The unemployment rate drop is attributable to a labor force decline that outweighed the job decline. The June labor force decline continues a decline from last month that is an offset to labor force gains in the previous four months. In the past six months the labor force rose 1.7 million persons from the December 2009 low, then fell by about 1 million people in the last two months. These imply that the current labor force level is still about 700,000 people above the cyclical low. If it is true that the recent labor force increase was an unsustainable blip, then we might expect another labor force decline next month.

If next month’s expected labor force decline were similar in magnitude to the employment decline, the unemployment rate would remain essentially unchanged. One reason to expect an employment decline next month would be due to an ongoing contraction of temporary Census workers. The remaining temporary Census worker count is roughly 250,000 jobs. We expect the July labor force decline to outweigh the employment decline, but to less extent than this month, resulting in another unemployment rate decline.

The private-sector employment change was mostly driven by declines in Construction, Information, and Finance more than offset by gains in Manufacturing, Professional services, Education/Healthcare services, and Leisure/Hospitality services. The gains and losses in Manufacturing and Information, respectively, are small and offset each other.

The June gain in Professional services of 46,000 workers is welcome in this barely-a-recovery recovery. These are helpful because they are typically well-paying positions that will benefit the recovery better than low-paying positions. The Leisure/Hospitality gain is the first significant gain in this sector thus far in this cycle. This gain is dominated by amusements, gambling, and recreation, so aside from Casino cities, the gain may not be consistent with stabilization of rent and lease trends in most restaurants and hotels.

Our back-of-the-envelope July job change projection would be driven by a presumed Census worker contraction of 230,000 that would be offset by private-sector gains of 80,000 resulting in an overall 150,000 non-farm job drop. If the employment survey drop matched the job drop and the labor force contracted by 300,000 then the unemployment rate would be a bit over 9.4 percent in July.

Benjamin Powell has a nice piece on immigration.   In it he addresses the standard arguments against immigration.  I particularly like the following paragraph on the fear that immigrants take jobs away from the native born:

If immigrants really did take jobs, on net, from existing native-born workers without new jobs also being created, the same should be true any time we add more workers to the economy. Is it? Since 1950, there has been massive entry of women, baby boomers, and immigrants into the work force. As Figure 1 shows, the civilian labor force grew from around 60 million workers in 1950 to more than 150 million workers today. Yet there has been no long-term increase in the unemployment rate. In 1950, the unemployment rate was 5.2 percent, and in 2007, the year before the current recession started, the unemployment rate was 4.6 percent. As more people enter the labor force, more people get jobs.

Powell also covers topics such as the effect of immigration on wages, crime, and the impact of immigration on the welfare state.  It’s an easy read, and a worthwhile one.

In other labor market indicators, long term unemployment levels rose from 6.72 million to 6.76 million people and the unemployment rate fell a bit from 9.9 to 9.7 percent. From the establishment survey, we see that Construction, Retail Trade, Information, and Financial/Real Estate continue to lose jobs.

This is exactly in line with our U.S. economic forecast. Our forecast is weaker than consensus because we believe that fundamental weaknesses still remain. The fundamental domestic weaknesses include: residential real estate, commercial real estate, banking, and household balance sheets. There are also foreign weaknesses, especially in Europe. Each of these job-losing sectors, except the Information sector, is related to the fundamental domestic weaknesses. Unfortunately, we believe that a conservative economic forecast is the most accurate one.

California’s April jobs grew at 1.6 percent, annualized, from March. However, if we remove Agriculture and Government, this growth rate falls to zero percent. California’s April year-on-year growth improved from March, but still declined by 2.3 percent.

The reason for the unchanged April private non-farm job level is that gains in Leisure and Hospitality, Personal/Repair/Maintenance Services, and Professional/Technical Services were offset by declines in Construction, Manufacturing, Trade, Transport/Warehousing/Utilities, and Education/Healthcare.

The driver behind the Government increase was Federal, obviously due largely to the U.S. Census effort. The Census effort may be partly responsible for the increase in Labor Force we have seen across the county in recent months.

We are unfortunately still waiting for a California Employment Situation that we can get excited about.

The 3,900 jobs gained comprised of 2,800 government jobs where 1,300 of these were Federal. The Federal jobs, of course, were likely related to the Census effort that is underway. That leaves 1,100 private sector jobs gained. The annualized growth rate for non-farm private sector jobs is 1.0 percent. These gains were brought by Personal & Maintenance Services (600 jobs), the Financial Services (400 jobs), Education & Healthcare (200 jobs), and Construction (100 jobs). While the job gains in Education and Healthcare are nothing new in this cycle, the gains in the other three sectors are new. Monthly data are intrinsically volatile. We will wait for at least two more months of similar data before claiming that a trend of improvement for Personal & Maintenance Services, Financial Services, and Construction sectors are underway.

The April Oregon unemployment rate remained at 10.6 percent, unchanged from the May level. This was driven by the fact that the labor force grew, which offset the jobs increase. This phenomenon might continue in the next few months: a slowly recovering economy might bring sidelined workers back into the labor force, but job growth might not be strong enough to absorb all of them, keeping the unemployment rate high. It is also possible that the unemployment rate might subside, but only slowly. This is likely to be the pattern that exists for most of 2010.

The great French economist Leon Walras (1834-1910) showed that perfect markets result in an allocation of goods and services that can’t be improved on, in the sense that no one could be made better off without someone else being made worse off.

Of course, we don’t have completely unfettered markets. In fact, they have never existed. They will never exist. In particular, we economists like to talk about what we call negative externalities. These occur when I do something, but an unintended consequence is that it hurts you, and you have no recourse.

An example may make things clearer. Suppose I have a factory that spews out a deadly chemical, one that destroys all life downwind for ten miles. Obviously I’ve reduced the property values for the downwind property owners. (We’re simplifying here. There are many other issues.) There is no market for the damage I’ve done, and downwind landowners may not be able to afford to sue me, and there was a time when they would have likely lost such a case.

Society’s solution to the problem of negative externalities has been regulation. Until recently, the concept of negative externalities has been the rationale for most environmental regulation. Negative externalities’ victims have also been extended to include non-humans: flora, fauna, and “mother earth.”

Climate change regulation, though, is a bit different. In the first place, we don’t know how much of its justification, the claim of manmade global warming with long-term negative economic impacts, is accurate. Some, the “non-believers” completely deny the possibility of man-caused global warming. Others, “the believers” believe in man-caused global warming with a fervor that matches that of any religious zealot. Another group, me included, believes that manmade global warming is a possibility that should be considered as a factor in making long-term economic policy.

If manmade global warming was a certainty, you could reasonably argue that negative externalities justify regulation, the parties being hurt are just not yet born. That’s essentially what the believers are trying to say when they point to the imminent destruction of all life on earth.

However, once the existence of manmade global warming becomes a probability, it becomes an insurance question. This dramatically increases the level of complexity of the problem, and it dramatically complicates the political problem of reaching consensus about what to do.

So, proponents of climate-change regulation have tried to simplify the issue. One approach has been to turn everyone into believers, either by attempting to convince the skeptical—as it turns out by using gross exaggeration if necessary—or, failing conversion, excommunicating even the mildest skeptics from civil society.

Climate-change regulation proponents have also tried, with success, to use the novel argument that climate-change regulation is not only costless but will generate economic growth. The most enthusiastic proponents of this argument, California’s Governor Schwarzenegger among them, describe a utopian future of happy people enjoying previously-unknown prosperity in a pristine earthly heaven.

Sadly, this better-than-a-free-lunch deal is not likely to materialize. It is true that clever economists have constructed models where such an outcome is possible—models having to do with large-scale inefficiencies existing because of historical accident—but large-scale unrecognized opportunities are unlikely in today’s economy.

It is also true that some economists have found some evidence of small un-captured gains. I’ve participated in this literature. However, those gains are also unlikely to be of the scale necessary to achieve the promised new economic age. Indeed, most economists doubt their existence, arguing, reasonably, that the researchers failed to measure all of the relevant costs. Economists have a hard time believing that markets are so bad that unrecognized profitable opportunities exist in abundance.

Today, California is considering the repeal or postponement of its landmark global-warming regulation, AB32. Oddly, both sides are using the same argument. The forces arguing against the repeal of AB32 argue that the repeal will cost jobs. Those arguing for the repeal argue that failure to repeal will cost jobs.

They are both correct, and they can both prove it with their warring models, which brings us to our second great dead French economist.

Frederick Bastiat (1801-1850), not long before his death, wrote a piece What is Seen and What is Not Seen. In the essay, Bastiat gives the example of jobs created by breaking windows. The broken window creates work for the glazier, a multiplier is attached to that work, and it looks as if economic activity has increased. However, society is not better off. The problem is that we see, and account for, the work, but we do not see or count the costs associated with the initial destruction of capital.

So it is with California’s regulation. Proponents of the regulation have research to support their claim of job creation. The “green jobs” created by the regulation are seen and counted. The jobs lost to the regulation are not seen and are not counted.

The opponents of California’s regulation have estimated the jobs lost to the regulation, mostly a consequence of higher energy costs, but that research—the portion I’m aware of at least—has been criticized for ignoring the jobs created by the regulation. More importantly, they do not see the jobs that might be lost if global warming kills jobs. They only see, and show, the jobs lost to failure to repeal the regulation.

Creating jobs is easy; creating real economic growth is harder. Banning the use of any productivity-enhancing technology will create jobs, but this could occur at the cost of societal well being. We could achieve full employment by banning all agricultural technology created after the 17th century. There is no unemployment in a Malthusian economy. We’d all have “idyllic” jobs on the farm, yet this would in reality be back-breaking work. Many people would live on the edge of starvation. I don’t think anyone really wants that outcome. It is also easy to create subsidized jobs, even if those jobs add nothing to, or worse detract from, society’s well being.

Instead of jobs, the argument should focus on such things well being, consumption, income, probabilities, and the like. It is complicated by the uncertainty surrounding the theory of manmade global warming, and the uncertainty surrounding the economic impacts of any warming. But, the stakes are high. People’s lives will be changed. The debate deserves a higher-level of discourse than we’ve seen. Frenetic predictions of job losses or overly optimistic projections of employment created by a green economy will not do. Instead, let’s recognize the complexity of the issue and have a reasoned discussion.

This previously appeared at newgeography.com

The labor force rose by 805 thousand persons in April, contributing to an increase of the unemployment rate from 9.7 in March to April’s 9.9 percent. The seasonally-adjusted annualized quarter-on-quarter job growth rate increased from 2.1 to 2.7 percent and the April year-on-year job growth rate was a smaller decline than March, a 1.0 percent decline versus a 1.7 percent decline.

The number of persons who were unemployed for 27 weeks or longer, the long-term unemployed, increased from 6.7 million people in March to 7 million people in April. The average duration of unemployment jumped from 31.2 weeks in March to 33 weeks in April.

The increase in labor force is an interesting phenomenon given that the level of jobs is still lower than last year. There could be a number of explanations for this including increased optimism as some analysts have mentioned. While it is good to have increased labor supply, jobs are a matchup of employer and employee, so if the unemployment rate is going to subside, firms will need to pick up their rate of hiring.

Going to Peoria was a bit nostalgic and a bit of a culture shock. It was nostalgic because Joyce and I purchased our first home in Glendale Arizona, just next to Peoria, and our first son was born in Phoenix exactly 34 years ago today. It was a culture shock because Arizonans aren’t afraid of change, in contrast to many Californians these days.

I saw so much public infrastructure spending in Maricopa County (home of Phoenix, Peoria, and several other cities) that I wondered if the County had more going on than the entire state of California. They did some checking, and they think so. Imagine that, a county with under 4 million people investing more in public capital than California with its over 36 million people. It’s because they plan on having a future.

In my talk, I was asked about the role of government, and I talked about safety-net issues, but I failed to discuss some of the positive things that government can do. A key is Infrastructure investment, public investment in capital that would make private capital more productive. Freeways, ports, airports, the Central Arizona Project, the Tennessee Valley Authority, the Rural Electrification Program, and the Panama Canal are examples, and the list could go on and on. The problem with the current federal stimulus plan is that so little of it is being used to create productive capital.

Local governments have options. Ventura City has its Jobs Investment Program, where they partnered with a venture capital firm to attempt to bring tech business to Ventura. San Jose has a different type of partnership with a venture capital firm. They are trying to create job opportunities for their lower-wage workers.

Peoria itself is doing some interesting things. It is actually trying to recruit at least one private college. That’s right they are working to help an existing college pack up and change states, and they have colleges considering taking them up on it. They are also looking at their version of a possible partnership with a venture capital firm. Best of all, they asked me out to talk to them.

One of most important things local government can do to help growth is to be really ready for it, to have the infrastructure in place or ready to go, to have the planning and zoning in place. It looks like Peoria does this pretty well too. I think that if you wanted to locate your business there, they could identify possible sites and get you up and running pretty quick, quite a contrast with California cities where you could fight for years before you start construction, if you start construction.

No city is perfect. The economy has hurt Arizona, its cities, and its citizens. But they respond differently. Instead of California’s gridlock and malaise, Arizona is optimistically working its way through the recession. You get a sense of a future that you don’t get in California. Peoria’s peripheral growth has also left the older sections of town looking a bit ragged, but they are working on it. I saw lots of work being done to improve the look of the historical section.

Best of all, Peoria and the rest of Maricopa county are middle-class friendly, another contrast with much of California. Housing is affordable—the daughter of one person I spoke to had an $80,000 offer in for a single family residence—and unemployment, while up, is far less than in California, 9.6 percent versus 12.6 percent. Families can live and work in Central Arizona.

I’m willing to bet that Central Arizona’s recovery will be far stronger than California’s recovery.

The year-on-year job growth rate continued improving, that is to say the declines are not as big, extending a trend that started in January 2010. Improvements in the year-on-year job growth rates since January have been fairly consistent. The problem is that we started from losses of seven percent. Last year’s seven percent job losses were likely to be the worst in the California’s job market history. The year-on-year growth rate declines were 3.7 percent in February, and 3.1 percent in March.

Month-on-month job growth, the more volatile measure, jumped 570 basis points from December 2009 to January 2010. After the January gains, the month-on-month measure slowed to barely positive numbers in February and March.

The question of recovery is in the air, and with the March California jobs report we might hope to claim that we are past the worse of the recession. However, even though the job growth decline is improving, the level of jobs is still falling relative to last year. If the rate of improvement in the year-on-year job growth rate continues, we would not arrive at positive job growth until August 2010. As well, the unemployment rate will continue to remain high for some time.

A negative risk factor is the public sector. Despite the fact that the state has a very large structural budget deficit, public sector job losses have been much smaller than for the private sector thus far in this cycle. Public sector jobs could be the other shoe to drop. If this did happen, it would lengthen and weaken the return to growth.

Rick’s right. Governments don’t create jobs. They can do their best to create an environment that encourages job growth, but that’s about it. I tend to think that a region has a certain job-growth potential, and governments should try not to kill too much of that potential in the process of providing government services or addressing inequality issues.

Rick is also justifiably proud of Ventura’s somewhat unorthodox, approach. The City has a couple of really creative initiatives. They created what they call a Jobs Investment Fund, to partner with a major venture-capital firm to attract new, high tech, businesses to Ventura. They also have a new City-owned incubator.

This is all good. I’m glad to see my city working to improve opportunity, and I’m glad to see them being creative. I’m afraid though that they may not have much success, and it is not the City’s fault.

To continue Rick’s war analogy, in California, cities and counties are the infantry. The State is the general, the one with the big guns: artillery, air support, tanks, and the like. Unfortunately, the general is withdrawing. Local governments, the infantry, are sitting in the foxhole without support. Odds are the war can’t be won by a few guys in a foxhole.