers, especially at restaurants and retailers, employers today rely on them far more than before as they seek to cut costs and align staffing to customer traffic. This trend has frustrated millions of Americans who want to work full-time, reducing their pay and benefits.

“Over the past two decades, many major retailers went from a quotient of 70 to 80 percent full-time to at least 70 percent part-time across the industry,” said Burt P. Flickinger III, managing director of the Strategic Resource Group, a retail consulting firm.

No one has collected detailed data on part-time workers at the nation’s major retailers. However, the Bureau of Labor Statistics has found that the retail and wholesale sector, with a total of 18.6 million jobs, has cut a million full-time jobs since 2006, while adding more than 500,000 part-time jobs.

Technology is speeding this transformation. In the past, part-timers might work the same schedule of four- or five-hour shifts every week. But workers’ schedules have become far less predictable and stable. Many retailers now use sophisticated software that tracks the flow of customers, allowing managers to assign just enough employees to handle the anticipated demand.

“Many employers now schedule shifts as short as two or three hours, while historically they may have scheduled eight-hour shifts,” said David Ossip, founder of Dayforce, a producer of scheduling software used by chains like Aéropostale and Pier One Imports.

This is what capitalism has always been about, after all. In its infancy, it exploited labor through the use of an 11-hour day, child labor and the like—what Marx called the extraction of absolute surplus value. In the contemporary era, the tendency is toward the use of contingency labor or part-timers.

It is ironic that firms using leading-edge technology to control costs have little to show in the way of “creative destruction”. We were told in high school that when the automobile replaced the horse, the loss of blacksmith jobs would be compensated by the growth of assembly-line jobs building cars. Now this might have been viable during the “Fordist” epoch but in a globalized capitalist economy, there is little guarantee that new, well paying, full-time jobs are in the offing. This is something that even the bourgeois ideologists are being forced to admit, as David Leonhardt reported in the NYT on October 23rd:

Some of the disconnect between the economy’s problems and the solutions offered by Washington stem from the nature of the current political debate. The presidential campaign has been more focused on Bain Capital and an “apology tour” than on the challenges created by globalization and automation.

But economists and other analysts also point to the scale of the problem. No other rich country — not Japan, not any nation in Europe — has figured out exactly how to respond to the challenges. “The whole notion of the American dream,” said Frank Levy, an M.I.T. economist, “described a mass upward mobility that is just a lot harder to achieve right now.”

For the first time since the Great Depression, median family income has fallen substantially over an entire decade. Income grew slowly through most of the last decade, except at the top of the distribution, before falling sharply when the financial crisis began.

By last year, family income was 8 percent lower than it had been 11 years earlier, at its peak in 2000, according to inflation-adjusted numbers from the Census Bureau. On average in 11-year periods in the decades just after World War II, inflation-adjusted median income rose by almost 30 percent.

Rather than to try to explain what all this means in Marxist terms, I am going to refer you—dear reader—to an exceptionally interesting analysis of the 7.8 unemployment figure by Sam Williams who blogs at http://critiqueofcrisistheory.wordpress.com. I have no idea who Williams is but I can describe him as quite a well-informed critic of the capitalist system.

In a post titled The September 2012 Unemployment Numbers and the ‘Surplus Population’, he evaluates the trustworthiness of the statistics as well as their meaning within a broader context of class relations.

Williams’s chief contribution is to challenge the underlying theoretical framework for such statistics as accepting the framework of bourgeois economics. He writes:

According to the neo-classical marginalist theory, every person has a choice between holding a job at the going wage rate for workers of their particular skills, or choosing leisure. Assuming “perfect competition” prevails in the labor market, marginalism claims that each worker can obtain a job at a wage that corresponds to the amount of value that the worker’s labor will create, assuming the potential worker chooses employment over leisure. Therefore, a large idle population is not really a problem. It is simply the consequence of a free society—as opposed to a slave society—where people are “free to choose” between employment at a wage that corresponds to the value that their labor will create if they choose employment, and leisure.

This neo-classical theory of employment and unemployment forms the basic assumptions used by capitalist governments when they calculate the unemployment rate.

The rate of unemployment estimated by capitalist governments therefore makes no attempt to measure the percentage of the population that is “voluntarily choosing leisure over employment” but only those who are actively seeking work, the so-called “involuntarily unemployed.” Consequently, official unemployment figures measure only a small part of the unemployed population, or to use the more honest 19th-century terminology, the surplus population. Therefore, in order to cover up the current long-term unemployment crisis we are confronted with today, there is no need to actually falsify the figures. Rather, the falsification is built right into the method and assumptions by which unemployment is calculated.

Williams goes farther than me in deconstructing the way that unemployment figures are compiled. If it makes sense to see involuntary part-time workers as part of the army of the unemployed, why not go a bit further and see the actual army in the same terms:

The considerable number of young people—many members of oppressed nationalities—who join the armed forces only because they have no chance of finding employment elsewhere—are not counted either. In the New Deal years, when official figures on employment and unemployment first began to be calculated, members of the armed forces were not considered employed. This was an echo of the theories of the classical economists who considered solders to be “unproductive workers,” since they did not produce surplus value for the capitalists.

Quite right, I’d say.

This is what we need more of. With the debate over “job growth” being seen as the bailiwick of Jack Welch on one side and Paul Krugman on the other, it makes sense to pay closer attention to what people like Sam Williams are saying. In a very real sense, it is the same kind of battle that Jill Stein is fighting, the right to be heard against two perspectives equally committed to the rule of the one percent over the ninety-nine percent.

7 Comments »

  1. Nice summary, Louis. Thanks for pointing out the Sam Williams blog. I’ve begun to follow it. I could not agree more that we need more than the singular liberal/conservative non-debate on economics. Been looking for a stronger source of economics discussions. This one looks good.

    Comment by mtomas3 — October 30, 2012 @ 7:33 pm

  2. Over a year ago, Michael Yates reviewed several books that skewered key points in neoclassical economic theory, especially in regards to employment and unemployment. See:
    http://cheapmotelsandahotplate.org/2011/06/14/the-emperor-has-no-clothes-but-still-he-rules-three-critiques-of-neoclassical-economics/

    I am surprised that your unemployment compensation in NY is only $404 a week. Last year when I was unemployed, I was getting $500 per week, presumably on the basis of a salary lower than yours. And you live in a city where the cost of living seems to be a lot higher than Massachusetts too.

    Comment by Jim Farmelant — October 30, 2012 @ 7:34 pm

  3. thenextrecession.wordpress.com/author/bobmckee/ is indispensable imho.

    Comment by meltr — October 31, 2012 @ 5:10 pm

  4. Critique of Crisis Theory, Michael Roberts are good at what they do, but remain within the orbit of the original “Capital”. I think that in the imperialist countries at least, rent-seeking, and the capitalization of such rents extracted from non-productive activity (the sphere of consumption), such as housing, health care, transportation, education, plays the driving role in capitalist accumulation nowadays. Only the most productive industrial capitals can adequately compete and profit in this sort of high cost environment.

    This explains why in the US, the value of manufacturing continues ever upward, while manufacturing employment continues its long term numerical decline. Manufacturing capitalists seek to surmount the ever-rising rent-costs of the reproduction of labor power with relative surplus value extraction – substituting living labor with ever more sophisticated machinery. This is the symbiotic relation between every growing rent extraction and the advance of relative surplus value extraction. They are not in contradiction.

    But it goes a level deeper: the very process of scientific discovery of new use values of nature, and their technical implementation in more advanced means of production, also uncovers new venues for rent extraction and their financial capitalization. After all, the “discovery” of the Americas was an act of science and technology, among others, a scientific advance that produced a bonanza of land and mining rents. So the very process that is driving relative surplus value extraction also proliferates a field of potential rents in its wake. Just ask Apple and ATT.

    The growth in importance of rent tribute is the concrete economic expression for the “epoch of capitalist decay”. This analysis was never really made in the Lenin-Trotsky tradition of the theory of imperialism. Subsequently it was mischaracterized as “monopoly capitalism”, or nowadays as “financialization” in the Sweezy/Foster MR tradition. Or “industrial capital” is counterposed to a rent seeking “finance capital” in the manner of Michael Hudson. So, either the issue of rent and ficticious capital is ignored by the “by the book” Marxists (in what I think Michael Lebowitz correctly called “one-sided Marxism”), or the economic specificity of rent, a tribute based in private property in the use values of nature, is obscured by overgeneralized theories of “finance” where every form of interest on money capital becomes a “rent”.

    For the broad mass of workers this can only become an ever more intolerable circumstance, as they are faced on the one side by ever increasing rent tribute demands in consumption, while the very jobs whose wages could meet those demands are being eliminated.

    It is quite a contradiction of capitalism. Too bad this analysis goes missing in Capital.

    Comment by matthewrusso9 — October 31, 2012 @ 8:43 pm

  5. Let’s see (a statistical musing). In 2007, the US working age population was 232 million and in 2011 the US working age population was 240 million (in rounded figures), it was a net increase of 7.7 million (natural increase + net immigration). At the same time, however, the number of employed persons decreased from 145 million in 2007 to 139 million in 2011 (rounded figures), a net decrease of 6.4 million. You might then express the crude “employment gap” as the sum of the net increase in the total number of working age people, and the net decrease in the number of employed persons, which equals a total of 14 million working age people without jobs of any sort (round figures). It is true that employment has picked up some in 2012, but the net increase is at best about 3 million (about a fifth of what’s needed). So the crude “employment gap” would then still be about 12 million working age people without a job of any sort, i.e. about one in twenty of the working age population. Whereas previously, in 2007, 62.9% of working age population was employed, in 2011 only 58.2% of the working age population is employed (the difference is 4.7%). That is to say, in reality two out of every five people in the US working age population in 2011 did not have a paid job of any sort. The comparison I am making is however not quite valid, since at any time a fraction of the working age population is in schooling or sick, and “employed persons” include also parttime employees. Perhaps the most significant employment trend is the steady increase in (involuntary) parttime employment with all that implies (often, lack of permanent contracts or benefits). One in every five “employed persons” in the US in fact has a part-time job. The U3 unemployment rate (the official rate) in the labour force (total civilian employed + unemployed) is now 7.8% (one in thirteen workers in the civilian labour force) but the more inclusive U6 (which includes parttime workers seeking additional work) is nearly double that at 14.7% (one in seven workers in the civilian labour force). That puts a ceiling on wage increases, and it means that individual wage increases can occur only through job mobility; but in fact job mobility is decreasing. The overall result must be a lower modal average level of real wages.

    Comment by Jurriaan Bendien — October 31, 2012 @ 9:45 pm

  6. Here’s a recent exchange with Doug Henwood about the topic under discussion:

    Me: Btw, I was just about to dash off an email to you following up on the question I had a while back on unemployment. If part-timers who sought full-time work were included in the unemployment rolls, can you guesstimate what the rate would be?

    Doug: The BLS computes an unemployment rate that includes them as half-unemployed and adds in discouraged workers (those who’ve looked for work in the past year, though not the past month). It’s called the U-6 rate, and it’s now 14.7%.

    Table A-15, here:

    http://www.bls.gov/news.release/empsit.htm

    Comment by louisproyect — October 31, 2012 @ 10:34 pm

  7. You don’t lose unemployment benefits in the way you described, at least in California. It always makes more sense to work because the benefits are cut off through gradation. In other words, if you’re making $450 a week part-time and have initial unemployment set at $425, you’d end up getting maybe $200 in unemployment for a total of $650.

    In this scenario, you are also “saving” your unemployment account so that it will last longer than the 4 month standard.

    Working part-time you can be on unemployment for up to a year even without extensions. Again, it almost always makes sense to work even while on unemployment.

    This is from personal experience.

    Comment by purple — November 2, 2012 @ 10:57 pm


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