On the Economy
Why U.S. jobs machine is on the blink
As economists debate whether the longest recession since the 1930s is coming to an end, the Great American Jobs Machine remains broken. Here are five big reasons.
Special to The Seattle Times
As economists debate whether the longest recession since the 1930s is coming to an end, the Great American Jobs Machine remains broken.
Here are five big reasons:
1. Underemployment and long-term unemployment.
Want a job? Get in line because six workers are vying for every opening, according to the Economic Policy Institute.
The real unemployment rate nationally is nearly 17 percent, instead of the official 9.4 percent, when discouraged workers and part-timers who want full-time employment are factored in. Other workers have seen their hours cut or been forced to take furloughs.
Meanwhile, the number of Americans out of a job for six months or more is at a 70-year high.
The result is a huge labor glut at a time when net job gains are scarce or nonexistent. Observers celebrated when the national economy lost only 247,000 jobs in July. (Washington state even added 4,000 new jobs in July.) The U.S. number would be a catastrophe in most circumstances, but was better than the more than 700,000 lost in January. Yet the American economy must add 127,000 jobs a month just to keep up with natural population growth.
2. Structural changes
in the economy.
Unlike previous recessions, layoffs are a small sliver of unemployment compared with permanent job eliminations. This points to deep changes going on in the U.S. economy.
Manufacturing, a victim of low-cost competition particularly from China, presents the starkest example. It has shed 2 million jobs, more than 14 percent of the sector's employment, since the start of the recession. Most of those jobs aren't coming back.
But neither are the high-paid headquarters jobs at Washington Mutual, a victim of its own incompetence and a consolidating financial-services industry.
Similarly, Boeing is looking for lower-cost ways to build commercial airplanes in a global labor market, which raises the potential for cutbacks in the Puget Sound region's key employment clusters.
Jacob Kirkegaard, of the Peterson Institute for International Economics, analyzed 10 business cycles going back to 1949 and found that an increasing number of sectors are experiencing structural not cyclical employment declines. In addition to manufacturing are some service sectors. Job gains are increasingly concentrated in health care, food, education and professional and technical services.
Ominously, he found that "the improved operation of the U.S. labor market during the 1990s has reversed itself in the 2000s, with negative long-term economic consequences for the United States." In other words, new sectors aren't picking up the slack as older ones whither and stagnating wages indicate that the new jobs that come along tend to pay less.
With this comes what economists call structural unemployment, where large numbers of unemployed or underemployed people are in occupations with too many workers already. Many lack the education or skills to find other work. The track record of job-retraining programs is mixed at best, especially in helping displaced workers replace their old income.
3. Younger workers are struggling.
According to research by Andrew Sum at Northeastern University's Center for Labor Market Studies, we're seeing unprecedented declines in the employment rates for teenagers and young adults. The phenomenon has been happening since 2000 and has gathered force in the current recession. Among 20- to 24-year-olds, employment rates have fallen 5 percentage points since 2000.
Hardest hit are people without college degrees, men, and blacks and Hispanics. But even college graduates are struggling: In the first quarter of the year, only 50 percent of bachelor's-degree holders under 25 were working in jobs that required college-level skills. Of course, that would tend to mean the others are also taking home lower paychecks.
4. Government job losses.
Many citizens applaud when politicians say government must tighten its belt, but those cutbacks are adding to unemployment, especially in a downturn that has seen some of the most draconian cuts in decades.
Washington expects to lay off 8,000 state workers. Oregon has an additional 1,700 state jobs in jeopardy. An estimated 64,000 jobs are expected to be lost in California. Jobs lost at the county and local level are even higher.
In the Great Depression, government became the employer of last resort, providing jobs for millions. So far, the Obama stimulus package has helped slow the rate of job losses. But the stimulus was too small to make up for the lost output and jobs of a recession this size (yet big enough to worry our international creditors).
5. No bubbles.
Many of the troubles in the American labor market have been festering for years, with roots in educational attainment, industry consolidation and an increasing number of net losers from international trade.
For example, the pace of job growth was so tepid during the past nine years that all those gains have now been wiped out even as the country has added population.
Those troubles were cloaked by bubbles, engineered by the Federal Reserve and funded by debt, most recently being the real-estate mania.
That's done, if for no other reason than consumers, companies and the government are too far in the hock.
So there's no quick fix. Indeed, many economists expect slow growth, at best, in all the advanced economies for several years.
The stimulus will help, although it remains to be seen how committed the nation will be to gaining leadership in sustainable energy and green technology.
Most taxpayer money has gone to saving the big banks and Detroit, hardly a forward-leaning strategy.
But until job creation resumes, especially positions paying good wages, any talk of recovery will be premature.
You may reach Jon Talton at email@example.com
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About On the Economy
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
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