Trouble in the U.S. Labor Market

October 2, 2009

It’s not hard to imagine U.S. non-farm payroll jobs contracting 138K per month in the fourth quarter, since that would be 47% less than the drop last quarter.  If a drop of that size happens, U.S. employment will end the decade at the exact same level as it was in December 1999.  There will have been no net growth in jobs over an entire calendar decade.  Such a result represents a catastrophic departure from the past six decades when employment rose by 11.98 million workers in the 1940s, 10.66 million in the 1950s, 17.07 million in the 1960s, 19.43 million in the 1970s, 18.14 million in the 1980s, and 21.72 million in the 1990s.  The zero increase over the latest ten years would compare with gains of 31.1% per decade over the 1940s and 1950s, 29.4% per decade over the 1960s and 1970s, and 20.0% per decade over the 1980s and 1990s.  Employment growth outpaced population growth in the final 60 years of the twentieth century, reflecting the absorption of women into the labor market.  The population rose 16.5% per decade in the 1940s and 1950s, 12.4% per decade in the 1960s and 1970s, and 11.5% in the 1980s and 1990s.  It looks like the U.S. population is going to have expanded roughly 11% in the current decade.

The 7.205 million loss of jobs during the 21 months since the start of 2008 is also far worse than what happened during the last four distinct recessions.  The current recession’s job loss so far cumulates to a drop of 5.2%, slightly more than one out of every twenty workers, or 343.1 thousand each month over the 21-month period. Jobs fell in 25 of 30 months from March 2001 to August 2003 by 2.708 million in all, a decline of 2.0% or 90.3K per month.  Employment decreased 1.621 million from July 1990 to May 1991, which works out to 1.5% in total or 147.4% per month.  In the stagflation recession of the early 1980s, jobs dropped by 2.838 million from August 1981 to December 1982, a tumble of 3.1% or 166.9K per month.  And in the recession associated with the first oil price shock, jobs fell 2.115 million from August 1974 to June 1975, 2.7% in all or 192.3 per month.  Each of the earlier recessions was sufficiently contained and offset by brisk growth in jobs before and afterward, such that every decade turned out all right until this last one.  The sense of extreme foreboding prior to Y2K was spot on target, only for the wrong reasons.

The unemployment rate was 9.8% last month, up from 6.2% in September 2008.  Total adjusted unemployment, which includes what the Labor Department calls marginally attached workers and part-timers who’d rather be working full-time, rose to 17.0% compared to 11.2% a year earlier.  Average hourly earnings climbed 2.5% in the year to September 2009, down from 3.4% in the previous statement year.  Not only are fewer people employed, but they also face slower growth in compensation.  Unless stock and real estate prices shoot up to the moon, personal consumption is not going to restore economic growth to its long-term trend. 

Several economists have publicly objected to the assertion that we’re in the worst recession since the Great Depression.  They do this less because the statement is untrue than because of the insinuation that the depression and current situation can be compared in the same sentence.  The Depression was far, far worse than any more recent business downturn.  However, the above data also set the present recession and the whole decade as sufficiently worse than other post-war recessions to warrant its own special designation.

Many factors account for the seizure of the U.S. labor market.  It probably doesn’t help to be in a permanent state of war, but that does not seem to be the primary issue.  The labor market handled the psychological trauma of earlier wars just fine.  The flip side of an upsurge in productivity can often be a lull in the growth of jobs.  With more productive workers, firms have fewer hiring needs to get their job done.  However, the process of creative destruction usually takes care of that problem.  Businesses that faded in the past were more than compensated by new industries that absorb both new labor force entrants and the reduction of jobs associated with industries that are plowed back under

This time is different, and two factors make it so.  The first involves many changes captured under the umbrella of globalization.  Labor markets have become truly global.  A lot of work can be done anywhere.  So manufacturing and much technical support, to name two examples, are outsourced to places where labor is cheaper.  That’s not necessarily bad.  Trade has been a powerful economic growth multiplier since World War 2 for the United States, other advanced economies, and emerging markets.  The second impediment to labor force absorption in the United States is the one over which I lose sleep.  The requirements for the jobs that are being created in the United States are becoming increasingly education-intensive at a very rapid rate, and the skills to be learned are not ones that were on the curriculum when much of the workforce went to school.  Technology is delivering applications much faster than schools are providing workers with tomorrow’s desired qualifications.

Test comparisons suggest that the education systems in many other countries are doing a much better job than the United States of preparing pupils to work in the twenty-first century.  Re-education and re-training may help a little but will not have the transformative impact that is needed to put the U.S. labor market back on the rails.  The primary effort must be directed at school children at all the grade levels, and the dividend may not be felt for at least a generation.  Even if done, the competitiveness of U.S. workers is likely to slip further in world rankings before the bottom is reached.  In these circumstances, pressure will likely grow to make the global monetary system less dollar centric.  A toll will be exacted on the U.S. economy if concrete changes are actually made in that regard.  The dollar has trended lower since the 1960s.  These new issues provide further cause for believing that the long-term direction of the U.S. currency will continue as it has been.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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