January 12, 2004

Employment Declines of a Magnitude Not Seen Since 1944-45

Louis Uchitelle writes about the employment sitch:

Growth in Jobs Came to a Halt During December: Dropping out has been a characteristic of the recovery since June, reflecting the struggles of the unemployed amid companies' reluctance to add workers. As a result, the percentage of the working-age population participating in the labor force -- that is, employed or seeking employment -- fell to 66 percent in December from 66.5 percent in June, a withdrawal of roughly 1.1 million people. Reflecting this exodus, the employment-to-population ratio -- a measure of the percentage of the working-age population actually holding jobs -- has been dropping, as well. It has fallen nearly eight-tenths of a percentage point, to 62.2 percent, since the recession ended in November 2001, and 2.1 percentage points since the start of the recession in March of that year.

Federal Reserve policy makers consider this ratio an important indicator of how many jobs can be added without upward pressure on wages or inflation. Mr. Bernanke has cited the weakness in the ratio as an important reason for keeping interest rates low. The decline in the ratio has been particular sharp among young people, African-Americans and Hispanics, and economists say it may help to explain a deterioration in wages among workers in jobs below the level of manager or supervisor. These workers account for 80 percent of the 130.1 million people in the work force. Their average hourly earnings, which rose 3 cents, to $15.50, in December, are growing at an ever slower annual rate: 2 percent in December, down from 3.2 percent a year earlier.

"What we worry about is consumer spending in 2004," said Mr. Gault, the Global Insight economist. "We got a lot of help in 2003 from tax cuts and from mortgage refinancings. This year, however, we are counting on better employment gains to support consumer income growth and, in turn, consumer spending. If we don't get the jobs, we will have to worry about the consumer."...

Despite the mild job growth since August, total employment fell last year by 331,000 on top of a 1.5 million drop in 2002. The last time employment, as measured by the survey of 400,000 establishments, declined for two consecutive years was in 1944 and 1945 as war production wound down...

Posted by DeLong at January 12, 2004 12:03 PM | TrackBack

Comments

http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor0

Global: False Recovery
Stephen Roach

The Great American Job Machine has long powered the US business cycle. It drives the income growth that fuels personal consumption. That internally generated fuel is all but absent in the current upturn. The US economy is mired in a jobless recovery the likes of which it has never seen. This has profound implications for the economic outlook, the political climate, trade policies, and the global business cycle.

Contrary to popular spin, the US labor market is not on the mend....

Posted by: anne on January 12, 2004 12:15 PM

____

I have noted this in the "O'Neill" comment que, but didn't want anybody to miss it. Treasury has asked for an inspector general to "look into" the documents used by Secretary O'Neill in his TV interview and (apparently) all 19,000 documents he took with him when he left. I cannot but think there is some process for checking out of cabinet offices (there certainly is at lower levels) to avoid gaps in records or security problems. This looks a bit like a "Plame event" in the making.

Posted by: K Harris on January 12, 2004 12:33 PM

____

US economy is moving towards super duper productivity with a few percentage points of the population producing all the food, shelter, manuf goods and infra services for the entire nation. The labor market is shrinking because the economic policies are not being revised to respond to these developments. What is every body is going to be doing with all them machines and robots doing the basic material production? Isn't about time a few young hands looked at the data, developed a few scenarios and ran simulations?

I mean it is easy to cheer cm and whathisname the outher feller, and I do, but I would also really like to see them and other research oriented souls to start thinking outside the box a little.

Come on!

Study the 16 year mandatory education alternative!

Posted by: bulent on January 12, 2004 12:47 PM

____

>> Employment Declines of a Magnitude Not Seen
>> Since 1944-45


I think that surely qualifies as an "unusual" labor market. Someone tell a certain fangs-bared loony hack who featured here last week.

Posted by: P O'Neill on January 12, 2004 01:51 PM

____

http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict

The labor force exodus has been particularly sharp for minorities, especially since the recovery began in November 2001. Since then, the overall drop in labor force participation has been 0.7 percentage points overall, and the same number for whites. But for African-Americans and Hispanics, the drop has been 1.4 and 1.6 percentage points, respectively. The employment rate for adult black woman dropped to 56.9%, the lowest rate since April 1996, and 2.1 percentage points below the rate when the recovery began. While the recession was fairly broad-based in terms of which groups were affected, the recovery has been demonstrably harder on minorities....

Posted by: anne on January 12, 2004 01:59 PM

____

I think an "unusual" labor market calls for looking at absolute numbers -- percentages are meaningful rather in equilibrium state, where absolute numbers stay within ranges. Here, I am suspecting that the current changes in the labor market are signaling structural changes and those changes can be more easily observed looking at absolute numbers.

And sectors are important too, when looking at structure, as much as demographics of labor supply.

Posted by: bulent on January 12, 2004 02:26 PM

____

There is not a lot of security checking out of lower-level offices I know. I took a whole bunch of memos etc just in case I might need them later, nobody asked at all. I didn't have anything classified, but I could have.

Posted by: CalDem on January 12, 2004 02:47 PM

____

And did I mention job transfer to Asia got to stop?

Posted by: Leopold on January 12, 2004 04:05 PM

____

I don't see why the Federal government doesn't reinstate "revenue sharing", or some similar policy approach. Maybe even "Community Development Block Grants."

Here's why: The states and the cities are crying for revenue, but only the Federal government can create money. It seems to me that it would be much better, both from a political and a long-term economic perspective, to simply give the cities and states the money (to the extent possible) to pay for needed infrastructure improvements.

Now that surely isn't as glamorous as sending a man to Mars, but it would surely alleviate two problems at once: the lagging employment picture, and the state's budgetary problems.

Insofar as I can tell, almost every state is running a shortfall. There are cities which have a crying need for infrastructure improvements. The cities that are being forced to raise taxes to pay for them (Atlanta, GA, for instance) will still have the basically the same amount of money circulating as before, but the citizens will have less to spend on their own. Not good for a consumer-based economy, or so I think.

Atlanta needs $3 billion to upgrade it sewer system to meet standards. Wouldn't it be better to help the cities than send the money abroad? That way the money turns over here, and the secondary effect would ripple through the economies of those cities.

Infrastructure improvements add to the gross wealth of the cities, states and the United States as a whole. It would be money well spent, IMHO.

Posted by: James Hogan on January 12, 2004 08:22 PM

____

K Harris:

"This looks a bit like a "Plame event" in the making."

Gee - 24 hours to an investigation, as opposed to how many months?

Posted by: Barry on January 12, 2004 08:22 PM

____

Brad flogged this approach to the numbers until the press finally sat up and took notice: NYT. WSJ ran something along these lines today, too. Many kudos for getting people who reach a broad audience to notice.

One note on the numbers quandary. One thing that strikes me in your comparisons: why is labor participation so much higher now than 10-20 years ago? This must be a common issue among labor economists. Can it all be welfare reform? 5% seems like a lot to me.

It would be interesting to see the participation change broken down by age group. I wonder if people close to retirement are choosing to settle or rely on a working spouse once they get discouraged. I know a few people in this situation.

Posted by: Seedub on January 12, 2004 08:29 PM

____

Re: State and local government.
I seem to recall reading something about most states coming out of the fiscal crisis.

Re: Federal infrastructure spending
It looks like they are getting ready to pass another blockbuster highway bill.

Re: Block grants for infrastructure.
I'm more in favor of this than pouring more money into manned spaceflight boondoggles. If the government is going to print money, and if we really do have a jobs problem, then spending the money on domestic construction makes sense. These jobs cannot be outsourced and we are improving the capital infrastructure, thereby making it more valuable for the Asians when they have to come back and buy something with all of those dollars they have been accumulating.

Has anyone seen anything about the impact of the guest worker proposal on the jobs outlook? Driving those jobs into the aboveground economy changes the economics and may make it more cost effective to pay Americans a better wage to do the work.

Posted by: Robert on January 12, 2004 08:43 PM

____

So, the big perlexity here seems to be why the economic recovery in
America isn't leading to job creation. And some economists, including
Prof. DeLong, seem reluctant to confront one answer that looks at
least superficially plausible, given all the headlines: the recovery
is leading to job creation -- just not in America.

Which brings us to outsourcing. And the conventional argument, as
articulated by Prof. DeLong himself here:


http://www.j-bradford-delong.net/movable_type/2003_archives/002953.html


is

   ...it's job shift--not job loss. "[S]ome Americans who
  otherwise would have had high paying jobs either have no jobs, or else
  lower paying jobs," but other Americans who would have had no jobs or
  else lower paying jobs have higher paying jobs, and Americans who buy
  what they make pay less and so have higher real incomes. We pay for
  the stuff that Indians sell us by giving them dollars, and those
  dollars are useless to them unless they use them to buy U.S. exports
  (or trade them to people who will use them to buy U.S. exports) or
  invest them in America--thus providing financing for American
  businesses to expand their productive capacity.


And that's the end of the argument, at least in that post --
apparently, we just need no argument that "for American businesses
to expand their productive capacity", they must employ Americans,
hence the job shift.

But as I write, American businesses have been expanding their
productive capacity for a couple of years now, while the job
market hasn't improved much at all. And this is happening at least in
part because, when starting a new facility to do just about anything
-- from manufacturing to radiological diagnosis -- you can find folks
who will do nearly as well, a lot more cheaply, in India.

None of which, as I noted on my blog a few days ago:


http://thelookingglass.blogspot.com/2004_01_04_thelookingglass_archive.html#107365726917832112


is to argue that trade per se is a bad thing. But while trade per
se is not a bad thing, and economic dislocation in individual sectors
brought on by trade may not be a bad thing on balance, an unrestricted
race to the bottom, pushing wages in all sectors toward third world
levels, is a bad thing.

Unfortunately, I haven't seen advocates of trade liberalization in
the current style propose a really good way of dealing with this sort
of situation. Robert Rubin's answer, as proposed in a talk I saw him
at this evening, is improved education and health care, and targeted
assistance to dislocated workers. But that still presumes that new
jobs will be created in America someplace, and the workers just need
to be prepared for them -- and the economic fact over the past few
years is that job creation itself just does not seem to be happening.
However, Rubin didn't have terribly many kind things to say about more
aggressive proposals, like the ones he says Howard Dean is floating,
to, for instance, make trade liberalization contingent on movement of
labor standards towards first world levels. In fact, he had nothing
much to say at all about them, other than some unfortunate remarks
about how he thought that unspecified advocates of similar proposals
at some unknown time in the past had been insincere.

On the flip side, opponents of the WTO and NAFTA-style trade areas
sometimes accuse their proponents of being not so much interested in
trade, per se, as in pursuing the interests of large corporations.
(Which is certainly one way to explain the policies of the Bush
administration, which is an avid participant in trade area
negotiations despite its stout maintenance and creation of trade
barriers in steel, textiles, and agriculture, among other things).
And all that quickly leads to a conversation that goes absolutely
noplace, so long as each side hews to its own caricature of the other
side's arguments, and won't concede that the other guy might just have
half a point...

Posted by: Charles Dodgson on January 12, 2004 09:02 PM

____

Says what I've been saying, must be brilliant: http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=124402

Posted by: Dave Johnson on January 12, 2004 09:09 PM

____

So, the big perlexity here seems to be why the economic recovery in
America isn't leading to job creation. And some economists, including
Prof. DeLong, seem reluctant to confront one answer that looks at
least superficially plausible, given all the headlines: the recovery
is leading to job creation -- just not in America.

Which brings us to outsourcing. And the conventional argument, as
articulated by Prof. DeLong himself here:


http://www.j-bradford-delong.net/movable_type/2003_archives/002953.html


is

   ...it's job shift--not job loss. "[S]ome Americans who
  otherwise would have had high paying jobs either have no jobs, or else
  lower paying jobs," but other Americans who would have had no jobs or
  else lower paying jobs have higher paying jobs, and Americans who buy
  what they make pay less and so have higher real incomes. We pay for
  the stuff that Indians sell us by giving them dollars, and those
  dollars are useless to them unless they use them to buy U.S. exports
  (or trade them to people who will use them to buy U.S. exports) or
  invest them in America--thus providing financing for American
  businesses to expand their productive capacity.


And that's the end of the argument, at least in that post --
apparently, we just need no argument that "for American businesses
to expand their productive capacity", they must employ Americans,
hence the job shift.

But as I write, American businesses have been expanding their
productive capacity for a couple of years now, while the job
market hasn't improved much at all. And this is happening at least in
part because, when starting a new facility to do just about anything
-- from manufacturing to radiological diagnosis -- you can find folks
who will do nearly as well, a lot more cheaply, in India.

None of which, as I noted on my blog a few days ago:


http://thelookingglass.blogspot.com/2004_01_04_thelookingglass_archive.html#107365726917832112


is to argue that trade per se is a bad thing. But while trade per
se is not a bad thing, and economic dislocation in individual sectors
brought on by trade may not be a bad thing on balance, an unrestricted
race to the bottom, pushing wages in all sectors toward third world
levels, is a bad thing.

Unfortunately, I haven't seen advocates of trade liberalization in
the current style propose a really good way of dealing with this sort
of situation. Robert Rubin's answer, as proposed in a talk I saw him
at this evening, is improved education and health care, and targeted
assistance to dislocated workers. But that still presumes that new
jobs will be created in America someplace, and the workers just need
to be prepared for them -- and the economic fact over the past few
years is that job creation itself just does not seem to be happening.
However, Rubin didn't have terribly many kind things to say about more
aggressive proposals, like the ones he says Howard Dean is floating,
to, for instance, make trade liberalization contingent on movement of
labor standards towards first world levels. In fact, he had nothing
much to say at all about them, other than some unfortunate remarks
about how he thought that unspecified advocates of similar proposals
at some unknown time in the past had been insincere.

On the flip side, opponents of the WTO and NAFTA-style trade areas
sometimes accuse their proponents of being not so much interested in
trade, per se, as in pursuing the interests of large corporations.
(Which is certainly one way to explain the policies of the Bush
administration, which is an avid participant in trade area
negotiations despite its stout maintenance and creation of trade
barriers in steel, textiles, and agriculture, among other things).
And all that quickly leads to a conversation that goes absolutely
noplace, so long as each side hews to its own caricature of the other
side's arguments, and won't concede that the other guy might just have
half a point...

Posted by: Charles Dodgson on January 12, 2004 09:12 PM

____

Free trade, as advocated and practiced to date, has always held the promise of job flight as companies race to the wage bottom. Robert Reich promised that we wouldn't miss those nasty, dangerous blue-collar jobs as we all retrained to be manipulators of symbols and ideas. Then it turned out that Indian and Chinese programmers could manipulate symbols and ideas just as well, and for a tenth the price!

Now economists will have us retraining endlessly, hoping to hold our lives together until all those new job categories (bed-pan attendant, burger-flipper) bubble up from our new economy. Don't worry, it will all sort out somewhere down the line, and your great-grandchildren will enjoy wage parity with Chinese workers. In the meantime, we can get cheap sweaters, electronics and MRI readings! And isn't it swell that the entrepreneurs that are organizing all that offshoring are getting rich!

I propose the dissolution of the traditional college campus. Why pay tens of thousands annually to send your children for overpriced instruction from tenured economics professors when they can learn the same nonsense at a tenth the price from Indian economists over the internet?

It is past time to re-examine the assumptions that are the foundation of the free-trade religion that passes for science in the academic community.

Posted by: SG on January 12, 2004 09:41 PM

____

I checked out the stephen roach link above & it was cogent & chilling...

"There can be no mistaking the important implications of this jobless recovery. Lacking in job creation as never before, it follows that there is equally profound shortfall of wage income generation. Normally, at this juncture in a US business cycle expansion, private wage and salary disbursements fully 45% of total personal income and easily the largest component of household purchasing power are up by 8% (in real terms). Yet 24 months into the current expansion, this key slice of income is actually down nearly 1% the functional equivalent of about a $350 billion shortfall in real consumer purchasing power.

Lacking in such internally generated income, saving-short American consumers have had to draw support from secondary sources of purchasing power namely massive tax cuts, an outsized build-up of debt, and the extraction of cash from over-valued assets such as homes. This is a tenuous foundation of support for any economy. It has led to subpar national saving, a record current-account gap, and sharply elevated household debt service burdens a steep price to pay in order to fund the insatiable appetite of the American consumer. A persistence of this jobless recovery will only up the ante on these imbalances raising serious questions about the ultimate sustainability of the current upturn, in my view."

Now all you free-traders out there, WHAT DO WE DO ABOUT THIS?? If you could implement any policy, what would you do? Roach links this sub-par recovery to the global labor arbitrage. His case tallies with my experience of the Bay Area technology job market. Are we supposed to wait until we lose these industries? Could protectionism possibly be worse?

Posted by: Camille Roy on January 12, 2004 10:00 PM

____

Camille - What do we do about this?
Well look forward to:
1. an extension in the tax cuts to prop up the spent consumer.
2. more fed gov spending esp Military
3. larger auto incentives
4. longer periods for your home mortgages
5. using the Strategic Oil Reserves in response to rising crude prices.
6. even higher compensation levels to the CEOs as they head for the exit.

Ah... there it is: What to do? Become a CEO and deal yourself the solution you want. And deserve.

Posted by: calmo on January 12, 2004 10:51 PM

____

Post a comment
















__