Tuesday, September 3, 2013

Still a bad job market on Guam

Guam’s economy is still deeply depressed. After several years of the Calvo Administration, the unemployment rate has hardly budged and the employment ratio is lower than it was in March 2011.

The Calvo Administration says that there are 1,000 new jobs.[1] The current employment report puts payroll employment at 61,070 in June 2013, while it was 60,220 in June 2012, which gives an increase of 850 jobs.[2] The administration further admits that the unemployment rate has risen back to 13.3%.[3]

The unemployment rate has remained high throughout the Calvo Administration (although by this I do not mean to imply that correlation implies causation). In fact, the unemployment rate has exceeded 10% for each of the quarters for which the administration has released an unemployment report.[3]

Obviously a single point does not show a trend, as one can see in the unemployment figure for June 2012, but the failure of the unemployment rate to decline below 10% is worrying and its apparent spike may point to further deterioration of the labor market from the demand side.

There seems to be an implication in the administration’s press release that the increase in the unemployment rate may be the result of improved economic conditions (although it is not stated explicitly).[1] That is not correct.

The labor participation rate has declined somewhat since this administration has taken office and was lowest, to the best of our knowledge, in March 2012, which was also the lowest period for the employment ratio. Note, however, that the employment ratio has been declining since September 2012.[3] One cannot tell whether this is just random variation or a secular decline.  What this points to, however, is a continued stagnation.

The administration also points out that average hourly earnings have increased from $12.57 to $12.81,[1] which is true if you go on a year on year basis, but may lead one to the impression that the job market is so good that wages are being bid up, which is not true.

There is nearly always growth in wage rates due downward wage rigidity. Looking at two-year rates of change in average hourly private sector wages, we find that since September 2011, wage growth has been quite low compared to the last few previous years.[2]

Putting these facts about the latest data together, my guess is that the June employment ratio has risen and unemployment rate has probably declined. We could be looking at a resurgence of the labor market as occurred between September 2007 and September 2008, with accelerating hourly wage increases over the next few years. This is unproven and quite speculative, but considering that wage inflation appears to be catching up with its previous biannual trend (note June 2008), the economy could be set for a rebound, but until that is realized, there are still bleak facts on the ground and more vigorous action could be taken to bring about a recovery.

[2] Guam. Department of Labor. Bureau of Labor Statistics. June 2013 Current Employment Report. Hagatna, 21 Aug. 2013.
Guam. Department of Labor. Bureau of Labor Statistics. Current Employment Statistics Historical Summary: 1993-2013. Hagatna, 21 May 2013.
[3] Guam. Department of Labor. Bureau of Labor Statistics. The Unemployment Situation on Guam Historical Summary: 1974-2013. Hagatna, 22 Aug. 2013.

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