Other Shoe Dropping

Do check out Ed’s post about the auto industry, and the bloodbath that is going to follow a chapter 11. I remember a lot of debate about how to amend bankruptcy for the auto industries to try and salvage something, but the best the government is probably going to do is to make it cleaner for the private equity vultures to pick the bones.

From an industry think tank’s study, a worst-case estimate is that there will be around 3 million jobs lost, with a medium-bad case estimate being around 2.5 million jobs lost. (The cases depend on how much the auto companies keep running during bankruptcy. Ed makes a strong case they won’t, so 100% loss – or the worst case scenario, and I agree with him).

Scenario 1: Employment Impact [100% reduction]
YEAR 2009 2010 2011
DETROIT 3 REDUCTION 100% 100% 100%
Direct Employment -239,341 -239,341 -205,611
Indirect Employment -973,969 -795,223 -544,598
Spinoff Employment -1,738,034 -1,427,452 -1,021,354
Total Employment -2,951,344 -2,462,016 -1,771,563

Scenario 2: Employment Impact [50% reduction]
YEAR 2009 2010 2011
DETROIT 3 REDUCTION 100% 50% 50%
Direct Employment -239,341 -119,671 -119,671
Indirect Employment -795,371 -491,719 -311,488
Spinoff Employment -1,427,663 -886,345 -574,434
Total Employment -2,462,375 -1,497,734 -1,005,594

Given that the current labor force is around 150 million people, this would add around 2% to the unemployment rate, from 7.2% to around 9%, within weeks. That will be in additional to the terrible jobs numbers we are going to see in the next months. This does not make me optimistic.

Digging around the BLS’s webpage data. U3 Unemployment rate for college graduates versus just high school / no college:

2008 2.1 2.1 2.1 2.1 2.3 2.4 2.5 2.7 2.6 3.1 3.2 3.7
2008 4.6 4.7 5.1 5.0 5.2 5.2 5.3 5.8 6.3 6.5 6.9 7.7

That high number for high-school educated workers reflects a lot of construction workers from housing being moved back to more productive enterprises – if that group suddenly had to take in another million plus people from the dealer networks and the factory lines, I could see the entire process going to shit.

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One Response to Other Shoe Dropping

  1. Noumenon says:

    The cases depend on how much the auto companies keep running during bankruptcy. Ed makes a strong case they won’t, so 100% loss – or the worst case scenario, and I agree with him).

    That didn’t work out, did it.

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