Higher unemployment on horizon, posing big challenge for Dems

Unemployment is likely to surge above 10 percent during the next few months as millions of “missing” workers return to the labor market. 

This will pose a huge challenge for the Obama administration and congressional Democrats, who want to run in 2010 on the back of a strengthening economy. 

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Economist Mark Zandi expects the unemployment rate to float above 10 percent during the next few months as workers look to take advantage of improving opportunities. 

“The increase in unemployment is a sign of a stronger job market, but it is also a sign of how weak the job market still is and vulnerable the recovery is to anything that might go wrong,” Zandi wrote in an e-mail to The Hill.

“Missing workers” are unemployed people who have stopped collecting benefits and stopped looking for work — thereby dropping off the radar. When they start looking for work again, they get counted as unemployed.

As many as 2.4 million of these workers have yet to return to the labor market, estimates Heidi Shierholz of the Economic Policy Institute. As those workers start searching for jobs, the unemployment rate is likely to tick higher. 

In April, 805,000 “missing workers” re-joined the labor pool, causing the unemployment rate to jump to 9.9 percent even as the economy created jobs.

Economists think that trend could build in the coming months. 

There’s little doubt the economy is emerging from the “Great Recession” of 2007-08. 

April’s jobs report marked the best unemployment figures in four years, as the economy added 290,000 jobs. Updated figures for the two previous months also showed job growth; in March, the economy added more than 200,000 jobs, meaning the economy has now posted two consecutive months of large gains. 

“The amount of recruiting activity on our sites has gone up dramatically,” said Scot Melland, CEO of Dice Holdings, which runs several websites that post job listings and help recruiters meet prospective employees. 

The number of job listings on the Dice Holdings technology and engineering sites were up 40 percent on May 1, 2010, from May 1, 2009, Melland said.

He also noted the surge in the hiring of temporary-services workers during the past seven months. Generally, after six months of gains in temporary help, businesses begin to hire full-timers, Melland said. 

Still, it’s unclear if the strong growth in March and April will continue. 

Zandi, who offered advice to Congress on the stimulus, is suspicious of those figures. 

Other economic indicators, including the Institute for Supply Management’s recent non-manufacturing survey, suggest underlying private-sector job growth is closer to 100,000 per month than 200,000 per month, he said.

It’s difficult to estimate how many jobs the economy will need to create on a monthly basis to meet the demand of those workers since it is unclear when they will return to the workforce. 

Shierholz said the economy needs to create about 100,000 jobs every month to keep the unemployment rate stable. That growth is necessary to provide jobs to new entrants to the work pool. 

“Given the backlog, we’ll need hundreds of thousands more than that” every month to meet the incoming demand, she said. 

If the economy continued to see 800,000 workers returning to the labor pool every month, it would need to create around that many jobs to keep pace. 

But workers aren’t expected to keep returning at that level, Shierholz said.

A big question for Democrats is whether the stimulus measures taken during the past two years will spark more hiring. 

Zandi said the peak employment for last year’s stimulus will occur in the fourth quarter of 2010, meaning Democrats could still get a hand from a measure sure to be a political issue in districts across the country. 

Additional stimulus approved this year could forward the peak employment impact of all of the stimulus measures to the first quarter of 2011, Zandi said. 

In March, President Barack Obama signed legislation that created a tax credit for companies that hire new workers. The credit gives qualifying employers a 6.2 percent payroll tax credit on wages paid to workers hired between March 18 and the end of the year. 

In addition, employers might claim a business tax credit of up to $1,000 per worker for every new employee retained for a year.

But it’s unclear how much of an impact this legislation is having on actual hiring by businesses.