The situation is nicely encapsulated by economist Nouriel Roubini’s tweet this morning: “US economy now close to stall speed. From anemic recovery to tipping point to stall speed and growth recession. Is a double dip next?”
The economy only created 54,000 jobs last month. It takes between 125,000 to 150,000 net new jobs a month just to keep up with the organic numbers of people entering the labor force, much less make up for the losses of the Great Recession. Unemployment “officially” stands at 9.1 percent, the real rate much higher. “To remind us what a healthy unemployment rate looks like, four years ago, in May 2007, the unemployment rate stood at 4.4 percent, and 11 years ago, in May 2000, the unemployment rate was 4.0 percent,” according to economist Heidi Shierholz of the Economic Policy Institute. “The U.S. workforce needs the pace of job growth to accelerate dramatically in order to re-establish full employment within any reasonable timeframe, and instead, the recovery is on pause.”
Put another way, by the blog Zero Hedge, the U.S. would have to create 250,000 a month for 66 months just to return to where unemployment stood in December 2007 by the end of President Obama’s second term. But why is job creation broken?
It’s an area where we need urgent research and sober debate. I can think of these reasons:
- The stimulus and the Federal Reserve’s QE2 failed. They arguably prevented worse unemployment and deflation, but it’s impossible to prove a negative. The stim was particularly ill-suited for job creation — heavy on ineffective tax cuts, light on infrastructure. Too much of the Fed’s money was used to save the Wall Street playerz, then let them make a new killing off it.
- Business models have changed. Many companies have found ways to do as much or more with fewer workers. Thus, record corporate profits and cash on hand haven’t translated into much hiring. Offshoring, technology, doubling-down on the existing workforce and continuing industry consolidation all play a role.
- The negative feedback loop continues to discourage hiring: The housing collapse (where so many jobs were created in the 2000s); millions struggling with the consequences of losing their homes or being underwater on mortgages; 10-year wage gains worse than during the Great Depression, lowering buying power and hurting business; many small businesses, a key engine of jobs, unable to get loans; government fiscal crises hurting investment and education, as well as causing layoffs in this sector and hurting small private vendors.
- The jobs-skills disconnect. Millions of jobs for the housing bubble required relatively few advanced skills. But manufacturers now complain they can’t find the workers who have the training to handle the leading-edge jobs they have. This is even more pronounced in advanced technology sectors.
- The dogma about tax cuts for the wealthy leading to job creation doesn’t work. Indeed, job creation during the George W. Bush administration was some of the worst since the Hoover years, but it was cloaked by the housing bubble. Meanwhile, the political climate won’t allow for more aggressive job-creating stimulus, such as infrastructure spending.
- The capital markets have disconnected from their traditional role of assembling funding for productive, job-creating enterprises. Much of the big profits come from trading or job-killing mergers. LinkedIn and Groupon are clever and will siphon off billions of dollars in investment. They will create relatively few jobs. Even seemingly traditional large corporations spend time making profits trading on Wall Street rather than using the money to hire. Meanwhile, the finance sector is among the most politically powerful and will protect the status quo.
- The hollowing out of much of the economy is real and it has happened in sectors that once created millions of jobs. Tens of thousands of factories closed during the 2000s, and not just in the auto industry. The textile and apparel sectors in the Carolinas were devastated by NAFTA and China’s entry into the WTO. Again, this was cloaked by the housing bubble.
- The recovery has never been broad-based, and businesses have been faced with ongoing uncertainty. President Obama did himself no favors here with the complex health revamp, although it is a huge windfall for the insurance industry. But the uncertainty also includes the price of oil and the future of energy costs.
- The sectors once called “high tech” (but almost everything involves high tech now) are not creating large numbers of American jobs, as retired Intel Chief Executive Andy Grove has pointed out. As companies “scale up” they are no longer doing much hiring of Americans.
- Some will point to immigration, and in the 2000s the U.S. saw its largest wave of immigration in its history, even larger than 1890 to 1920, and much of it illegal. The academic evidence points to immigrants being a net plus in terms of economic output vs. their cost in social services. But it’s also true that easy immigration helped drive down wages. Yet this took place as American business as a whole adopted Wal-Mart’s low-wage, part-time, minimal-benefit model. “Consumers” got low prices, but unfortunately they also suffered as workers. Who to blame here?
For all the political theater, America has a jobs crisis much more than a debt crisis. Until it fixes the former and creates broad-based growth, it can’t meaningfully address the latter.
Today’s Econ Haiku:
The Gates Foundation
Gives a gift to Seattle