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Unemployment Benefits: Bad News—Structural Problems in Labor Force
Could Lead to Prolonged Duration/Increased Rate of Unemployment
e Structural Problems in USA Labor Force
— Healthcare costs may be a barrier to hiring for employers
e Healthcare benefits = 8% of average total employee compensation; grew at
6.9% CAGR from 1998 to 2008 compared with 4.5% CAGR in salaries.
e Healthcare benefits are fixed costs as they are paid on an annual per-worker
basis and do not vary with hours worked.
e As employers try to lower fixed costs to right-size to their reduced revenue
levels, layoffs are the only way to reduce fixed healthcare costs.
— Skills mismatch may be a barrier to hiring for employers
e A large portion of the long-term unemployed may lack requisite skills.
e 14% of firms reported difficulty filling positions due to the lack of suitable talent,
per 5/10 Manpower Research survey.
— Labor immobility resulting from the housing bust may be a barrier to hiring
e One in four homeowners are “trapped” because they owe more than their
houses are worth, so they cannot move to take another job — until they sell or
walk away.
KP Source: Richard Berner, “Why is US Employment So Weak” (7/23/10), Morgan Stanley Research.
(@)E) www.kpcb.com USA Inc. | Income Statement Drilldown 127
Unemployment Benefits: Bad News
Although economists have shown that extended availability of UI
[unemployment insurance] benefits will increase unemployment duration, the
effect in the latest downturn appears quite small compared with other
determinants of the unemployment rate. Our analyses suggest that extended
UI benefits account for about 0.4 percentage point of the nearly 6 percentage
point increase in the national unemployment rate over the past few years. It is
not surprising that the disincentive effects of UI would loom small in the midst
of the most severe labor market downturn since the Great Depression.
Despite the relatively minor influence of extended UI, it is important to note that
the 0.4 percentage point increase in the unemployment rate represents about
600,000 potential workers who could become virtually unemployable if their
reliance on UI benefits were to continue indefinitely.
Rob Valletta and Katherine Kuang, Federal Reserve Board of San Francisco
“Extended Unemployment and UI Benefits,” April 19, 2010.
P
a USA Inc. | Income Statement Drilldown 128
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