Wednesday, July 27, 2011

WSJ: What's Wrong with America's Job Engine?

Long time readers will know much of this information, as we've been 'early' on the case for years, [Jun 14, 2009: 'Prosperity' Without Jobs?]  declaring the U.S. job engine has been broken for many years but hidden by Federal Reserve induced bubbles - first stock, then housing... mixed in with a healthcare, and government bubble (the former subsidied by Medicare, the latter by property taxes on inflated home values).  Meanwhile, pure private sector jobs have been in net deficit - and those that have been created generally come with lower wages and benefits.  [Feb 3, 2011: CNNMoney - Jobs Coming Back, but the Pay Stinks!] 

Those that are full time of course - "temping" is becoming another national pastime. [Feb 16, 2010: USA Today - Use of Temps to Fill Jobs May No Longer Signal Permanent Hiring]  Meanwhile costs continue to go up for the average American - squeezing Joe Public.  We're in quite a pickle, and it's not just America but much of western Europe.  [Feb 7, 2011: BW - The Youth Unemployment Bomb]

This WSJ story devles a bit into these topics along with the role of automation.  [Mar 28, 2011: Productivity - Wo(man) vs Machine]  I've called it "just in time labor" mimicking the "just in time inventory" that made a grand entrance into U.S. manufacturing in the 80s and 90s.  Less kind but probably as fair, is the professor in the WSJ piece which calls it disposable labor...

Without grand new industries that actually create a multitude of jobs on American soil rather than 75% offshore and 25% domestic, it is very difficult to see the way out.  Even with the Fed trying to create another bubble with all its might.


Over the past 10 years:

• The U.S. economy's output of goods and services has expanded 19%.
• Nonfinancial corporate profits have risen 85%.
• The labor force has grown by 10.1 million.
• But the number of private-sector jobs has fallen by nearly two million.
• And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.

  • What's wrong with the American job engine? As United Technologies Corp. (NYSE: UTX - News) Chief Financial Officer Greg Hayes put it recently: "Sales have come back, but people have not.''  That's largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust.
  • Something else is going on, too, a phenomenon that predates the recession and has persisted through it: Changes in the way the job market works and how employers view labor.
  • Executives call it "structural cost reduction" or "flexibility." Northwestern University economist Robert Gordon calls it the rise of "the disposable worker," shorthand for a push by businesses to cut labor costs wherever they can, to an almost unprecedented degree.
Consider these clues:
  • In the most recent recession and the previous two—in 1990-91 and 2001—employers were quicker to lay off workers and cut their hours than in previous downturns. Many also were slower to rehire. As a result, the "jobless recovery" has become the norm.
  • In the past, when business slumped, employers cut work forces and accepted less work per employee. During the deep recession of the early 1970s, the output of goods and services in the U.S. fell by 5% and employment by 2.5%. Economists puzzled over "labor hoarding," or the tendency of companies to hold on to unneeded workers.
  • No one talks about that any longer. Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy's output of goods and services fell by 4.5%, but the number of workers fell by a much sharper 8.3%. Today's puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?  (uhhh, desperation by the work force?)
  • In an earlier era, when more Americans worked on assembly lines, many layoffs were temporary. When business bounced back, workers were recalled, often because of union-contract guarantees.  At the worst of the 1980-82 recession, 1 in 5 of the unemployed were "temporary layoffs." In the recent recession, the proportion of temporary layoffs never exceeded 1 in 10. In part that's because fewer Americans work in factories, where production can be stopped and restarted; if a restaurant doesn't have enough customers, it goes out of business.
  • Corporate employers, their eyes firmly fixed on stock prices and the bottom line, prize flexibility over stability more than ever. The recession showed them they could do more with fewer workers than many of them previously realized.
  • In a survey of 2,000 companies earlier this year, McKinsey Global Institute, the think tank arm of the big consulting firm, found 58% of employers expect to have more part-time, temporary or contract workers over the next five years and 21.5% more "outsourced or offshored" workers.
  • Temporary-help agencies are playing an ever-larger role—from providing clerical and factory workers to nurses and engineers. It makes it easier to cut back in tough times. Workers, in short, now can be hired "just in time." (woo hoo! they used by term) And many employers apparently don't think it's time yet. Because they can hire temps almost instantly, there's little need to hire in anticipation of a pickup in business.
  • When they do hire, big U.S.-based multinational companies are more able and more willing to hire overseas, both because wages are often cheaper there and because that's where the customers are.  In the 1990s, those multinationals added nearly two jobs in the U.S. for every new job overseas; in the 2000s, they cut their U.S. work forces by 2.9 million and increased them abroad by 2.4 million, according to the Commerce Department.  (but just cut taxes below the already historically low rate - as % of GDP - and millions of jobs will suddenly appear from the multinationals - just ask their lobbyists)

As a society, the questions must be asked - what do we do with 'all these people' who don't have a higher form of education.  Their jobs have been increasingly shipped or automated away.  We saw yesterday that their chances of re-employment are low, as they enjoy long term unemployment.  Increasingly this is becoming a permanent underclass.
  • Workers without college degrees find well-paying jobs scarce in the modern U.S. economy. The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June. About 1.6 million said they were looking for work; the rest weren't even looking.
Absorb that for a moment.  Of 15 or so million Americans without college degrees, less than 2M are looking for work.  The rest?  They seem to be part of the 'disappearing worker' that is leading to head scratching labor force participation rates.

 [Oct 4, 2010: WSJ - Americans Souring on Free Trade as Losing Their Jobs Overpowers Lower Prices]

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