New Scientist - USA (2013-06-08)

(Antfer) #1
26 | NewScientist | 8 June 2013

IT’S bad, yes, but not that bad.
At least, not in the UK. Headline
unemployment, the great
plughole in economic fortunes,
is less gaping than predicted. Yet,
contrary to the figures, surveys
still suggest a deep fear of job loss,
which is eroding consumer
confidence and stifling recovery.
The country’s unemployment
levels have certainly set no records
despite the 2008 financial crash
sparking a calamitous decline in
gross domestic product. In fact,
UK unemployment rates are so
out of line with other economic
indicators and what happened in
previous recessions – improving
even as the economy idles – that
economists have been scratching
their heads for an explanation.
The unemployment rate in the
UK is now only 2.5 points higher
than the 30-year low that was
seen just before the recession
began in 2008. So are the British
irrationally afraid of a problem
which by this measure seems to
leave 97.5 per cent of the labour
force as it was?
Possibly. But risk is a
psychological phenomenon,
not just a question of odds, and
2.5 per cent more of the workforce
unemployed doesn’t necessarily
equal 2.5 per cent more fear –
whatever that might mean. Not
least because plenty of people
might legitimately fear that they
could be next.
What’s more, the headline rate
of 7.8 per cent may be far from
the whole picture, and not for the
usual arguments about whether it
hides underemployment. Here’s a
telling fact: that 2.5 per cent rise in
unemployment is equal to about

1 million people in a working
population of about 38 million.
But the number of jobs that have
been lost to unemployment or
inactivity since the start of the
recession is probably closer to
16 million.
How so? Simply because the
headline figures measure the
stock of jobless people. The
16 million jobs lost are not the
stock, but the flow. Think of the
job market as a revolving door,
into and out of work. The stock
of unemployment is the number
outside at any one time. The flow,
on the other hand, is the number
who pass through to find
themselves outside long enough
to be counted as unemployed or

inactive, before some get back
in (note that the same person
can go round more than once).
It can be cold outside, so even
if you aren't out for long that
experience matters. To
understand the fear of job loss,
we should pay more attention to
the flow figure. “It could be me”
makes more sense in that context.
In both the UK and the US,
flow is vastly greater than stock,
meaning that experience of
unemployment is more common
than it appears from the headline

figures. In European countries
that share the euro common
currency, unemployment varies
widely but on average it is 12.2 per
cent – worse than in the UK – and
above a quarter in Greece and
Spain. Imagine the still greater
proportions who have felt the
chill of being on the wrong side
of the door.
In the US, the Bureau of
Labor Statistics surveys what it
calls, appropriately, JOLTs (job
openings and labour turnover),
of which “layoffs and discharges”
are about 1.6 million every month,
even as headline unemployment
figures fall.
This hints at another striking
phenomenon: experience of
unemployment is common in
good times as well as bad. Labour
market churn can be vast at all
points of the economic cycle. To
change the metaphor, worsening
unemployment is a rise in the
waves on top of an always
turbulent ocean.
Indeed, the difference in job-
loss churn between good times
and bad is surprisingly small.
Before the recession, the average
risk of becoming unemployed
in the UK – what the UK’s Office
for National Statistics calls the
“hazard of unemployment” –
was about 1.2 per cent every three
months. It briefly spiked in late
2008 and early 2009 at 1.9 per
cent then fell back. It’s now about
1.4 per cent. So the difference pre-
crash to today equals 0.2 per cent,
or 1 extra person in every 500
becoming unemployed every
three months. Enough to explain
the difference between irrational
exuberance and gloom? Hardly.

“2.5 per cent more of the
workforce unemployed
doesn't necessarily equal
2.5 per cent more fear”

Worrying times


Fear of unemployment is a big drag on economies. Is it a rational


reaction, ask Michael Blastland and David Spiegelhalter


OPINION


130608_Op_Comment.indd 26 3/6/13 11:05:06

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