President Barack Obama and Members of Congress applaud after the signing of the HIRE Act in the Rose Garden of the White House, March 18, 2010.

President Obama on Thursday signed a $17.6 billion jobs support bill in a Rose Garden ceremony but it will have little impact on America's 9.7% unemployment rate.  Also in Washington DC on Thursday, a conference was told that the US labour market will recover at a “lackluster” pace, with the prospect that firms will turn to part-time workers before hiring full-timers.

The HIRE Act exempts businesses from paying the 6.2% payroll tax on new employees who have been out of work for at least 60 days. And firms get an additional $1,000 credit if new hires stay on their payroll a full year.

President Obama acknowledged the limited potential impact of the measure. “Now, make no mistake,” he said. “While this jobs bill is absolutely necessary, it is by no means enough.” He said the Great Recession that "we’ve just gone through took a terrible toll on the middle class and on our economy as a whole.  For every one of the over 8 million people who lost their jobs in recent years, there’s a story of struggle -- of a family that’s forced to choose between paying their electricity bill or the car insurance or the daughter’s college tuition; of weddings and vacations and retirements that have been postponed."

"So here’s the good news," the President said."A consensus is forming that, partly because of the necessary -- and often unpopular -- measures we took over the past year, our economy is now growing again and we may soon be adding jobs instead of losing them.  The jobs bill I’m signing today is intended to help accelerate that process."

At a conference at the Brookings Institutions in Washington DC, Michael Elsby of the University of Michigan, Bart Hobijn of the Federal Reserve Bank of San Francisco, and Ayşegül Şahin of the Federal Reserve Bank of New York, said in a paper on the labour market that : “A tentative expectation is for a lackluster recovery, but one not nearly as dismal as seen in Europe” during the 1980s.

The Labor Market in the Great Recession 

The authors say job losses in shallow recessions, are driven primarily by a slowdown in the rate of hiring, as opposed to layoffs. In severe recessions, job losses have historically been driven by both layoffs and a drop in the rate of hiring, with the fall in hiring persisting longer than the increase in layoffs. The latter appears to be what’s happened this time around.

So there’s a case to be made that the jobs rebound - - which many economists expect will begin to register in the March employment figures - - will be bigger this time than after 2001.

The authors find that although “every indicator of labour market activity suggests that the recession has been unique in both its depth and duration,” the labour market dynamics show that the “Great Recession [is] strikingly similar to those seen in earlier recessions.”  However, they do find “an important divergence with past trends,” noting that the duration of unemployment could be a “cause for concern.”  They discuss whether the US could be facing a European-style long-term unemployment problem, and note that one cause for the increase in duration could be the extension of unemployment insurance (UI), which Congress recently increased up to 99 week of benefits.  They estimate that UI could account for“as much as 15 to 40% of the rise in aggregate unemployment duration, a potentially substantial effect. In terms of the unemployment rate, this corresponds to between 0.7 and 1.8 percentage points of the 5.5 percentage point rise in the unemployment rate witnessed in the current recession.” 

The paper says while the jobless in the US are exiting unemployment at a historically slow rate, they nonetheless leave unemployment as much as four times faster than those in continental Europe in the 1980s.

Finally, there are reasons to suspect that labour market changes that have taken place in the last two decades will render such sharp reversals in the labour market less likely. For example, there has been a decline in firms‘ use of temporary layoffs, eliminating the possibility of increasing employment at low cost. In addition, the sharp recovery following the 1980s recession may have been aided by the reversal of the disinflationary monetary policy that instigated the recession in the first place, a feature the current recession does not share.

Greenspan

Former Federal Reserve Chairman Alan Greenspan presented a detailed paper, The Crisis, at the conference.

The 84-year old said to prevent a future financial crisis, the primary imperative must be increased regulatory capital and liquidity requirements on banks and significant increases in collateral requirements for globally traded financial products, irrespective of the financial institutions making the trades.

He offers his views about regulatory reform, reflecting on moral hazard and how to address the “too big to fail” problem, which he re-terms “too interconnected to be liquidated quickly.”  He knocks the idea of a “systemic regulator,” part of a package of reforms currently being discussed on Capitol Hill, asserting that asset bubbles cannot be prevented and trying to diffuse them would in fact stunt economic growth. 

“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.  Assuaging their aftermath seems the best we can hope for.  Policies, both private and public, should focus on ameliorating the extent of deprivation and hardship caused by deflationary crises,” he writes.

SEE: Finfacts article, Oct 2008: Greenspan “shocked” to learn of the breakdown in lending standards and risk management; Says “found a flaw” in his ideology in testimony on the "once-in-a century credit tsunami"