Testing The Impact Of Free Money

Starting this week, the government in Finland is going to do something interesting.  For two years, it will be giving free money — about $590 a month — to 2,000 unemployed Finns.

free-moneyIt’s an effort to test the theory of “basic income,” and also an attempt to try to streamline Finland’s social welfare system, where benefits vary depending on a person’s status and change whenever the status changes.  The concept of basic income posits that paying people just for being alive will make sure that no one falls through the cracks.  And the Finnish government also is hoping that the experiment will provide some evidence of just what unemployed people will do if they are given money with no strings attached.  Proponents of basic income hope that the money spurs unemployed people to start their own businesses and be more entrepreneurial.  The skeptics expect that the lucky 2,000 Finns will spend a lot of time on their couches, watching TV and eating junk food.

I’m not sure how the free money will affect the 2,000 recipients; predicting the reactions of individuals is never easy.  I don’t think $590 a month is all that much money — for example, it’s about a third of what salespeople in Finland earn, according to this chart — but if Finland has a robust social safety net, as many northern European countries do, it might be enough to allow somebody to eke out a couch-bound, video game-oriented life with a roommate or two and some generous parents.  It doesn’t seem like it would be enough money to allow people to start a business, learn a new trade, or do some of the other positive, poverty-ending things that some advocates are forecasting.  My guess is that if the unemployed folks had the drive, moxie, and gumption to start a new business, for example, they probably wouldn’t be unemployed in the first place.

No, I think the more predictable response will come from the people who aren’t getting that $590 a month for the next two years.  Somebody is paying the taxes that fund the “free money” pot, and I’m guessing they won’t exactly be happy to be paying somebody else to simply exist.  And if even a portion of the 2,000 start their own businesses, some of the taxpayers no doubt will wonder why they didn’t get the free money that would allow them to pursue their dreams.  When government is picking the lucky few, there is bound to be some resentment.  Pretty soon you end up with a lot of people wanting that free money from the government, the government bowing to popular demand, and perhaps not enough people who are working and paying the taxes that provide the free money in the first place.

All of which begs the question:  how could the “basic income” model be sustainable in the real world?  Thanks to Finland, maybe we’re about to find out.

Out Of The Labor Market

Richard had a really good piece in Friday’s Florida Times-Union about Floridians who have dropped out of the labor force.  It’s an effort to explain, through the unique, personal stories of individuals, an important long-term trend in America:  declining participation in the labor force.

I think it’s a really good — and useful — piece of work because it captures the frustration, depression, and rejection that productive people feel when they lose their jobs and cannot get hired somewhere else, despite making every effort to find a new position with a new employer.  They want to work and know they could make a contribution, but they simply don’t get the opportunity.  You can sense the angst they feel in quotes like this from one woman who has looked high and low for work without success:  “Why is it that after five years of looking, nobody wants me?”  Is it any wonder that so many become discouraged and simply stop looking — or take an early retirement?

Statistics can be useful for some things, but they simply can’t capture the true story of people who are unemployed and unable to find work.  That’s why a story like Richard’s piece is valuable — it brings a big national development down to local, human terms that people can understand.

Euro Zone Danger Zone

With all the bad news around the world lately — from ISIS savagery to North Korean nuttery, from Russian power plays in Ukraine to Chinese saber-rattling in the Pacific, from the Ebola outbreak in west Africa to Boko Haram mass kidnappings — nobody’s paying too much attention to Europe.  That’s unfortunate, because Europe is a mess right now.

Economically, Europe is a basket case.  In the second quarter of this year, Germany’s economy — the largest on the continent — shrank by 0.2 percent.  The most recent data indicates that business growth continued to slow in August.  In France, the economy is completely stagnant, producing no growth for several quarters while unemployment is above 10 percent.  The French economy minister resigned yesterday in a public disagreement with the country’s very unpopular President about whether France should follow austerity policies or policies that funnel government money directly to households; the economy minister said he felt compelled to speak out to try to avoid the European Union’s “descent into hell.” 

IMG_5596The unemployment situation in Europe is terrible.  Statistics presented by the European Central Bank president at an international conference last week are daunting — they show European unemployment growing while American unemployment is declining and indicate that the recession that hit the world in 2008 really hasn’t ended in the Eurozone.  The statistics also show that people who aren’t highly educated are losing their jobs by the truckload and that jobs are vanishing in the business sectors that traditionally employed less educated people — like construction and heavy industry.  The service sector is holding steady, which means that if you’re looking for a job in the Eurozone and you don’t have advanced degrees, you’re lucky to get a position as a waiter.

When economies fail and bitter people can’t find jobs to fill their time and feed their families, political and social unrest follows closely behind.  It therefore shouldn’t be a surprise that we are seeing a deeply troubling increase in anti-Semitism in Europe, from public protests triggered by the Israeli-Hamas fighting in Gaza to attacks on synagogues and social media hate speech.  The fact that some Europeans are returning to virulent anti-Semitism of their forefathers indicates that the EU initiative really hasn’t materially changed a continent where prejudices run deep.

The economic, political, and social situation in Europe is a toxic mix.  Other crises have distracted attention from the various Eurozone woes, but we shouldn’t ignore what’s happening across the Atlantic.

When College Graduates Move Back With Their Parents

Last week Gallup released some survey data that deserved more attention than it actually received. The survey indicated that, in the United States, 14 percent of adults aged 24 to 34 live with their parents. What’s more, 51 percent of young adults aged 18 to 23 live with their parents. Put them together, and almost one-third of American adults under the age of 35 live with their parents.

As the Gallup report linked above indicates, there are many potential causes for this phenomenon. Some young adults, for example, may be helping to care for their aging or infirm parents. But deep down, we all know what the real cause is — the job market for young people is terrible, and many college graduates have obtained their diplomas at the price of a huge amount of debt. If you can’t get a job that covers the cost of housing, allows you to service your student loans, and leaves a little money left for living expenses, you don’t really have a choice. Inexorable financial necessity drives the decision.

The reality exposed by the Gallup survey is why so many of us have difficulty accepting the gradual decline in the unemployment rate as real evidence of an improving economy. We all know too many smart, capable, motivated college graduates who have had to move back in with their parents to try to make ends meet while they look for a job. It’s not what they — or their parents — envisioned when then went off to college.

The Gallup piece ends with a paragraph that begins: “A key question is to what extent those living at home are better off or worse off than their contemporaries who are out on their own, and what implications that has for society in general and the economy in particular.” Gallup promises to explore this question in a future report, but I think I can predict the findings — young adults who live with their parents probably eat better but are less satisfied than their friends who have found a job and are living on their own. People want to be independent, and the surest indication of independence is maintaining your own place. Mom’s home-cooked meals are nice and the comforts of home are pleasant, but young people who have to move back into their old rooms to make ends meet have to be frustrated and worried about their careers and their futures.

The Jobless Jobs Report

After a few months of encouraging jobs growth, the December employment report was a bummer. It indicated that the economy added only 74,000 jobs — far below the 200,000 that most economists were forecasting. Even though the job growth news was disappointing, the unemployment rate declined, because another 347,000 Americans stopped working or looking for work.

The economists think that December’s job growth number was an aberration that may have been caused by cold weather or other temporary conditions. Let’s assume they are right — although economists seem to be wrong in their forecasts much more often than they are on the money — and the job growth returns to the 150,000 to 200,000 new jobs per month rate we saw for most of 2013. Even if that happens, I think the focus on the job growth number is misplaced.

We need jobs, to be sure — but we also need to have people working and looking for work, which is why the 347,000 number is the more important one. Since the Great Recession began more than five years ago, millions of people have dropped out of the labor market, and the percentage of Americans who are working is at its lowest point in decades. Why have those people given up? What are they doing with their lives? How do we get them back into the job market?

These are not abstract questions. The viability of programs like Social Security depends on a healthy job market in which working Americans are funding the payments to those who are retired or otherwise eligible for benefits. Every person who stops working because they cannot find a job won’t be making that contribution — and the long-term viability of the Social Security system and similar programs becomes more perilous.

The loss of the contributions of millions of expected wage-earners inevitably will have a dramatic impact, and if we can’t figure out how to get people to reengage in the job market, we can expect to see dire predictions of the consequences for Social Security benefits. That inevitability is deeply concerning to us forty- and fifty-somethings who have been paying into Social Security for decades and hope that it is still around when, years from now, we reach the point of retirement.

The Latest (Sigh) Jobs Report

Yesterday the August jobs report came out.  It was another in a series of “disappointing” economic reports — to the point where journalists covering employment numbers must have had to hit their thesauruses to try to find new synonyms for “weak,” “soft,” and “discouraging.”

In August, the economy added 169,000 jobs.  It’s a mediocre number, following a series of mediocre jobs growth numbers.  The unemployment rate dropped, but only because we don’t take into account people who have just stopped looking for work.  As the New York Times story linked above reports, the number of people participating in the labor force — i.,e., either working or looking for work — fell to its lowest level since 1978, since the Jimmy Carter administration.  And, the job creation estimates for June and July were revised downward.

There are concerns about the quality of the jobs being created.  Many of the new jobs are part-time positions in the retail and food services where the pay per hour is lower than in salaried jobs.  More then 7.9 million Americans are looking for full-time jobs but are only able to find part-time work.

The analysts react to these reports by debating whether this latest glimpse at a lame economy will cause the Federal Reserve Board to modify its monetary policies, and how the stock market will be affected.  And who knows?  Perhaps President Obama will declare, for the umpteenth time in his presidency, that he is ready to focus with laser-like intensity on jobs, jobs, jobs — and hope that no one recalls that his previous pivots to the terrible employment situation did absolutely zilch to ease the angst of people who can’t find work.

As for me, I try to remember that behind each employment statistic there is a human story of suffering and embarrassment, of people who can’t provide for their families and have seen their dreams explode in a blizzard of unpaid bills and urgent notices from creditors.  Why isn’t their terrible predicament more of a priority for President Obama and Congress?  Isn’t it time that we tried a different approach that might actually help them to find a good-paying job?

We All Could Use Some Good News — But Is The New Unemployment Report Really Good News?

Today the Labor Department announced that the unemployment rate has declined to 7.8 percent.  It’s the first time the rate has fallen below 8 percent since President Obama was inaugurated in January 2009.

Unfortunately, the economy only created 114,000 new jobs last month, which is just about that number of new workers who enter the job market every month.   Although the reported jobs creation number was small, the unemployment rate dropped sharply — from 8.1 percent to 7.8 percent — because the number of people who said they were employed rose by 873,000.

It being  the middle of an election campaign, you’d expect the statistics to become a political football, and that’s exactly what has happened.  President Obama says the report shows the economy is on the right track and we shouldn’t turn backMitt Romney says the economy isn’t producing enough jobs and that our current economy isn’t what a real recovery looks like.

I’m happy that the unemployment rate has fallen below 7.8 percent, but I’m more inclined to agree with Mitt Romney than the President on the import of the numbers.  An economy that creates 114,000 jobs is basically treading water, and a 7.8 percent unemployment rate is unacceptably high and nothing to strut about.  And, not being a government statistician or economist, it’s hard for me to reconcile the report that only 114,000 jobs were created with a surprising, 873,000-person increase in the ranks of the employed.  Is the difference people who are working at home, or working part-time, or something else?

I can only go with what I am seeing here in central Ohio, and I’m not seeing signs of a budding recovery, significant hiring, or great optimism on the part of my fellow citizens.  I hope I’m missing those signs — but until I see them I’m going to reserve judgment and see if we get more information about where those 873,000 newly employed people came from.