Friday, June 01, 2012
Unemployment a Symptom of a Bad Economy; The Bad Economy a Symptom of High Unemployment
If you're unemployed and looking work, you surely know just how competitive the employment search is. Last year, there were almost seven applicants for every job opening in the U.S., a ratio that is double the historical norm.
The unemployment problem is so dire that just 75.7 percent of Americans between the ages of 25 and 54 have jobs, a full 5 percent less than before the recession, according to the Washington Post.
But joblessness had already been a growing problem long before the Great Recession took hold. In fact, job creation has been slowing for decades.
According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased at about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were generated.
The trouble stubbornly persists.
Fewer Americans between the ages of 25 and 54 have jobs than at any point in the 23 years before the recession, according to government data cited by the Washington Post.
It's been widely noted by labor experts that the longer a person is unemployed, the more their job skills erode — to say nothing of their confidence and self-esteem. Because so many people in their prime working years are currently unemployed, many of them long term, it will have lasting effects on the economy as a whole.
There are vast numbers of people who are not productive or contributing to the tax base. That is a major drag on the economy. Worst of all, millions of job seekers have become so despondent after lengthy job searches, that they have simply given up looking for work. These people are no longer counted as unemployed, hence the falling unemployment figure over the past year.
The labor force participation rate (the percentage of the working-age population either working or looking for work) was 63.8 percent in May, its lowest level in 30 years, according to the Labor Department.
A record 88.4 million people are considered "not in the labor force," according to the Bureau of Labor Statistics (BLS). That's a stunning figure.
The bursting of the housing bubble led to lower demand and less consumption, followed by mass layoffs and a severe recession. The economic expansion of the previous 30 years had been fueled by debt. But that fuel is now spent, literally and figuratively.
From 2003 to 2007, Americans extracted $2.2 trillion from their properties in the form of home equity loans and cash-out refinancing — about 20 percent of which went to fund personal spending. Those days are long gone. Fake equity led to fake demand. As a nation, we were fooling ourselves. People were never as rich as they thought they were. The economy was a house of cards and now it's fallen down.
This isn't a problem with a political solution. It matters not who wins the election in November. The unemployment problem and our vast economic troubles will persist no mater who is in the White House. Don't kid yourself by thinking otherwise.
Everyone is searching for a cure, a way to fix all that is broken. The only way back to the past is to re-inflate the bubble and expand our massive debts even further. But that didn't work out so well the first time around. It's how we got into this mess in the first place.
The problem isn't a matter of excess regulation or taxes being too high. Those are simple political arguments, but they aren't solutions to a national hangover from a massive debt binge.
Since the previously low unemployment rate and private sector consumption were driven by unsustainable debt-expansion, and were therefore entirely misleading, perhaps we need to reconcile ourselves to era of less — less consumption, less demand, less economic growth and less prosperity. Maybe that's not such a bad thing. Did buying all that "stuff" makes us happier as a nation? I don't think so.
America is presently confronting a new reality, and it is a really painful one.
The U.S. still has nearly 5 million fewer jobs than when the recession began in December 2007. Job losses in the recession were the deepest since the Great Depression.
More than 5 million people have been unemployed for 27 weeks or more, and the average length of unemployment is more than 39 weeks, according to the BLS.
However, the labor market continues to add low wage jobs at places like retailers and temporary services, the likes of which don't typically provide benefits. But there are already too many low paying jobs — the kind that thwart demand and consumption, while preventing the economy and the tax base from growing nearly enough.
Among OECD (developed/industrialized) countries, the U.S. had the highest share of employees toiling away at low-wage work in 2009, according to OECD data. One in four U.S. employees were low-wage workers that year, according to the OECD. That is 20 percent higher than in the number-two country, the United Kingdom. Low-wage work is defined as earning less than two-thirds of the country's median hourly wage.
This is why the middle class has been shrinking for decades. How can the economy get ahead with so many people in low wage jobs? These folks don't have nearly enough disposable income to propel the economy or lift the tax base and help the government cease its chronic deficits.
The number of employees working in low-wage jobs has been rising since 1979, according to to John Schmitt, senior economist at the Center for Economic and Policy Research. And low-wage workers are better educated than ever. The percentage of low-wage workers with at least some college education has spiked 71 percent since 1979 to 43.2 percent of all low-wage workers, according to Schmitt's analysis.
In May, the average length of the work week fell to 34.4 hours. Employers often give workers less than 40 hours a week to avoid providing them with benefits, or the possibility of overtime.
Even after widespread layoffs, U.S. companies have been able to get their remaining workers to do more with less. Fear of losing one's job is quite a motivator. Worker productivity has been booming in recent years. Output per hour in American manufacturing has increased by 13% in the past five years and 21% in the five years before that.
Despite that impressive increase in productivity, wages for many manufacturing workers are not keeping up with inflation. Consumer prices increased by 7% in the three year span between 2009 and 2011. That is putting a squeeze on workers' incomes and spending, which, in turn, hurts retailers and the broader economy.
Neither the long term or short term employment trends look promising.
The number of new jobs created in April was slashed to 77,000 from an original estimate of 115,000. Job growth in March was revised down to 143,000 from 154,000.
This means the three-month average for job growth is just 96,000 jobs per month. That's not enough to keep unemployment from rising. As it stands, the job market is already in a very deep hole.
It's important to remember that even if the economy simply kept up with population growth by adding 125,000 jobs each month (for a total of 1.5 million new jobs this year), it still wouldn't help the millions of Americans who are already unemployed or under-employed, meaning they can only find part-time work. It would only help the new entrants into the labor force, such as high school and college graduates.
When you add the 8.1 million persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) to the 12.7 million persons the government officially recognizes as unemployed (the U-3 figure), you find that nearly 21 million Americans are under-employed. And this ignores all the millions who have simply dropped out of the labor force altogether.
What we are now witnessing is the outcome of America's long term decline. It doesn't matter which indicators you look at: the automation and off-shoring of jobs that have led to long term unemployment problems; an aging, non-productive population that draws from the government but no longer pays taxes; a massive trade deficit fueled by a reliance on foreign oil and cheap goods; a massive federal debt and persistent deficits; an exponentially growing money supply that is fueling inflation; a housing bust with no true signs of recovery, etc.
People fear the potential, if not likelihood, of a double-dip recession. But that doesn't need to occur for the nation to remain mired in its economic malaise. The country could just muddle along at a 2 percent annual growth rate, which would not allow for nearly enough job creation. Growth must be at least 2.5 percent just to even keep up with annual population growth.
Historically, from 1947 until 2012, the United States GDP growth rate averaged 3.3 percent. For perspective, the U.S. hasn't grown at that rate since 2004 and prior to that, 2000.
Once again, the trends are not good.
What we're now faced with is a chicken and egg conundrum.
Employers won't hire until the economy improves. In essence, the unemployment problem is a symptom of the poor economy.
On the other hand, the economy won't sustainably improve until hiring increases to the point that the 21 million unemployed and under-employed Americans have jobs, and are measurably contributing to the tax base and the nation's gross domestic product.
That's quite a conundrum. Which comes first?