I recently encountered a Federal Reserve Bank of San Francisco article titled “Measuring Labor Utilization: The Non-Employment Index”, which briefly summarized the non-employment index (NEI) created by various economists: Richmond Fed’s Andreas Hornstein, San Francisco Fed’s Marianna Kudlyak, and McGill University’s Fabian Lange. The NEI attempts to quantify and calculate a “truer” level of non-employment (key distinction between unemployment and non-employment), which is often overlooked by the media and various think tanks, and, more generally, in everyday discussions. The NEI assigns weights to various types of non-employment (e.g., unemployed for fewer than 27 weeks or non-employed simply because one is retired) based on the likelihood that the individual would return to full-time employment. Based on these calculations, the NEI is better able to approximate the non-employment level, providing us with a better realization of the U.S. employment climate. This proves vital to ARM industry participants, business owners and workers alike, since it provides a relatively objective method to quantify and speak to a major aspect of the economy.
The graph below compares the standard NEI (gray line) and the NEI when including part-time workers who seek but can’t find full-time employment (black line) to the often-referenced official unemployment rate (purple line). As we can see, both NEIs are relatively higher than the unemployment rate, ranging from 8.31% to 9.45% in January 2017. Quantitatively speaking, both of these most recently observed levels are better than each measurement’s respective mean and median since January 1994. The NEI averaged 8.93% and maintained an 8.76% median over the nearly 25-year period, whereas the NEI including part-time workers amounted to 9.82% and 10.13% among the two statistics, respectively. Broadly speaking, we can objectively state that the employment climate is better now than the “average” historical measurements over the past two decades or so.
Despite the optimistic view that these data present, there’s still much work to be done regarding the U.S. employment climate, most notably dealing with wages, salaries, and benefits. Despite sheer employment levels approaching and, at some points, improving upon those preceding the Great Recession, wage increases have grown much more slowly, suggesting that many of the recently-filled jobs are low-paying positions that aren’t as beneficial to workers’ well-being. Perhaps this should be the focus going forward for policymakers: stop simply creating jobs and focus more heavily on generating well-paying positions.
In all, the employment climate is pretty healthy right now, which bodes well, to an extent, for the ARM industry. As always, when the economy is healthier and employment is more robust, individuals will be much more willing to consume goods and services, spending extra money and accumulating debt. Additionally, during a healthier economy, borrowers are generally better able to repay existing debts. If these assumptions hold true, then we should expect a higher level of delinquencies and bad debt as consumers borrow beyond their means, leading to higher potential for outsourced ARM services into the future.
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