Friday, February 08, 2008

Explanation for Low Jobless Claims

Randall Forsyth has an interesting article on the low level of jobless claims, something I've cited here as being inconsistent with a recession. The argument is that the self employed, such as real estate brokers and mortgage brokers, are independent contractors and therefore not eligible to file for unemployment benefits.

That's important because the self-employed have become an increasingly large portion of the U.S. economy, and not just because of the E-bay entrepreneurs that Vice President Dick Cheney is fond of citing.

During the housing bubble, the army of mortgage brokers and realtors swelled. The barriers to entry into those fields are minimal. As the former head of mortgage operations of a major New York bank once told me, a mortgage broker is a used-car salesman with a better suit. (Apologies to used-car salesmen.)

In any case, thousands of people began to earn a living by getting a slice of the housing boom. But even when they went to work for a mortgage or real-estate firm, they remained independent contractors, not employees. That meant that they weren't on firms' payrolls (and not counted in the establishment survey of the monthly employment report.)

Their independent-contractor status also precludes their receiving unemployment benefits. The legions of freelancers extend beyond the salesmen and saleswomen who raked it in during the housing boom to those did the honest work in the construction trades, from electricians to carpenters, who worked for contractors (also entrepreneurs.)

Many of this corps that swelled and prospered during the housing bubble are out of work. But they can't file for unemployment insurance.

If the economy is in recession this would seem to explain the low level of jobless claims. Anectdotal evidence would seem to support this thesis as well. We all know someone who was a mortgage broker or real estate broker that is now struggling. You can also include other self employed individuals who benefited from the housing boom as well. What about the personal trainer with real estate related clientele who now can't afford the luxury of a personal trainer?

The counter argument is that many of the people who entered the real estate business during the boom were just looking for extra income. Real estate was more of a hobby than an actual career, a way to supplement income from other sources. That isn't true in all cases of course, but it is certainly true of some portion. Maybe they'll go back to selling used cars...

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