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What a jobless recovery looks like
The job market's recovery is like waiting for Santa Claus to arrive or the doctor to come into your room. It feels like it's never going to happen. Let's take a further look at today's unemployment numbers.
At a speech today, Boston Federal Reserve Bank's CEO Eric Rosengren explained that the labor market's response looks more like the recessions of '91 and '01 than '75 and '82, as seen in his chart below. The second chart points out how more people are working part-time, as companies try to do more with less.
A perfect example of the current business mindset is UPS. Today, UPS reported a brighter revenue outlook, but also said it was cutting another 1,800 jobs from its workforce of 340,000. More from the Wall Street Journal:
Here is a healthy company that is shipping more products, raising shipping rates and enjoying a rallying stock price and yet it is cutting jobs, not creating more of them...
White House economic adviser Austan Golsbee told CNBC this afternoon that the "main driver" of job creation will be when companies believe the economy is recovering. But UPS just stated today it believes the economy is healing gradually.
Talk, of course, is cheap. Hiring employees is a much more costly wager on the economy's health-one that even robust companies, like UPS, aren't willing to make.
So, what it's going to take? Not more government stimulus, according to some:
"A lot of stimulus still has to be spent. Let the private sector handle it from here," said Tom Higgins, chief economist with Payden & Rygel... Unfortunately, people just have to be patient."
And Springer said no amount of money from Washington can change the fact that consumers appear to be adjusting from a pattern of wanton spending to a more thrifty existence.
But, as I wrote earlier today, if this new frugality is permanent, what does that mean for the job market?
I remember in 2005/2006, when things first started to go south in the California housing market.
I used to tell people: Everything is messed up, people are living on second mortgages, etc.
At the time, I remember thinking: "At least unemployment is low, or things would be much worse."
Looking back it was a job-full recession, but we didn't know it.
Payback time, I guess.
Scott, you’re almost right when you wondered “whether we’re truly seeing a permanent change in American thinking†(The recession as consumer therapy). However, the change is not a lifestyle choice or even a change in thinking it’s an economic imposition. It’s partly imposed by a fact of global demographics that as a trend has much further to run. And it explains what Eric Rosengren of the Boston Fed did not (Prospects for Employment: evidence from prior recessions), which is the reason the ‘recovery’ from this recession looks like those of 1991 and 2001 rather than ’75 and ‘82. Rosengren’s litany of macro textbook platitudes fails to consider globalization except for one sentence about how exchange rates may boost manufacturing exports and thus employment.
The salient demographic fact is the doubling of the global workforce since the collapse of the former USSR. This has been pointed out by Richard Freeman (The Great Doubling: The Challenge of the New Global Labor Market, 2006)
http://emlab.berkeley.edu/users/webfac/eichengreen/e183_sp07/great_doub.pdf
For those with Power Point minds (Doubling the Global Workforce, 2004)
http://www.iie.com/publications/papers/freeman1104.pdf
The result is the offshoring of jobs to so-called developing countries with much lower labor costs and much lower standards of living. Computer and telecommunications advances since 1990 have dramatically facilitated this phenomenon.
The only other notable economist to take this and its implications seriously has been Alan Blinder, also former vice chair of the Fed. (Offshoring: The Next Industrial Revolution, Foreign Affairs, 2006;
Education for The Third Industrial Revolution, 2006 and 2008;
How Many Jobs are Offshorable?, 2009).
The jobs will keep flowing offshore not only in manufacturing but in services as well impeding job recovery in America. W. Michael Cos, Richard Alm and Justyna Dymerska of the Dallas Fed call this “virtual immigration†(Labor Market Globalization in the Recession and Beyond, 2009)
http://dallasfed.org/research/eclett/2009/el0910.html
They find that offshoring has shifted some high wage jobs to low wage countries but that it has allowed high paid workers in wealthy countries to sell sophisticated services around the world (How many of those do you suppose are financial?). But of course America and other industrial countries have no monopoly on sophisticated services financial or otherwise; what’s important from the perspective of jobs is where the work is performed.
So if it feels like the jobs are not coming back maybe they’re not, especially given the way the federal government has responded to the recession. Do we “just have be patient†as Tom Higgins says? No doubt he comes by his reassuring glibness easily, like most economists and most of those in the upper class. The rest of just will just have to eat cake while we wait.
Exactly. The real take home of this is that we need to get used to a larger wage gap. Recessions force owners and managers to face up to their sins. In this in environment that sin is keeping workers from unskilled to moderately skilled employed at first world pay levels. When the recession forced a new wave of layoffs and offshoring, just to stay alive, the infrastructure for employing overseas is in place and the inertia is for offshore job creation. Not domestic job creation.
Therefore, with ~3 billion people surviving on <$5 / day, work that is unskilled or moderately skilled, has nowhere to go but offshore. The PC revolution, followed by the internet revolution kept the US (and Western Europe) relevant. I hope nano-tech or an analogous step-change in technology will do it this time. I do not see anything with enough promise on the horizon that the Chinese or others are not as far along as we are.
Right now, there are a lot of people living a middle class life without doing middle class work. It can not last, and is not lasting. Higher taxes to redistribute, only makes the pie smaller as corporations and high net individuals no longer keep a US presence to avoid the oppressive taxes. From a Marketplace show in the spring of 2009, 5% of US taxpayers pay 45% of income taxes, 50% of taxpayers at the low end pay just 4% of income taxes. Using the tax code to redistribute has already been taken to its practical limit. The 2 Americas of John Edwards' campaign is our future.
