About a year and a half ago I wrote a piece about how (EVEN THEN) things were far worse than they looked as so many Americans now ply their trade in the world of underemployment [Apr 2, 2008: The Underemployment Rate is Rising]
I like this term I found in this CNNMoney.com article - "Underemployment"; I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers").
This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.
Now the offset of this is, these trends have helped US corporate profits - so there is always a winner and a loser. The loser is becoming very apparent once you detox off the Kool Aid...
Just this week we saw a report in which productivity shot up 6%+ in the last quarter. While many will say that is due to "efficiencies in technology" or other such nonsense - that is just a small part of the story. Let's be blunt, technological efficiency did not suddenly shoot up the past 3 months or 6 months versus a year ago. The vast majority of this "improvement" in productivity is the fact people are getting paid less to do more. Doing the work of people who have been let go, as people are simply thankful to have a job. We also discussed this situation before it was fashionable [May 10, 2008: Finally Some Mainstream Reporters are Figuring Out the "Spin" from Government]
The unemployment rate drops. Productivity grows. The trade deficit shrinks. Sounds great, right? Not so fast. Some seemingly good economic numbers can be something of a mirage masking weaknesses in the national economy.
U.S. productivity -- an important ingredient to the country's long-term vitality -- grew solidly in the first three months of this year. That efficiency gain, however, came at the expense of workers. "Productivity gains were due primarily to declines in hours worked," the Labor Department's Bureau of Labor Statistics explained. Those hours fell at a 1.8 percent pace, the biggest drop in five years. Employers also shed workers in the first quarter.
"American workers, you just got to love them," said Joel Naroff, president of Naroff Economic Advisers. "They just seem to produce more and more and more. That was the case in the first quarter of the year as fewer workers working fewer hours managed to produce more," he said.
Yes you must love them, Mr Naroff. When threatened with keeping a roof over their families heads and food on the table, it is amazing what people will do.
Instead of giving you the same old data set you hear on every news channel, we've been focusing on a lot of metrics under the hood, and they are ugly. We've been seeing national wages stagnating which is scary considering a portion of this national workforce (mostly in government, healthcare, or C-level executives) continues to see substantial gains - which means a lot of people are going backwards to get the "average" down to "flat". [Jul 3, 2009: US Workers Continues to Suffer - First 0.0% Monthly "Growth" I Can Recall]
We've already seen many of the blue collar scorched, many now working at 30, 40, 50% of the wage rates they used to in their old jobs - many are now being 'transformed' from jobs making things to jobs providing services; and reaping the financial... uhh, benefits. White collar like to say 'well just get an education, and you won't be in that spot' - check back in 10-20 years when many white collar will be in the same space and that dogma will look foolish. Ask the architect who is trying to compete with his peer in Romania where the cost of living is 60% lower than in the US and hence homebuilders can pay 60% less of a wage. Sound improbable? That's not a forecast - that's a story I read 3 years ago. Extrapolate from there.
What's a safe place for stable wages long term? Places we are creating unsustainable long term costs - i.e. healthcare and government jobs (or quasi government i.e. education). These are areas we've talked about for nearly 2 years now - they are "stable" because we are kicking the can down the road on the costs, building bigger and builder long term obligations but growing these areas in many cases exponentially.
It is actually even more remarkable that median wages are stagnating when the powers that be are so desperate in trying to inflate every asset class in the world to create an air of normalcy. But that is an entirely different topic.
Now let me put on my cold hearted speculator hat on - this data above and the story I post below is GREAT as an investor - at least in the short run. If corporations I invest in can continuously shed workers and cut back their wages, or rehire new people at lower wages (of course we're just talking about the drone bees, the queen bees don't face such difficulties), that only increases profits. It is anti Henry Ford, who believed workers in the 1910s+ should make enough of a wage to afford the things they build. That's SO old school - we have a new paradigm now.
The new paradigm can work for a while - until eventually you cut out so much ability of the US workforce to spend ... well then they have to turn first to their house ATM and then when that game ends, to the government, for handouts to maintain their standard of living. Which is the stage we are at now. [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"] Except no one wants to admit it... because we're America and this can't be happening to us. Folks, it is happening and it didn't just happen overnight - this has been a long term erosion and the cummulative affects now are vividly apparent since "asset inflation" no longer is masking the truth of what is happening in the lower / middle tranches of society. As I've argued many times, some of this is simply inevitable as global wage arbitration in a flat globe brings down salaries for many of the middle class in richer countries and drives it up for the middle class in poorer countries. But a lot of it is policy decisions and national economic ethos.
So it all ties together - what we have been doing can continue to work as long as our foreign creditors gladly give us more and more rope to eventually hang ourselves with... workers make less (unless you are a queen bee level exec of course), corporations maintain flattish profits, and government makes up the shortfall between what private workers used to make, and now make (of course, public workers are mostly unaffected by the above conditions). This is our newfound "prosperity" as the service economy works its magic. I've been talking about it for a few years here on the blog, and I don't mind being early - I am finally hearing whispers of similar thinking from other places the past 6 months.
But once again, after you read this post and the story from CNN/Money below I want you to quickly chew on the appropriate colored pill and forgot about it. Just keep repeating to yourself - we are nothing like Japan [Oct 28, 2008: Pooring of Japan Too?] even though if you replace the word Japan with United States from these quotes you'd think this story was about Main Street Chicago rather than Main Street Tokyo.
The 29-year-old laborer is one of a burgeoning class in Japan -- the working poor. The number of Japanese earning less than $19,610 a year surged 40 percent from 2002 to 2006, the latest data available, the government says. They now number more than 10 million.
The growth of the working poor -- not seen in such numbers since Japan surged to wealth in the 1980s -- has been a shock to a country that once prided itself on being a bastion of economic equality.
"It is unprecedented to see such a widening income gap in Japan," said Yoshio Sasajima, economist at Meiji Gakuin University in Tokyo. "Our society is definitely becoming a class society."
The seeds of changes now wrenching Japanese society were planted in the burst of the so-called "bubble economy" in the early 1990s.
A key to the growth of the working poor has been the explosion in temporary employment agencies, which allow corporations to take on labor without having to pay benefits -- and then unload workers at will.
The spike in the number of the working poor is already taking a toll on Japanese society. More people are putting off marriage because of tight finances, exacerbating a declining fertility rate. Part-time workers unable to afford rent sleep in 24-hour Internet cafes to escape the streets. Some have stopped going to the doctor because they can't afford it.
Main Street reality does not matter to Wall Street whose vision of long term nowadays is > 300 thousands of a second. The costs of today's profits are irrelevant, just celebrate the profits - however gained (preferably gained by government handouts apparently). We'll either be celebrating (red) or drowning our sorrows (black) as the government tells us what is happening in the economy and labor pool (rather than relying on common sense or talking to our friends, family, and neighbors). Place your bets... Caesars NYC opens soon. Stories such as these below are simply anecdotal and for amusement - they mean nothing as long as stock prices go up, because Main Street = Wall Street as we all know by now. Let's get ready to rumb.... err, act like lemmings reacting to a government data point!
- Finding work in this recession takes determination, perseverance and, most of all, sacrifice. With unemployment as high as 9.4% (vastly understated number) and job prospects scarce, job seekers are willing to accept as little as half of what they were making before, if it means finding a job.
- In a recent survey, 65% of out-of-work respondents reported willingness to accept wages up to 30% lower than their previous compensation.
- And, 3% and 4%, respectively, said they would accept up to 40% and 50% of prior wages, according to the 2009 Annual Career Fair Survey released by Next Steps Career Solutions.
- "In the old days people would expect to get at least a 10%-15% bump when they were making a transition from this job to the next," said Paul Bernard, an executive coach and career management adviser who runs his own firm. Now, "being asked to take cuts in the 20%+ range is pretty standard."
- That was true for Rebecca Eason, who living in Tennessee. After losing her job as an office manager for a steel company, Eason, 29, says she has used to make a comfortable $33,000-a-yearsettled for a temporary position making $9.25 an hour until something better comes along.
- Her current position is a 40% paycut from what she was making previously and also comes without benefits like health insurance. Her husband, Chris, also lost his job this summer and found a temporary position for 50% of his previous salary.
- "Every penny covers our mortgage, life insurance, groceries, gas -- just the basic necessities," she said.
- Eason's situation has become all too common since the recession began.
- "I see it every day," said Jay Meschke, president of EFL Associates, a division of professional services company CBIZ. "People are out there accepting positions as much as 50% below what they were making before."
- "If it is a choice of putting food on the table, paying for a kid's school expenses, or attempting to get on a healthcare plan -- many people are flat out accepting jobs well beneath their former market values," he said.
Even if true among more than 1-2 people in the story, I am sure this is a temporary situation and once prosperity returns... cancel that... what I meant to say, NOW THAT prosperity has returned, things will turn around.
- But those who do accept lower salaries in order to ride out the recession might find that they've permanently damaged their value in the workplace.
- "Job seekers that take severe pay cuts in order to secure a job today may find it extremely difficult to recoup forfeited wages once the economy recovers," said Patrina Campbell, a spokeswoman for Next Steps Career Solutions.
- "Your future salary will be based on what you were making at your last employer," Bernard explained. In addition, pay cuts are often coupled with lesser titles or demotions, making it harder for employees to jump back to their original level, he added.
As I said, now that you've read it... it's time to ignore everything just written. Take the pill, let us reattach to the Matrix, click our heels three times and repeat "there's no place like green shoots... " Make it all go away (at 8:30AM) dear Big Brother... tell me it's all ok, and spending like a drunken sailor has created a new era of prosperity - I hang on your every word/statistical inaccuracy. I await my chance to buy many a stock based on your propoganda ... err, data points.
[Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?]
[May 9, 2009: The Curse of the Class of 2009 - Lower Wages for Up to a Decade]