Many Things Are Depressing U.S. Job Creation, and Some Are Paradoxical
September 20, 2011
One reason for investor euphoria in the latter 1990s about long-term U.S. economic prospects was a pick-up in productivity growth, that is output per man-hour worked. Productivity tends to be a predictor of future changes in the standard of living, and so equity markets enjoyed an impressive rally in the years before 2000 when America’s productivity performance improved discernibly. A key driver of those faster gains in productivity was the development and expanding use of the internet and other automation involved in the collection and processing of information, which promoted more efficient means of production and distribution delivery systems.
In millions of jobs, huge time-savings have been achieved in how things are done. For instance, the team on which I was a member in the 1970s produced a hard-copy publication for fee-paying corporate customers in which it took between two and 5-1/2 weeks after I would write an article before clients received it. A myriad of ways now exist to communicate thoughts to end-users instantly. There’s no need for dictation or yellow pads full of scribbled notes to be typed up by the office secretary.
The renowned economist, Joseph Schumpeter, spoke of “creative destruction,” a mechanism by which tasks are eliminated by inventions and innovative applications of those inventions in a creative process that results in new careers to reabsorb labor dispossessed in the destructive dark side of the cycle. The faster an economy can increase what gets done in an hour of work, the stronger the economy can expand without an acceleration of inflation. The correlation between job creation and productivity growth is trickier because layoffs in the destructive phase of innovation can delay the burst of jobs growth associated with new things to be made. Nonetheless, the changes in productivity, GDP growth, and employment gains had lined up pretty consistently from the end of the Second World War to the end of the twentieth century. After Y2K, however, a great disconnection ensued.
| % per annum | 1947-73 | 1973-79 | 1979-90 | 1990-2000 | 2000-10 |
| Productivity | 2.8% | 1.1% | 1.4% | 2.1% | 2.4% |
| Real GDP | 4.0% | 3.0% | 2.9% | 3.4% | 1.6% |
| Jobs | 2.2% | 2.5% | 1.7% | 2.0% | -0.2% |
Many factors have been offered to explain the economic struggles since 2000. Demand has suffered from debt deleveraging at the household, corporate, and now government levels. Considerably higher real costs for health care and energy have squeezed discretionary spending for everything else. The incomes of the vast middle class have stagnated, forcing families to take on multiple jobs and, prior to 2007, assume greater debt to maintain living standards. Further damage can be found in the supply side of the equation. Transportation infrastructure has been neglected. Different infrastructures necessary to support new industries have not been developed as quickly as in America’s competitors. Relative standards of education, an area in which the United States topped the leader board for roughly 100 years to 1970, have been sliding. U.S. human capital has also been challenged by the light-speed pace of evolution in needed business skills. Designing a K-12 education that properly equips workers with what they need to know ten years, twenty years, or thirty years later is much more difficult in 2011 than it was in 1911. Not everyone is cut out to be an engineer or a super salesman. The wealthiest strata of U.S. workers have done extremely well since 1975, but they represent a group with a lower marginal propensity to consume than people earning less. Increments to their income will result in proportionately smaller increments in consumption than identical increments to wage earners making considerably less. At the macro level, second-, third, and nth-order consumption diminishes the more skewed an economy’s income distribution becomes.
And then there is globalization, an additional force of change that has been magnified immensely by the internet. U.S. inventions and applications are quickly available to the whole world. Production gravitates to the least-cost locations, and U.S. workers are forced to compete with workers in countries where the cost of living and acceptable living standards are much lower. It was argued initially, that this evolution was natural and non-threatening to U.S. jobs in the aggregate as lost factory positions would be offset with service sector positions. Since 2000, however, those more education-intensive jobs have also had to compete in an international market. A college education no longer guarantees a decent living in the United States and becomes a greater gamble to take because of the exponential cost of higher education and the keener competition for admission in a college market that also has gone global.
The internet has interfered with the job market in other ways. Many web-based applications save labor. Labor-intensive retail stores and printed journalism are in a struggle for sheer survival. Separately, social networking has created a magnet for people’s free time that creates a different demand-supply connection than traditional ones that can be met with the exchange of fiat money. Time spent in social networking is time not spent creating income from someone else’s production. Bill Gates, Steve Jobs, and Mark Zuckerberg belong in the same pantheon of great American entrepreneurs as Henry Ford, John Rockefeller, and Andrew Carnegie, but the job market in this more recent era isn’t responding the same way as it did to the changes produced by the earlier titans of industry.
The internet fosters activities that do not conform to the standard pay for service model. Currency Thoughts exemplifies this tear in the fabric, receiving numerous solicitations for barter deals offering exposure and the illusive promise of increased traffic in exchange for re-broadcasting its content on someone else’s larger site, such as a site that teaches currency trading or provides a platform on which foreign exchange trades can be done. A presumption exists now much more frequently than before 1995 that it is perfectly ethical to exchange high-quality service for something other than monetary compensation.
The labor market’s abysmal performance over the past dozen years or so has complex causes that have been made worse by inappropriate policy priorities and bad political responses. There is an eery resemblance in what developed nations are doing to the mistaken beliefs and policies that were tried in the inter-war years of the last century with horrid results. For a more recent example, please take a look at Larry Summer’s Op-Ed article in yesterday’s Financial Times, which I highly recommend. Summers draws a comparison of the handling of the euro debt crisis to how Daniel Ellsberg described America’s Vietnam War leadership. Ellsberg observed, “At every juncture they made the minimum commitments necessary to avoid imminent disaster — offering optimistic rhetoric, but never taking the steps that even they believed could offer the prospect of decisive victory. They were… unable to generate the political will to reverse a course to which they had committed so much, but also unable to take forward steps that gave any realistic prospect of success.”
Copyright 2011, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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