Wednesday, April 1, 2009

Fast Forward

It's an apocryphal story from a few years back, but the story goes that a cinema audience at yet another Rambo/Terminator/xXx movie sequel got tired of one of the more dialogue-heavy scenes and started shouting 'fast forward, fast forward!' It feels that way about the trend in unemployment right now: as if someone has hit the fast forward button on the economy just as we need to hit the pause button instead.

The chart shows the extraordinary rate of increase in the live register based measure (updated with today's CSO report). It makes the 1980s seem positively sedate as rising unemployment goes. Right now the trend is like that stage in roller-coaster ride where you wonder if this is going to end horribly. The last time the measure was at 11%, by the way, was in November 1996, over twelve years ago. There then followed an extremely rapid fall in the rate - the mirror image of the extremely rapid rise now unfolding.

What is happening? It seems to me we are reaping the consequences of our conversion to a services-based economy from the mid-1990s onwards. Construction played a part too, of course. But the fallout from construction has (surely) worked its way through the live register trend. It's the wider services economy that is bearing the brunt of the fallout now. Moreover, in services companies, labour costs are a vastly higher proportion of total operating costs than in, say, manufacturing companies. The result is that a service companies have to respond quicker to a downturn in demand by reducing staff costs: reduced hours/reduced pay/reduced numbers.

The good news is that our services-dependence might well mean an equally sharp fall in unemployment when the recovery sets in. Though without the contribution of construction that we saw during the late 1990s the fall might be somewhat blunter. Calculated Risk makes the point that the different macro variables in the economy respond at different stages in the recovery, as summarised in this chart:



James Hamilton puts it more graphically (without the unemployment trend):


Either way, we're looking at double digit unemployment for at least another 3-4 years (if we are lucky), and it hasn't peaked yet, of course.

3 comments:

  1. Soooo, what you are saying is even if I am very employable, I'm better off in a different country where the government isn't going to have to fleece the working population in order to keep the unemployed afloat. Cool.

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  2. Yup, Mr Grow up, if that is your NAME? I have my suspicions that it is NOT! You are better off. Elsewhere. Anywhere but here. Or Iceland.
    Except I am in Australia. YES! We are so freakin' rich that we give out $ for nothing! Student? No problem! Here is $900 for you! And so on. Unemployment is beginning to rise here too! 5% so far. God those beaches!
    Why don't you come over here? I could buy you a drink? Unless you are Brian Curtin of course.

    ReplyDelete
  3. Actually, I knew Brian when he was at TCD. Very good company! And since he has a clean record, "Tanks dere Guard" he can get in, tho he will probably prefer Thailand.....for some reason, har, har!
    Yes so things suck now cos ya bet on banking.... and thought that you could control it cos ya got some cute hoars in charge. Well maybe CJH cuda but Bertie cudna! Maybe you will all grow up and get rid of the corruption? And maybe not!
    Enjoy the Depression. It will be the last you will see for 40 years....maybe!

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