March 9, 2010

Taking the Discouraged into Account

Justin Katz

Back when I made my (thus far) erroneous prediction that Rhode Island's unemployment rate would hit 14 or even 15%, I didn't take into account the effects of discouraged workers. Doing so, the rate would actually be much higher than that.

It is, without a doubt, a confounding variable, which is why I'm not so sure that this statement can be considered to be accurate:

Forecasters say a larger work force is a positive sign in that it shows that formerly discouraged workers who had given up searching for work are confident enough in the job market to start looking for employment again, even if it takes time to find it.

Put aside questions about the encouragement that we ought to take from the impressions of discouraged workers about the prospects of the economy. I've seen no evidence in print or in life that such confidence in the job market is actually a factor.

It seems more plausible, to me, that "discouraged workers" are seeing their allotted time of unemployment benefits running out and are therefore redoubling their efforts. If that's the case, then one effect of extended jobless payments has been to temporarily shrink the workforce, which is arguably a good thing in the short-term, although the long-term effects of taking that money out of the economy and habituating people to not working may swamp any advantage.

It may also be the case that spouses and children are entering the workforce because the primary household earner has been having such trouble. In other words, an increasing workforce, in the current economic circumstances, could be either a good sign or a bad one.

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The official U6 stat is a much better statistic because it takes into account people that are under employed and still looking but that stat still ignores the long term unemployed who are no longer counted and the contract/self employed who can't collect.

The U6 right now in RI is 19.1% because of the seasonal dip from Christmas employment. Its will go higher and then dip again due to temp hiring for the census. By summers end the stats will be worse than ever since some long term unemployed will get hired by the census and then be 'unemployed' again when they aren't being counted now.

Posted by: doughboys at March 9, 2010 12:17 PM


I think your predictions of RI unemployment will stick.

Right now the economy is in a stalemate between the consumer and business. Both will not spend until they see signs of improvement from the other. That is predicted to start happening around 4th quarter of 2010 or 1st quarter of 2011. Meanwhile business will still be cutting staffing levels to make up for losses, hording income and consumers will still not be purchasing because of layoff fears.

On the other hand if this is any indication of the economy, Hawaii unemployment peaked at 7.4% and is now dropping almost every month. The number 1 industry in Hawaii is tourism and the tourist arrival numbers are beginning to rise. Hotel occupancy rates are rising but tourist spending is somewhat flat. The number of conventions in Hawaii are also rising. The Japanese arrival numbers are higher than last year and the Chinese arrival number are starting to rise (China just started direct flights from Beijing this year and Chinese spend more than Japanese when on vacation according to study). USA west coast arrival number are up as are European numbers (central and east coast USA numbers are flat).

The US and Canadian airlines collectively are adding 500,000 flight seats to Hawaii this year and a new discount airline has announced service to Hawaii. Getting Hawaii almost back to normal flight seats before bankruptcy of ATA and Aloha Airlines.

Donald Trump opened his Waikiki Beach Trump Hotel/Resort where all his condo units sold out in 8 hrs for total of $700 million and Walt Disney is finishing construction of a 800 room themed hotel/resort on Oahu. There are 70 years of public and private new and redevelopment construction projects totaling in the billions of dollars scheduled on Oahu.

22 movies and TV commercials were filmed in Hawaii 2009 creating over 4,000 local job pumping millions into the local economy and 2010 is on track to beat those numbers with current number of films being shot in Hawaii (Pirates of the Caribbean On Stranger Tides is now filming on Oahu and Kauai) and new CBS TV remake of "Hawaii Five-O" currently being filmed on Oahu taking the place of ABC's ending of TV drama "Lost".

So if this is any indication of sunshine of the horizon it's a slowly coming! Just try to hang on a little longer and keep your head above water!

Posted by: Ken at March 9, 2010 5:26 PM