A Look at the Job Picture
The U.S. economy is steadily improving. So where are all the jobs? That question has become headline news on a nearly daily basis. Unfortunately the answers are not simple.
Jobs are actually being created – over one million in fact in 2010, but compared to the more than eight million jobs that were lost during the recession, the recovery in jobs lags the growth in profits and the recovery in the stock market.
So what is going on? Why are companies unwilling or unable to hire? Where will the new jobs come from?
There are multiple forces at work muzzling the demand for new jobs. Two sectors of the economy are unlikely to contribute to much employment growth for several years – they are finance and real estate. In the financial industry, the lay-offs in 2008 and 2009 in the face of the industry’s collapse were huge. Last year, as the industry started recovering, it added employees, particularly in the northeast. However, many of the products it developed during the boom years of the last decade are no longer in demand, and the industry will likely employ fewer people over the next several years than it did in its heyday. In the real estate industry, the supply of housing in many parts of this country still far outstrips the demand and it will take years for that excess inventory to be worked off.
Another factor which I think is deterring employment growth is more complex. With all the credit in the world to Fed Chairman Ben Bernanke, who has been unfairly criticized (I believe) for his action to reliquify the banking system, there is a corollary to the low interest rate environment which is impeding the demand for workers. With interest rates at historic lows, the cost of capital (money) is cheap, making it advantageous for companies to borrow and invest in labor-saving technology and capital equipment rather than hire new workers.
At the same time, despite the currently elevated unemployment rate, the cost of labor (which includes both wages and ancillary benefits) remains high, particularly when compared to the low cost of money. The result is that companies are more likely to continue to replace labor with capital, at least on the margin. This will change as interest rates rise, reducing the productivity of capital.
Despite that economic reality, I believe we will see a pickup in demand for jobs from the private sector in this country as the year unfolds, but it will be slower than in the past. The good news is that the consumer appears to be more willing and more able to spend, and while not all consumers have straightened out their finances, the numbers show that consumers’ balance sheets are improving.
But there is one more hindrance to employment in this country. The Federal Government as well as many State and local governments are facing severe budget deficits which they will be forced to remedy through cutbacks in spending. Of necessity, this will involve lay-offs just as the private sector is starting to gain some momentum. It appears that even the U.S. military will not be spared the need to make personnel cuts.
While in the short run, public sector lay-offs will hinder both economic growth and improvement in the unemployment statistics, in the long run it is more economically advantageous for growth to come from the private sector of the economy. This is not meant to disparage the benefits of government and its services; rather it is admitting the economic reality that income and profits from the private sector are largely what generate the taxes necessary to fund the public sector.
Lest people despair that “all the high wage manufacturing jobs are going overseas, and we in the U.S. are left with low paying mindless service jobs”, I encourage you to go into an Apple Computer store at any time of the day. It is teeming with Apple employees (you can tell them by their blue shirts). I must have counted at least twenty of them on a recent trip to my local Apple store. Those are service sector jobs and they are anything but mindless. The employees are highly skilled technicians; they are the most cheerful people in the world and their numbers are growing, as Apple opens more retail stores.
What we need is more American companies like Apple Computer!!!
Patricia W Chadwick
President
Ravengate Partners LLC
Tags: economics
January 10th, 2011 at 1:26 pm
Your point is quite accurate, the cost of capital is inexpensive compared with the cost of employees. The advantage that you fail to note that this will make U.S. manufactured goods more competitive on the world market and will slow the shift of manufacturing jobs from exiting this country and increase the nation’s exports.
You also missed another point, corporations cut very deeply in this recession found they could run leaner than previously thought resulting in record profits. Although productivity gains are slowing, corporations will continue to resist hiring and are still looking to leverage labor beyond their traditional prerecession models.
If this is in fact the case, full employment could be a decade away.
January 10th, 2011 at 2:01 pm
-Positions in the Apple store are certainly not mindless, but how well do they pay?
-If the U. S. needs to increase employment, why does the tax code continue to provide an investment tax credit that, among other things, encourages replacement of labor with machinery?
January 10th, 2011 at 2:19 pm
You are missing the point here. From 1Q09 through 3Q10, personal consumption grew 3% while jobs were more or less stagnant. If you look under the covers and subtract imports, consumption of domestically produced products and services declined by 2% during that period. That 5% gap is a lost opportunity to add 3% in GDP and add millions of jobs. This is reversible. US multinationals move their high tech manufacturing overseas to avoid US corporate taxes. Check out Ireland, where Google, Intel, and Pfizer have major operations. We should be focusing on fixing the structural problems driving manufacturing overseas, rather than re-arranging the deck chairs on the Titanic.
January 12th, 2011 at 2:08 pm
Regarding those record shattering reserves of cash on hand that America’s largest and richest corporations could be investing in our prosperity, here are some pertinent excerpts from today’s insighful column by Dana Milbank in the Washington Post.
“There was a festive atmosphere at U.S. Chamber of Commerce headquarters Tuesday morning as the corporate lobby delivered its annual ‘State of American Business’ address.
Margaret Spellings, the former Bush Cabinet officer who cashed out and joined the business group, made the introductions, telling members that despite ‘the worst economic climate since the Great Depression,’ the chamber had scored a ‘number of legislative victories, tremendous success in the elections and another strong year of fundraising.’
Fifteen million Americans are out of work, thanks in part to reckless Wall Street activities. Yet corporate profits are at record highs, companies are sitting on vast amounts of cash, and, after a tough two years, business interests are again atop the Washington power structure.
This return of corporate power comes in part because the revolving door between government influence and corporate paydays has begun to turn anew. Even President Obama has submitted to its centrifugal force. His new White House chief of staff, William Daley, comes directly from J.P. Morgan Chase. Daley scored that lucrative gig after serving as commerce secretary during Bill Clinton’s second term…
At the other end of Pennsylvania Avenue, corporate interests are becoming increasingly brazen. Lobbyists have snagged key staff jobs in the new GOP House leadership and chief-of-staff positions in many new lawmakers’ offices. On the day John Boehner was elected Speaker last week, lobbyists were literally strutting their stuff on the House floor…
Bob Livingston, the former Republican congressman, was buttonholing members; he’s the head of a lobbying firm that advertises Livingston as “the only practicing former chairman of the House Appropriations Committee.” Also on the floor, Marty Russo, the longtime Democratic congressman who had just stepped down as head of the lobbying giant Cassidy and Associates, shook Boehner’s hand…
The Center for Responsive Politics has identified more than 340 former members of Congress, and 3,665 former staffers, in lobbying or related fields.
All of this gave the business lobby much to celebrate as chamber members discussed the State of American Business… Tom Donohue, the [US Chamber of Commerce’s] white-maned CEO, hailed the “new tone coming from the White House” since the elections – which the chamber influenced by spending tens of millions of dollars from donors kept anonymous, Donohue explained, so opponents couldn’t ‘demagogue them.’
A reporter asked Donohue for a suggestion of what corporate America, with its record profits, should do to put people back to work. “I got to think about this for a minute,” Donohue said, then added: “I think the most important thing to tell a company is to return a reasonable return to their investors.”
A picture of burgeoning prosperity. But as for investing in those desperately sought American jobs? Nada. Considering that these copporate leaders feel it’s a fantastic year for the chamber anyway, we might ask: isn’t there something very wrong with this picture?
You may find the full story at http://www.washingtonpost.com/wp-dyn/content/article/2011/01/11/AR2011011105637.html