On the margin: 1.3 million people

The economy seems to be plodding along at a 2-3% real growth rate pace, pretty much the same as it has for the past several years. But amidst all the ho-hum statistics there is one that stands out: the demise of emergency unemployment benefits for 1.3 million people in early January, and the 1.3 million increase in the labor force that followed. I'm speculating a bit here, since we really don't have enough data to be sure, but I can't resist highlighting any important change on the margin, since that's where all significant changes occur. What this statistic could mean is that there are 1.3 million people who rather suddenly received a new incentive to look for and accept a new job, and that could introduce a new dynamic to the labor market that could end up giving a modest boost to growth over the course of the year.

The chart above shows what's happened: the "Emergency Claims" program, which began in mid-2008, authorized up to 99 weeks of unemployment benefits. It expired at the end of last year, at which time about 1.3 million people were receiving benefits. That reduced the total number of people receiving benefits by about 22%, literally overnight. That's definitely a big change on the margin. What we don't know for sure yet is what those 1.3 million people have decided to do since then.

The chart above shows the size of the civilian labor force—the number of people working and looking for work. Since the end of last year the labor force has jumped by 1.3 million (note the part of the chart I've highlighted). As I mentioned last week, this is unlikely to be a pure coincidence. Theoretically, the 1.3 million people that were receiving benefits before the emergency program expired were included in the labor force data, but it's possible that some at least were pretending, when asked, that they were looking for a job.  Regardless of how accurately the Dept. of Labor's survey was in picking up on this nuance, it is the case that 1.3 million people suddenly stopped receiving a weekly stipend and many of them may be more actively seeking employment. At least some portion of the 1.3 million who lost their benefits are now more genuine members of the labor force. They could end up boosting the number of new jobs in the months to come, an outcome already made more likely by the return of better weather. 

Last week, the number of people filing for new unemployment benefits fell to the lowest level since May, 2007—300K. It doesn't get much better than that. If the level of claims holds at 300K for the rest of the month, the degree of "workforce disruption" as measured in the chart below (claims as a % of the workforce) will be very close to an all-time low. This is the weakest recovery ever, and the unemployment rate is still very high, but at least those who are working have an excellent chance of keeping their job. Things could be a lot worse.

Posted by Unknown

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