Mark Perry analyzes the current Bureau of Labor Statistics unemployment data is his blog, Carpe Diem, a required daily read for me.

Excerpt from Interesting Facts from Today’s Employment Report, 1/6/12:

The unemployment rate for workers with a college degree fell to 4.1% in December, which  is the lowest jobless rate for that group since January 2009, almost three years ago.   The number of employed college graduates is at an all-time high of 45.2 million, and more than 1.6 million above the December 2007 level when the recession started.  In contrast, the jobless rate for workers with less than a high school degree jumped to 13.8% in December from 13.3% in November, and the employment level for those workers remains 1.24 million jobs below the December 2007 level. This contrast suggests that educational level might be an important factor in the labor market improvements and the drop in the jobless rate to 8.5%, with college-educated workers being the group that is gaining jobs during the recovery, while the least educated workers are the group finding it hardest to find jobs.

HKO comments:

This may not be very surprising, but it does point to changes that have caused this.  Our economy has shifted from manufacturing production to information processing. Even in a modern steel mill, workers are scarce but the booth suspended in the air controlling quality and processing is governed by a worker sitting before an array of computer screens that look like the Starship Enterprise.    It could also mean that current college grads have skills that may have been comparable to high school grads a generation ago.

Control room of a modern steel mill

Modern financial giants like Google and Facebook have a fraction of the workers that such a financial base would have required during the previous industrial era.  A high school grad used to be able to get a decent job in an auto factory ora  steel mill or with a construction company.  Especially with the collapse of the housing market, construction jobs are substantially down.  Even with government supportted tech schools teaching useful trades, the demand for these are substantially down.

All of this is made much worse by a huge jump in the minimum wage that occurred when the Democrats took control of the House in 2006, just before the financial collapse.   To the extent that the mandated minimum wage is in excess of the market wage, this will show up in higher unemployment.  Reducing the minimum wage may be sound economics but it is probably politically suicidal.  We will like just have to wait until the market rate catches up to the mandated rate.

Lastly, one economist noted that each successive recession appears to have a longer period of unemployment. This may be due to the longer period of unemployment benefits.  This is magnified at some point by a period of unemployment that is so long that it makes an employer skeptical of the work ethic of the prospect.  The longer one is unemployed the more unemployable he becomes.

Perhaps the most destructive policy of this administration has been the dramatic extension of unemployment benefits to 99 weeks.

We have accumulated debt to give to the most unproductive act imaginable; paying people not to work.  Nancy Pelosi’s now famous idiotic statement that is the most productive way we can spend money because the poor and the unemployed will spend that money and thus stimulate the economy  is so wrongheaded that were it not for her stature it would be foolish to even reply.

It is not a debate of stimulating demand vs stimulating production.   Production is stifled not just by the impending higher taxes, but by the regulations which are approaching European Kafkaesque lunacy.  We have learned that short term stimulus does not stimulate long term growth, especially when we have experienced a dramatic retrenchment.

We would have been better off to stimulate the economy with a broad tax cut that would have stimulated demand and production.  We would have been better off creating public works projects rather than paying people to do nothing.

By paying 99 weeks of unemployment we have not only poured borrowed money down the least productive hole, we may have destroyed the work incentive for millions of Americans, and further created a stigma that will make the most chronically unemployed the hardest to hire.

Steady work is habit that once broken is hard to restore.  With such high unemployment there should not be a single piece of trash on the street, or a single public building in need of a paint job.  There should not be a single unwashed public vehicle.

It fascinates me that in spite of record high unemployment that so many employers seem to have a problem hiring at the low end of the wage spectrum.  Part of this is because of the 40% increase in the minimum wage just before the recessions, and part of this is because of the generous unemployment benefits.  This is not limited to the 99 weeks of unemployment;   it includes food stamps, subsidized health care and often subsidized housing.  A decent job threatens one to lose all of these benefits and it is hard to find a job that pays enough to replace all these benefits especially when computed in after tax dollars.

But the biggest damage is to the expectation and spirit of the worker who now discovers that he can no longer have he has come to expect.  99 weeks is no longer temporary- it becomes expected.  Employers are hesitant to hire those who have been out of work a long time.  As companies have cut back they laid of the least productive and have seen their profits grow on lower volume.  This is a not a reality they are unhappy with.

Work is more than a necessity, it is a habit.  For many Americans who have benefitted from our generous unemployment benefits it has become neither.

Abin Sadar writes in American Thinker The Professional Poor 9/24/11

Excerpt:

The genuine poor are people who, through debilitating circumstances great or small, have become incapable of sustaining a work life, and sometimes even a home life.  Because of mental illness, physical disability, and other unfortunate and unfair acts of man and nature, there are people in our country who genuinely need the help, to varying degrees, of others.  These folks are truly helpless and need assistance from the government and/or through involvement bycharitable organizations.

Most everyone I know is concerned about the genuine poor.  These people help with money, when appropriate, and in the form of one-on-one volunteer hours at effective charities.  As Dennis Miller has said, “I’m willing to help the helpless, not the clueless.”

At one point I asked Mike, who was an intelligent and capable guy, why he never went out looking for a job.  I mean, with some effort, he should be able to find a job that would easily pay him more than $270.00 a month.

Mike set me straight.  “If I got a job, not only would I lose the $270.00 I get for not working, I would not qualify for rent at $180.00.  So I would lose my apartment, too. ”

Mike would have had to get guaranteed, steady  employment paying about five times what the government handed him for free every month in order to afford even low New York City rent, let alone have something left over for electricity, phone, and food.

So Mike was trapped.  He wasn’t motivated to learn any skills or try to advance socially.  Over the years, he became bitter and defensive.

HKO Comments:

The vast majority understand that some people will need help, but when 45% of the population is unable to sustain itself, then we should question whether the solution is the problem.  The vast array of benefits creates a vast array of incentives not to work.  The threat of losing your benefits makes the marginal cost of work enormous.  When facing hard times we used to fall back on family and friends, now we fall back on government programs. Furthermore there is a network of government agents who make a living managing and administrating the programs.

Higher minimum wages have wreaked havoc on the unemployment of those entering the workforce.  We raised minimum wages 40% just before the recession.   Extended unemployment benefits have stifled the incentive to look for jobs, and the threat of impending tax increases has stifled the willingness to create them.

We can not support this without growing the economy and you do not grow an economy by raising taxes.  Even with modest economic growth we can not support the benefits that too many Americans are becoming used to.  It must unwind and our only decision is how to unwind it with the minimum amount of social unrest. The longer these benefits persist the harder this will become.

The president’s jobs bill is a non starter, a desperate attempt to do something by doubling down on failed policies.

Point  one- He offers tax breaks to workers by extending the reduction in FICA taxes, and making up the deficit with higher taxes to the general fund.  He promotes  incentives to get employers to hire the chronically unemployed and to raise wages, yet plans to fund this effort by raising taxes on the same employers.

Point two-  While he demagogues about the millionaires and billionaires, the truth is that there is not enough of them to fund his programs and thus he has to define ‘rich’ down to include the small business people which he cherishes in rhetoric but clearly knows nothing about.

Point three- Businesses do not create long term jobs with short term incentives.  After the ‘tax breaks’ wear off, the business is left with the full fare for the new jobs.  Often creating such jobs  requires investment in new equipment and those pieces of machinery still cost after the incentives have expired.

Point four- The bureaucracy required to utilize these tax credits, and the conditions are so onerous that few of the small business will be able to use them.  If you are only able to hire a few workers it just isn’t worthwhile to ramp up and learn how to comply with an incentive that will only last a few years.  Like most other regulations it is an advantage to larger companies with the infrastructure and the mass to justify the expense of compliance.

Point five-  By giving incentives to hire the chronically unemployed we are creating a perverse incentive to penalize the workers who have NOT relied on the largesse of the extended unemployment benefits.  If I have a choice between two workers and one has been unemployed for a month and the other has been unemployed for a year, I will lean more toward the one who has not been out of the work force for so long.  I will question the work ethic of the worker who has managed not to work for a year.  The advantage of the proposed tax break will not offset the natural incentive to hire a worker with a better motivation. This may seem unfair, but  trust me- this is how most small business employers will think.

At a recent business conference owners and employers from several different small businesses told similar tales.  I could sum it up with two observations: Generous unemployment benefits have made it hard to hire low level jobs such as dishwashers and busboys, and the uncertainty of pending regulations and tax increases has stifled business incentives to expand.  For the amateur economists in the room (and there were several professional economists there as well) it seems obvious that if you create incentives such as generous unemployment benefits not to work, and you also create incentives not to hire (Obamacare, Dodd-Frank, NLRB, higher taxes pending) then you should not be surprised if unemployment remains high.

As a result of the depressed economy the difference in income between whites and minorities have widened. While the most shrill will find this to be clear testament to the inherent racism in the GOP, the reality is that both Republicans and Democrats want and need a fair distribution of opportunity to maintain a stable society. Besides this has happened under a President that champions a ‘fairer’ society, with a compliant Congress for two years, who also controlled Congress for two years before his election.

Higher minimum wages causes lower employment at the lower end of the wage scale. If the minimum wage is increased during a strong economy this outcome will not become immediately visible, but its effects will be noticed at the next downturn. The minimum wage increased 24% from $5.85 to $7.25 in just two years (July of ‘07 to July of ’09). Now under our first black president, unemployment among blacks is as high as 19.2% and among black youth it is a staggering 41.3%.  Added friction costs to employment such as the health care bill and other regulations reduced employment further.  Job killing legislation has made the problem worse.  In 2009,  552,600  new businesses opened but 721,700 closed.

Going back to the Great Society of Lyndon Johnson we have spent enormously to eliminate poverty and all we have delivered is a huge dependent class requiring government subsidies that we can no longer afford, and a widening social gap that is the opposite of what anyone from either side of the aisle wants.

Government pressure to increase housing to the poor has led to a DECLINE in home ownership to the lowest level in 13 years as a result of a collapse in prices due to a growth that was fueled by forcing imprudent lending standards.  We hear that the problem was Wall Street greed, but this greed was less apparent in Canada where lending standards remained sound.

We have been told that deregulation under Bush caused the financial collapse. The repeal of the Glass-Steagall Act and the Commodity Futures Modernization Act, deregulating privately traded credit default swaps, (both signed by President Bill Clinton) may merit a second look. But we have a lot of regulatory agencies  and a lot of regulators. Perhaps the problem is not the absence of regulations but the quality of the regulations (and regulators) already in place.  The recent regulations requiring mortgages to be marked to market clearly were not considered in the light of the market collapse and this regulation caused the collapse to become much worse.  Imagine you have a mortgage that is performing as planned with no delinquency.  If the market collapses the value of this mortgage becomes zero even thought the borrower may have never missed a payment.

But the problem with regulations may be worse. Richard Bookstaber in A Demon of Our Own Design noted that the problem with many systemic failures is the complexity, and that regulations that have added to the complexity in fact may make the problems worse.

Private markets have failures and dealing with the failures is part of the system. In an effort to protect us from small failures we have created bigger failures.  Capitalism is at its best a competition of ideas and failure is way of dispensing with the bad ideas.

But bad ideas in government are enshrined and protected. Fraud in the private sector gets jail time. Ask Martha Stewart and Bernie Madoff. In government it gets you a generous retirement package, streets named in your honor, and too often re-election.

While regulations are deemed  to protect the consumer too often lobbyists are able to play the game to design regulations to benefit their constituencies rather than the voters.  The result of the growing climate of complexity and regulation is more lobbyists and rules that benefit the larger companies that have the infrastructure to manage the requirement. The end result is light bulbs at ten times the price that nobody wants,  and toilets that flush poorly.

Voters who push for quick solutions to real problems fail to see the outcome because they too often misstate the problem.  The current government solution is often a response to the failure of the last government solution.  The failure of the elected officials to accept any responsibility is why these problems are not getting solved.

There is no social problem so bad that an elitist designed government solution cannot make it worse.