Huge employment issues continue despite rate sliding to 7.4%
The decline in the unemployment rate to 7.4% is good news. After all, it could have gone up. Despite the surface improvement there are many issues that remain. That most of the improvement in the jobs picture came from low paying jobs in retail, food and drink services, and hotels is less than encouraging for overall economic growth. That the overall labor market shrunk, meaning less people seeking work, also does not contribute to a pretty picture.
The reasons for this have been discussed here and elsewhere. Among them are: First, structural change as a result of technological advances that lead to less need for employees and the fact that the "great recession" gave companies the defensible opportunity to lay-off many employees who were less productive than others or in jobs that were no longer needed. Those jobs will not come back; Underemployment, the term used for those who find jobs now that don't take advantage of their full skill set and pay less that they have previously received; Predominately low wage job growth as indicated in the opening paragraph; Part time job proliferation, jobs that require over 20 hours a week but are unpredictable and do not add up to the hours that an employee would like to work.
What are the solutions to these issues? Some, like the impact of technological change, are here to stay. These changes will create great opportunities for the American economy but are not the solution to unemployment issues yet, at least not in this generation. Significant infrastructure spending is an incremental answer as obvious as the nose on my face, discussed here in a post a week or so ago. An increase in the minimum wage would help marginally, but the jobs must still be there to have a benefit. More enlightened companies would help, like those who pay above their industry norms and who provide good benefits --- Costco, Starbucks, Whole Foods, and Chipotle come to mind, all companies that coincidentally have had stellar results and significantly rising stock prices. Are they able to pay more because they are successful or are they successful because they have hard working dedicated employees? One could think that these two theses meet somewhere near the middle.
An obvious solution of course would be for the overall economy to be bouncing back at a growth rate similar to all prior recessions post WWII. The "great recession" was such a traumatic event for both companies and individuals that there is investment restraint in all quarters. Companies are loathe to risk building up production capacity until absolutely sure that they need it and they maintain, in many cases, major cash hoards in order to be able to weather any unexpected economic downturns. Individuals who have resources remain cautious as well in general, although the really wealthy continue to be reliable spenders. What would help this logjam of capital immensely would be a Congress that is not dysfunctional, not tilted to economic nihilism by a large contingent in the House and a few Senators, notably Rand Paul and Ted Cruz. A functioning stable government could increase confidence immensely.
An immigration bill, fully formed and comprehensive, could be an economic boost by increasing tax revenues and fully recognizing a new contingent of on the book citizens over time. It's being held hostage in the House, and any hope of progress is often confronted by the tired rant from the likes of Eric Cantor about border security. Hey Eric, it's there and continues to be built. The borders are more secure today that they have ever been in history. There's more to be done but that is a sideline issue and excuse by now. Show some leadership that's not negative and obstructionist for once.
One solution that is always trotted out by all politicians is job training. It always sounds positive, because to some extent it is, but it far from being the panacea that politicians want us to accept. We need more jobs if there are more trained people. It will not make a 55 year old who has been unemployed for two years any younger, it will not allow an underwater homeowner to move to another state to find a job, it will not pay moving expenses, it will not take a 21 year old who did not complete high school and has never had anything but a few temporary minimum wage jobs and turn him/her into an attractive job candidate. They can pass a high school equivalency exam but that is not job training, it is just a minimum credential, a piece of paper. Job training is of course a good thing but it is far from the answer that politicians pretend it is. It is of course good for those in the education business. That is the only certainty.
What is the good news here? Again, for what its worth, the unemployment rate went down to its lowest level in five years. Second, in the positive but not positive category is the fact that Americans on the whole are resourceful people, and there is an underground economy that can't be measured, friends working for friends, barter of services, close knit ethnic groups working "informally" within their communities, lots of home health aides working off the books, and much more. This economy helps sustain consumer spending even if it captures no taxes. The particular state of our economy has led to an expansion of this activity. Third, more foreign companies are moving operations to the U.S. It's not just Toyota, Honda, BMW, and a few other car companies that set up in non-union states, pay good wages and benefits but less than they would in their home country and they are, to boot, close to their customer. Other smaller companies are moving in as well. Ikea's Swedewood subsidiary, not so small, has a manufacturing site in my hometown. The average wage is $14 an hour or $29,000 a year. They obviously can't pay a low wage like that in Sweden and it just about matches what they pay in Eastern Europe. Once again they are also closer to their customer. In a Colbert Report piece, they irreverently referred to my hometown as Sweden's Mexico. Once again this is in the positive but not so positive category. Whatever one thinks of all of this however, it is only a pure positive if foreign companies see opportunities here to invest more capital in job producing enterprises.
The real silver lining to all of this is that economists rarely know any more than the lay investor about when an "all things being equal" analysis of the economy is turned on its head negatively or positively. Positively is stressed here because there is increasing entrepreneurship in many areas of the economy. Technology is a clear example but there are many others. Could there be a burst of energy, creativity, and job growth in this country that will come from the ground up and not the top down, something that falls outside of the norms that trap all economists? Given a few years, that could be entirely possible and everything written above would be wasted words.
The reasons for this have been discussed here and elsewhere. Among them are: First, structural change as a result of technological advances that lead to less need for employees and the fact that the "great recession" gave companies the defensible opportunity to lay-off many employees who were less productive than others or in jobs that were no longer needed. Those jobs will not come back; Underemployment, the term used for those who find jobs now that don't take advantage of their full skill set and pay less that they have previously received; Predominately low wage job growth as indicated in the opening paragraph; Part time job proliferation, jobs that require over 20 hours a week but are unpredictable and do not add up to the hours that an employee would like to work.
What are the solutions to these issues? Some, like the impact of technological change, are here to stay. These changes will create great opportunities for the American economy but are not the solution to unemployment issues yet, at least not in this generation. Significant infrastructure spending is an incremental answer as obvious as the nose on my face, discussed here in a post a week or so ago. An increase in the minimum wage would help marginally, but the jobs must still be there to have a benefit. More enlightened companies would help, like those who pay above their industry norms and who provide good benefits --- Costco, Starbucks, Whole Foods, and Chipotle come to mind, all companies that coincidentally have had stellar results and significantly rising stock prices. Are they able to pay more because they are successful or are they successful because they have hard working dedicated employees? One could think that these two theses meet somewhere near the middle.
An obvious solution of course would be for the overall economy to be bouncing back at a growth rate similar to all prior recessions post WWII. The "great recession" was such a traumatic event for both companies and individuals that there is investment restraint in all quarters. Companies are loathe to risk building up production capacity until absolutely sure that they need it and they maintain, in many cases, major cash hoards in order to be able to weather any unexpected economic downturns. Individuals who have resources remain cautious as well in general, although the really wealthy continue to be reliable spenders. What would help this logjam of capital immensely would be a Congress that is not dysfunctional, not tilted to economic nihilism by a large contingent in the House and a few Senators, notably Rand Paul and Ted Cruz. A functioning stable government could increase confidence immensely.
An immigration bill, fully formed and comprehensive, could be an economic boost by increasing tax revenues and fully recognizing a new contingent of on the book citizens over time. It's being held hostage in the House, and any hope of progress is often confronted by the tired rant from the likes of Eric Cantor about border security. Hey Eric, it's there and continues to be built. The borders are more secure today that they have ever been in history. There's more to be done but that is a sideline issue and excuse by now. Show some leadership that's not negative and obstructionist for once.
One solution that is always trotted out by all politicians is job training. It always sounds positive, because to some extent it is, but it far from being the panacea that politicians want us to accept. We need more jobs if there are more trained people. It will not make a 55 year old who has been unemployed for two years any younger, it will not allow an underwater homeowner to move to another state to find a job, it will not pay moving expenses, it will not take a 21 year old who did not complete high school and has never had anything but a few temporary minimum wage jobs and turn him/her into an attractive job candidate. They can pass a high school equivalency exam but that is not job training, it is just a minimum credential, a piece of paper. Job training is of course a good thing but it is far from the answer that politicians pretend it is. It is of course good for those in the education business. That is the only certainty.
What is the good news here? Again, for what its worth, the unemployment rate went down to its lowest level in five years. Second, in the positive but not positive category is the fact that Americans on the whole are resourceful people, and there is an underground economy that can't be measured, friends working for friends, barter of services, close knit ethnic groups working "informally" within their communities, lots of home health aides working off the books, and much more. This economy helps sustain consumer spending even if it captures no taxes. The particular state of our economy has led to an expansion of this activity. Third, more foreign companies are moving operations to the U.S. It's not just Toyota, Honda, BMW, and a few other car companies that set up in non-union states, pay good wages and benefits but less than they would in their home country and they are, to boot, close to their customer. Other smaller companies are moving in as well. Ikea's Swedewood subsidiary, not so small, has a manufacturing site in my hometown. The average wage is $14 an hour or $29,000 a year. They obviously can't pay a low wage like that in Sweden and it just about matches what they pay in Eastern Europe. Once again they are also closer to their customer. In a Colbert Report piece, they irreverently referred to my hometown as Sweden's Mexico. Once again this is in the positive but not so positive category. Whatever one thinks of all of this however, it is only a pure positive if foreign companies see opportunities here to invest more capital in job producing enterprises.
The real silver lining to all of this is that economists rarely know any more than the lay investor about when an "all things being equal" analysis of the economy is turned on its head negatively or positively. Positively is stressed here because there is increasing entrepreneurship in many areas of the economy. Technology is a clear example but there are many others. Could there be a burst of energy, creativity, and job growth in this country that will come from the ground up and not the top down, something that falls outside of the norms that trap all economists? Given a few years, that could be entirely possible and everything written above would be wasted words.
posted by John Borden at 4:53 PM
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