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Job losses higher and quicker than feared, U. of I. economist says

11/7/2008

Jan Dennis, Business & Law Editor
217-333-0568; jdennis@illinois.edu

Villamil
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Photo by L. Brian Stauffer
Economist Anne Villamil says a new report released Friday showing unemployment surged to a 14-year high of 6.5 percent in October is worrisome because job losses are outstripping productivity declines.

CHAMPAIGN, Ill. — Worse-than-expected job losses in October are another grim signal that the recession-bound U.S. economy is unraveling even faster than feared, a University of Illinois economist says.

Anne Villamil says a new report released Friday showing unemployment surged to a 14-year high of 6.5 percent in October is worrisome because job losses are outstripping productivity declines.

“Unemployment increases usually occur after declines in output because it is costly for firms to hire and fire workers,” Villamil said. “Thus, this new number is both higher and earlier than expected.”

The new Labor Department snapshot shows unemployment has already topped the high from the last recession in 2001, when the jobless rate peaked at 6.3 percent in June 2003.

Nearly a quarter-million jobs were lost last month, driving unemployment up from 6.1 percent in September. October’s 6.5 percent unemployment rate – matching the most recent high in March 1994 -- was well above the 6.3 percent forecast by economists, who predicted a loss of 200,000 jobs for the month.

So far this year, 1.2 million jobs have been cut, more than half in the last three months alone.

Villamil says the bleak unemployment report counters good news from recent interest rate data that includes early signs that the credit crisis is easing. Workers without paychecks, she says, could renew strain on credit markets.

“A rising unemployment rate is likely to lead to higher rates of default on outstanding debt,” she said. “That, in turn, will put more pressure on financial institutions.”

Villamil is co-editor of the Annals of Finance and an associate editor of Economic Theory, the European Economic Review, and the Quarterly Review of Economics and Finance. Her research has examined financial contracts and the impact of inflation on public finance.

Editors’ note: To contact Anne Villamil, e-mail avillami@illinois.edu