The more we study the labor market in the wake of the Great Recession, the weirder and more disturbing it gets.
First, we had a good employment and unemployment report last week: 236K more jobs (that’s a pretty good number), and the unemployment rate dropping to 7.7% as it continues a typically-paced downward crawl.
But, here’s the problem:
The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks.
This is really damning evidence that what we’re seeing is a breakdown in the labor market for certain people only.
Leave aside for a moment claims that some people have to work more than one job: that’s a diversion that you shouldn’t pay much attention to.
From the perspective of the employer, the marginal cost of employing a new person is the same whether they have zero, one, or more, jobs. And yet they are choosing the people who already have a job.
So what employers are telling us is that the marginal opportunity cost of hiring someone who already has a job is lower than the marginal opportunity cost of someone who does not have a job. This isn’t about money — it’s about all the pain in the a** characteristics that employees bring with them, and that employers agree to put up with when they hire someone.
Now return to the incentives to the applicant. Think about it: if they need a second job, is it possible for the marginal benefit of the second job to exceed that of the first job? Probably not. And what if they don’t have a job at all? You’d like to think there is a marginal benefit in moving from unemployed to employed (and I think that there is), but it clearly can’t be that large.
Via Marginal Revolution.
Cross-posted from SUU Macroblog, which is required reading for my macroeconomics classes.