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Digging Deeper Into What Caused Job Losses

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    Digging Deeper Into What Caused Job Losses

    May 18, 2011

    Census Bureau data on employment by pay level cast doubt on credit-crunch and demand-based theories of the recession. One theory is that a credit squeeze left businesses short on funds, and they responded by cutting payroll, their major expense. Indeed, the bank bailouts were rationalized on the grounds that a bailout would help employers maintain their payrolls.

    If cutting payroll spending had been the primary motivation of employers, then they should have cut deepest among their most expensive employees. Firing one person making, say, $2,000 a week saves more than firing three people making $600 a week.

    It is true that part-time employment, which is typically low-paying, increased significantly during the recession. However, last week I showed Census data suggesting that employment of people making more than $2,000 a week may have been greater in the 12 months after Lehman Brothers failed than it was before, even while employment of people making less than $2,000 a week fell several million.

    Hiring more high-paid people is not a way to reduce payroll spending.
    Moreover, payroll spending now exceeds what it was when the recession began, yet employment remains millions lower. Apparently, payroll spending is not enough to bring those jobs back.

    Another theory of the recession is that it was caused by a lack of demand — fewer employees were needed because employers were selling less to their customers. The low-demand theory is a good description of a couple of industries, like manufacturing and home construction, but if it described the economy as a whole we would have seen all types of employment cut, not just employment of people making less than $2,000 a week.

    Another set of theories say that high-paid employees are replacing low- and middle-income employees. This replacement might come from employers’ attempts to cut personnel during the recession, rather than payroll spending. For example, employers might have worried about health insurance and other employment regulation whose costs are proportional to the number of employees they have. In this view, the bank bailout did little to prevent layoffs.

    Some of the replacement could come from families, as they react to some new incentives presented during the recession. Unemployment insurance reduces incentives for unemployed people to accept a new job, because, for up to 99 weeks, the insurance pays them for being unemployed.

    Unemployment insurance benefits are capped, so the disincentive is much less for people making $2,000 or more a week than for people making less. Some homeowners with underwater mortgages may react by earning more, while others earn less as they recognize that all their extra earning ultimately ends up with their mortgage lender.

    (Click on the link to see the chart)

    Neither payroll-cutting by employers nor weak demand explain fully the job losses brought on by the Great Recession, an economist writes.



    For each of the 50 states and the District of Columbia, the chart compares the percentage change in the fraction of adults in the state who make $300-1,200 a week (the middle two-thirds of employees are paid in that range) to the percentage change in the fraction making $2,000 or more.

    For example, the fraction of Arizona adults earning $300-1,200 was 10 percent lower from October 2008 to September 2009 than it was in the previous 12 months, and the fraction of Arizona adults earning more than $2,000 a week was 29 percent higher.

    The low-demand and payroll-cutting theories say that the two should be positively correlated, because the states with the largest demand reductions (or the employers most motivated to cut payroll spending) would have cut employment across the board.

    But the Census data suggest that they are negatively correlated (the correlation is also negative if the small or “outlier” states shown in the chart are excluded or downweighted according to population).

    These patterns of employment by pay level reveal a number of insights that are not visible in the aggregate employment statistics: the credit crunch and lack of demand may have received too much of the blame for the recession’s job losses.

    Neither payroll-cutting by employers nor weak demand explain fully the job losses brought on by the Great Recession, an economist writes.
    8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

    #2
    You cannot fundmentally have a thriving society/economy w/out manufacturing, with stagnant wages, rapidly rising prices for food/fuel -period. In 2008 (as recent as that) FORTY!!!% (40%) of the net profits in the US were made in....finance. Making nothing. Finance.

    Comment


      #3
      as far as i view it there are and were many contributing factors that brought us to this point. i don't think we can point at one particular situation.

      now, fixing it, well, that's another story. there certainly, is NOT are will not be a quick fix here.
      8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

      Comment


        #4
        During the housing boom time, many employers were doing well and hired more staff at probably higher paying wages to attract experienced, competent personnel. When the big bust started to hit in 2006/2007, employers' had to start doing something due to the loss of profits and loss of income so the first to go are the employees. Depending upon the internal structure in any given company and who or what is needed to run a competent show and keep the business afloat, employees are all evaluated as to certain sectors that have to be cut and positions eliminated due to that cut. None of us have control over any of that unless we own the company. The easiest way to look at this is to picture yourself owning a booming company making good money and having an excellent, well paid staff running the show. Suddently, income to the business starts to get cut off; people are not paying their bills for services/supplies rendered. Your accountants advise to draw back on spending and to look into laying off. Departments at first will be evaluated as to what cuts can be made so the business still is functional and has competent employees. Unfortunately, many are cut that the company does not want to cut. It's just plain business and people need to realize that most people are at will employees - they can be let go at any time for any reason and they can leave the company at any time for any reason. Those with employment contracts (i.e., managemenet level on up), have more of a foothold for compensation upon layoffs, etc.
        _________________________________________
        Filed 5 Year Chapter 13: April 2002
        Early Buy-Out: April 2006
        Discharge: August 2006

        "A credit card is a snake in your pocket"

        Comment


          #5
          that's exactly, and unfortunately an excellent blow by blow of the way most of the business structures work, flamingo. and, really, it's logical and what needs to be done once a business gets to that point.

          yet, how many companies do we hear about with all time HIGH profits??? and they are still laying off, but those CEO's are making millions!! i think that's what gets me the most. (of course, unless i was one of those CEO's) LOL!
          8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

          Comment

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