The US Pattern of Structural & Long-Term Joblessness – “The Big Picture” Continued

by Frank Thomas

 

As noted in my last writing on this subject, the rate of job growth and scale of private-sector joblessness  has reached new historical dimensions over the last three expansion cycles:

 

TABLE 3:  Rate & Scale of Private-Sector Job Growth During 1982- June 2010

 

A.   1982-90 Expansion      18,422,000  

Ave. Growth/Year             2,401,825   (= 200,000/Month)

Ave. % Increase/Year      2.7%  

B.   1991-01 Expansion      21,508,000         

Ave. Growth/Year             2,150,000   (= 175,000/Month)

     

    Ave. % Increase/Year      2.2%   (= -10.5%/Year)

 

C.   2001-07 Expansion        6,208,000  

   

   Ave. Growth/Year             1,020,549   (= 85,000/Month)

   

   Ave. % Increase/Year      0.9%   (= -50.0%/Year)

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Dec. 2007- Aug. 2009 Job Loss     -7,047,000

   

June 2010 Unemployment        8,000,000   (excludes 5% normal unemployment)

   

June 2010 Underemployed,     8,000,000

    Discouraged, Unqualified

    NOT Looking for Jobs and

    Therefore NOT Reported in 

    Labor Force Statistics.

   

TOTAL EMPLOYMENT DEFICIT 16,000,000    

June 30, 2010     

   

Required Jobs to Meet      1,000,000   (a)

Private-Sector Labor Force   

Growth

   

Source: Advance & Rutgers Report: BLS Data

   

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(a)    BLS estimates total labor force growth will average 1.5 million/year  through 2016, including 1 million private sector jobs.

 

During the the final 2 decades of the 20th century, the nation gained about 40 million jobs vs. a loss of approximately 1.8 million in the current decade (6.2 job gain minus 8.0 added job loss due to recession)

 

Assuming, optimistically, we can recover and sustain an average monthly private-sector job generation level equal to the 1991-2001 expansion that averaged 175,000 jobs a month, it will take as I’ve said before:

 

· 44 months or until year-end 2013 (most likely 2014 given poor progress of only 600,000 jobs generated through June 2010) to recover current 8 million reported unemployed above 5% normal unemployment level

 

· another 44 months to recover current 8 million not reported  unemployed or underemployed in the labor force statistics

 

· another 10 months to add sufficient jobs to cover labor force growth

 

This amounts to 8 years or not until 2018 before all 17 million jobs are recovered including a 1 million annual increase in the private-sector job labor force.

 

The Center for Economic Policy Research study concludes it will take until March 2014 just to recover 8 million reported added jobs lost due to recession. They do not consider the unreported jobs lost nor the increase in private-sector labor force. However, indirectly, they do consider these two factors when they conclude that the pre-recession unemployment rate of ±5% will not be achieved until 2021! Think about that for a moment.

 

If our respective analyses don’t give adequate concrete evidence of the disastrous 30 year pattern of declining job rate growth – both in scale and duration, in service jobs as well as manufacturing jobs – then I don’t know what it will take to WAKE US UP to the serious chronic job deterioration confronting the nation.

 

For the first time since WW II (as stated in the Advance & Rutgers Report), our country appears trapped in an ominous lengthy job growth stagnation if not job-loss recovery dynamic even as we come out of the recent recession. This was evidenced for the first time in the 2001 eight months recession. In the 19 months after the recession, private-sector employment declined another 1,344,000 jobs (see Employment Downturn Comparisons)!  This factor plus an insidious corporate business culture that feels comfortable producing at ever higher levels with fewer workers spells big trouble for the country’s economic stability and living standard for middle class Americans.

 

We have gotten ourselves in a real box of a jobless growth recovery pattern. US giant corporations and banks are making more money abroad and at home by exporting jobs in exchange for cheap imports. The losers under this paradigm are middle class workers and the entire nation. For where is the economic growth coming from?

 

There are four possibilities:

 

(1)  Consumption

(2)  Government Spending

(3)  Private Investment

(4)  Net Exports

 

As I’ve stated so many times before, our Consumption level at >70% of GDP is simply not sustainable particularly when wages are stagnant causing savings to disappear and credit card debt to expand until the next financial crisis inevitably occurs. So, structurally, we have very small household savings which banks can use for small business loans. In most mature European countries, consumption averages 60% of GDP with Savings at >10% of GDP. This means more banking funds to finance small enterprises and consumers buying less imports of cheap Chinese products resulting in net trade surpluses or modest deficits. Hopefully, Americans have learned a lesson on consuming excessively and keeping up with the Jones under stagnant wages, mountains of debt and 6 credit cards compared to 2 credit cards for Europeans.

 

Government Spending and incentives to facilitate innovation are critical but Government is also sabotaging its flexibility here with unaffordable Defense spending at >5% of GDP (vs. 2% for the rest of the world), wasting over $250 billion a year. Out-of-control rampant tax haven exploitation and avoidance by US corporations and the wealthy are costing a net of at least $150 billion a year in lost tax revenues. And then there’s the costly taxpayer funding of banking and investment institutions whose actions have caused the current middle class joblessness and home foreclosure problems. It’s a truism that a country can’t buy itself out of a mini-depression. But government is the last resort to set the framework and decentralized incentives to get the general economy on a positive, stable course. Now the “Deficit Hawks” want the Government to cut and save (except for Defense) right at a time many states are going bankrupt. Great thinking! 

 

Private investment is at an all time low as a generator of GDP due to the focus on deleveraging. Banks are still in a hangover from irresponsible lending and exotic instrument speculation and will soon be faced with rolling over huge piles of past debt. Private corporations are wheeling in good profits again and bonuses by exploiting their cuts in worker payrolls, the majority of which will likely never return.  Overcapacity in housing and construction has brought activity to a prolonged standstill. Companies are also busy paying down high debt incurred during the credit bubble. In contrast, small companies are finding it impossible to borrow while big firms are saving and deleveraging.

 

And “Deficit Hawks” want the government to save. So the first three possibilities for spurring economic growth are in a SAVING mode rather than a SPENDING mode (by pragmatic necessity for consumers) while demand  and price deflation are still on a dangerous downward trend. We are crawling into the Japanese

1994-2004 prolonged deflation stagnation which ultimately required far higher debt levels to come out of their mini-depression. 

 

Net Exports have historically been a huge negative drain on our government’s financial resources. Two years ago, monthly trade deficits were running at $60 billion, dropping to $34 billion at the peak of the recession and now moving up again into the $45 billion range. Unlike most mature European countries, America is sucked into a morass of trade deficit borrowing from China. This paralyzes the nation’s flexibility to pump monies into the economy in good and especially bad times. The underlying unresolved problems here, besides excessive trivial household consumption, is not free trade but unfair trade and US firms outsourcing U.S. jobs to bring back cheap imports to feed our debt inducing excessive consumption model.

 

We need the best cool, determined, unbiased brains to come out of these many complex, counter-productive Catch 22s, structurally limiting the options for achieving improved middle class job growth and opportunities for ALL. Our nation’s regenerative possibilities lie in alternative green energy installations, rapid fossil fuel independence, advanced infrastructure investments, encouragement of cooperatives, entrepreneurship, support of small businesses, community banks, etc. This requires strong, uncompromising leadership. Obama is up to the task if he can shed an inclination to not rock the boat and to please the establishment monied interests. 

 

Can we finally get our innovative CAN DO ACT together? I’m not optimistic given the inherently destructive, non-productive, ego-centric political culture taking our society down, down, down with its ideological two-party power plays …. where it’s winner take all or where forced compromise is resorted to to stop the bleeding rather than to undertake vitally needed fundamental change ... where, as usual, Wall Street’s money remains the controlling factor  in our endangered democracy. 

 

To requote former President Reagan, “Wall Street and Job Outsourcers are the problem, not the solution.” 

 

Frank Thomas

The Netherlands

July 21, 2010