Wednesday, March 26, 2014

Too Few High Tech Jobs, Too Many Fast Food & Retail Jobs

Facebook recently bought WhatsApp — a company with just 55 employees — for $19 billion. It's rather stunning that a company with just 55 employees can be valued at $19 billion. What's more, the company had estimated revenues of just $20 million in 2013, which makes the purchase price seem all the more irrational.

The acquisition is indicative of the tremendous money and growth in the tech industry. There are so many high-paying jobs in the sector, and so many millionaires in Silicon Valley, that most people would surely love to work for one of the famous (or not so famous) tech companies in the area.

But, despite their sizable revenues and market capitalization, these companies employ a relatively small number of people. For example:

Apple employs 80,300 full-time employees, plus 4,100 full time temporary employees and contractors. However, 42,800 of its employees work in the retail part of the business.
Revenue: $170.9 billion
Market cap: $446 billion

Google employs 47,756 people.
Revenue: $59.82 billion
Market cap: $268.44 billion

LinkedIn employs 43,282 people.
Revenue: $1.52 billion
Market cap: $24.92 billion

Facebook had 6,337 employees as of December 31st.
Revenue: $7.87 billion
Market cap: $134 billion

Twitter had “over 2,300 employees” when it filed for its IPO late last year.
Revenue: $664 million
Market cap: $29.16 billion

In total, these five major technology companies — the likes of which almost everyone has heard of, and where virtually all young people would feel privileged to work — employ a total of roughly 137,000 people.

For comparison, here are America's 10 largest employers, each of which has a workforce of more than 300,000 people. Combined, they employ more than 5.6 million workers.

General Electric: 305,000 total employees
Hewlett-Packard: 331,800 total employees
Home Depot: 340,000 total employees
Kroger: 343,000 total employees
Target: 361,000 total employees
United Parcel Service: 399,000 total employees
IBM: 434,246 total employees
McDonald's: 440,000 total employees
Yum! Brands: (owner of KFC, Taco Bell and Pizza Hut) 523,000 total employees
Walmart: The largest American employer has 1.3 million workers employed in the United States.

The reality is that the workforce of many of these companies is part-time, temporary and seasonal, and many of these jobs are low-paying and poor quality. The bulk of the employees in at least six of these companies (Walmart, Home Depot, Kroger, Target, McDonald's and Yum! Brands) are low wage workers.

Unfortunately, each of these companies employs more than twice as many workers as the five combined technology companies listed above. And Walmart employes ten times as many.

That's a sobering perspective.

We would all benefit from an economy built on higher-wage workers in industries such as science, technology and engineering. But those are not the type of industries that employ the masses. Moreover, those industries all require advanced degrees.

A recent analysis by the National Employment Law Project shows that low-wage positions
account for nearly three out of five jobs generated in the first three years of economic recovery.

So, while America aspires to be a 21st Century global leader — with a workforce largely comprised of well-payed, highly-skilled workers in modern, first-world industries — our economy is bogged down by far too many fast food and retail jobs.

Of course, those are the kind of jobs that keep workers and their families in poverty and on public assistance.

We need more companies like Apple and Google all around the country, not just Silicon Valley, employing millions more people.

But what we have instead are way too many Walmarts, McDonald's and KFCs.

Wednesday, March 19, 2014

Great Recession Still Casting Its Shadow Over Employment/Wages

Perhaps the greatest and most lasting scar of the Great Recession has been its affect on employment and the job market. More jobs were wiped out in the Great Recession than in any other post-World War II downturn.

According to the Department of Labor, roughly 8.7 million jobs were shed from February 2008 through February 2010. Meanwhile, about 8.4 million jobs were created since February 2010. But the remaining deficit doesn't even account for all the high school and college graduates who have entered the workforce in that span.

It's a rather stunning state of affairs. Four years after our supposed recovery took hold, we still have a significant jobs deficit. Yet, the economy needs to add 143,000 jobs monthly just to keep pace with population growth.

More than three million students are expected to graduate from high school this year, according to the National Center for Education Statistics. Additionally, 943,000 students are expected to receive associate’s degrees this year, while 1.8 million more will earn bachelor's degrees.

As a result, millions of jobs will have to be created this year just to employ this group of graduates, which doesn't include all of the currently unemployed adults who are still searching for work. This same cycle has been playing out each and every year since the recession "officially" ended.

From the late 1940s until the early 1990s, the U.S. economy never took more than a year to regain all the jobs lost during downturns. Yet, after the 1990-91 recession, it took 21 months to recover all the lost jobs. And following the dot-com bubble, when 2.7 million jobs evaporated, it took 18 months after payrolls bottomed out for them all to come back.

The pattern is clear; it is taking longer and longer to recover from each subsequent recession. But the Great recession was a different animal altogether.

While the unemployment rate has been decreasing in recent years (despite the fact that it ticked back up to 6.7 percent in February), it masks some rather troubling underlying statistics.

The number of involuntary part-time workers was 7.2 million in February, according to the Bureau of Labor Statistics (BLS). These people were working part-time because their hours had been cut back or because they were unable to find full-time work.

In February, 2.3 million people were "marginally attached" to the labor force. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.

The Labor Force Participation rate was 63 percent in February, meaning that just 63 percent of people in the civilian non-institutional population either had a job or were actively seeking one in the previous four weeks. This group includes all people in the United States, 16 or older, who are not on active duty in the military or in an institution, such as a prison, nursing home or mental hospital.

A rate this low has become a disturbing trend, and one that may not reverse.

The average annual labor force participation rate in 2013 was 63.2 percent, a 35-year-low, according to data from the BLS. The rate peaked at 67.1 percent in 1997 and has dropped annually ever since.

A Philadelphia Federal Reserve study on the topic notes that, “retirement had not played much of a role until around 2010.” By then, the rate had already dropped 2.4 percent.

This means that retirement has not played much of a role in the participation rates up until 2010, and it seems to be only marginally affecting it now.

Yes, older people are retiring, but younger workers are continually entering the workforce, which should be helping to offset those retirements. Additionally, older Americans are staying in the workforce longer than in the past, usually for financial reasons.

What's particularly alarming is that the participation rate for workers between ages 25 and 54 fell sharply during the recession and still hasn't recovered. So, the low participation rate is not simply a matter of older workers retiring.

Younger workers have been hit especially hard by unemployment, as well as low wages. Yet, older workers — 55 and older, even those 65 and older — have been adding to the labor force participation rate. They have fared much better than younger workers.

This suggests that the economy is in much worse shape than the official unemployment rate indicates. The official jobless rate (known as U-3) is currently 6.7 percent, but that only counts people who are actively seeking work — not labor-force dropouts.

The U-6 unemployment rate was 13.1 percent in February. This calculation includes: "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them; "marginally attached workers", or those who "would like" and are able to work, but have not looked for work recently; and part-time workers who want to work full-time, but cannot due to economic reasons (also known as "underemployment").

Here's a troubling fact: In February, there were more than 92 million Americans not in the labor force, a record number. However, there are just 144.1 million employed workers. This ratio is quite unsettling. It means that there are just 59 percent more adults working than not working.

In other words, there aren't even two adults working for every adult that isn't. That's rather stunning.

Of the nation's 144.1 million employed workers, about 27.8 million of them are part-time. This means roughly 19 percent of all workers are part-timers.

While part-time work typically increases during recessions, the percentage of part-time jobs has remained stubbornly high since the recession officially ended. As previously noted, there were 7.2 million involuntary part-time workers in February.

Though the BLS reports the economy has added private sector jobs for 48 straight months, and job growth has averaged 189,000 per month over the past 12 months, far too many of those jobs have been of the low-wage variety.

Roughly half of the jobs created in the United States in the past three years have been low-paying jobs, according to economists at the Royal Bank of Scotland, who sent a research note sent to their clients in May 2013 titled, "A Closer Look At The Labor Market Recovery."

RBS defines "low-paying" jobs as those paying 80 percent or less of the average private-sector wage of $20.04 per hour. The sectors providing many of these low-paying jobs include retail sales, leisure & hospitality, and education.

The RBS study echoes several others in recent years, including a National Employment Law Project study from August that found three-fifths of jobs created since the recession have been low-paying, roughly matching the number of middle-income jobs that were lost.

About a third of working families in the U.S., representing about 47 million people, are in low-wage jobs today, according to the Working Poor Families Project. That's startling.

So, even as the unemployment rate has been generally trending downward with the creation of new jobs, they are not the kind of jobs that can meaningfully drive demand and consumption in our economy. To the contrary, they are the kind of jobs that keep people in relative poverty.

In fact, the U.S. now has the highest proportion of low-wage workers in the developed world, according to the Organization for Economic Cooperation and Development. One in four make less than two-thirds of the median wage, which is the same proportion that relies on public aid.

The big picture reveals a national crisis. There simply aren't enough jobs to employ the long-term unemployed, as well as all of the recent high school and college graduates entering the workforce.

When you include the number of low-paying and part-time jobs to the mix, the situation is downright bleak.

This is no way to sustain an economy, much less grow one.