by Mortimer B. Zuckerman

May 23, 2011

Dismal jobs numbers continue to threaten the economy

It's jobs, stupid. As we celebrate the execution of America's No. 1 enemy, we are jerked back to the horrible reality of America's greatest domestic challenge. Unemployment claims in the last week of April surged to their highest level since last summer. The recovery is in peril -- and so is the fabric of American society.

The best social program, the best economic program, and the best family program in America has long been a job. Not anymore. The jobs are not there.

Even before the 2008 financial collapse, job creation was waning. From the brief 2001 recession it lagged more than in any expansion since World War II. When the Great Recession came along, it wiped out the equivalent of every job created in the whole previous decade. For the 80 percent of Americans born after World War II, this is their Depression, and it began long before the housing bubble burst and Wall Street melted down.

Forecasters had predicted the economy would create 22 million jobs in the first decade of the 21st century. Some hope. Even at the decade's economic peak, only 7 million jobs were created, the lowest of any decade recorded by the federal government stretching back to the 1940s.

The decades tell a story that begins with a bang and ends with a whimper:

-- The Forties: Jobs up 11.9 million for a 38 percent gain. OK, that was mainly the effect of World War II.

-- The Fifties: 10.6 million more jobs, a 24 percent gain.

-- The Sixties: 17 million more, a gain of 31 percent.

-- The Seventies: 19.5 million more, a gain of 27 percent.

-- The Eighties: 18 million more, a 20 percent gain.

-- The Nineties: 21.4 million, a 20 percent gain.

Our total payrolls today of 131 million are lower than they were in March 2000. Yet, over this 11-year period of flat employment, the population has risen by nearly 30 million. Twenty-two months after most recessions, the average recovery of nonfarm payrolls is 200 percent of jobs lost from the recession, compared to only 20 percent of jobs losses recouped this time. Payrolls remain 7 million shy today of where they were when the recession began, despite the most stimulative fiscal and monetary policy in our history.

Accompanying the lack of job growth in the past decade, middle-class incomes adjusted for inflation fell from a median of $58,500 in 2000 to $56,500 in 2007 -- another first. As chief economist David Rosenberg of investment firm Gluskin Sheff notes, with more than six people in the aggregate labor pool vying for every job opening, wage growth is decelerating. Labor costs have declined on a four-quarter trailing basis each and every quarter since the beginning of 2009.

The greatest impact has been on manufacturing, where over 5 million jobs vanished in the first decade. Goods-producing employment, which peaked at 24.6 million in the year 2000, dropped by one fourth to around 18.5 million. On top of that, of the 7.5 million-plus jobs lost during the Great Recession, almost half came from the goods-producing industries. It is referred to as a man-cession because men lost many more jobs than women, who benefited from job growth in healthcare and government rather than the private sector.

Another factor is the slow pace of lost job recovery. The 2001 recession wiped out 2.7 million payroll jobs and it took four years for us to recover the lost jobs. We lost 8.4 million jobs in the Great Recession and only a million and a half have returned, and half the new jobs are in temporary help agencies as firms resist hiring full-time workers. Quite simply, America's great job-creation machine is sputtering badly. Who knows when all the jobs lost will return. The most recent monthly unemployment claims of 474,000 shocked the financial markets and underline the recovery's fragility.

Why is this recovery so different? In past recessions, when growth picked up, many employers recalled the workers they had laid off. Not this time. Companies facing less than stellar revenue growth have focused on cost-cutting, so rehiring hasn't happened much. A key to job growth is new business formation, but start-ups are highly dependent on credit card borrowing, home equity, and local bank loans, and these sources have virtually evaporated.

The net result over the last two years has been a mass exodus of workers from the labor force. It's reflected in the so-called labor force participation rate, which refers to the percentage of the civilian, noninstitutional population, age 16 or older, that is either actively employed or actively seeking work. The rate for men ages 25 to 54 is now only about 89 percent, almost 9 percentage points below its peak in the mid-1950s, according to experts at the Federal Reserve Bank of San Francisco, and the overall rate is a meager 64.2 percent. Some 700,000 people have dropped out of the labor force over the past six months alone, and more than a million teenagers have withdrawn since December 2007. On top of that, there are two and a half million workers who want a job but are so discouraged they have stopped looking. Increased recourse to Social Security disability benefits has made that more feasible. Once they qualify for benefits, workers generally don't return even when the economy improves.

The labor force participation rate may seem arcane but changes in it can make a huge difference in our perception. The higher the participation rate, the greater the number of jobs needed to keep the headline unemployment rate down. If the labor force participation rate were to stay around 64.5 percent in 2012, U.S. employers would need to create 208,000 jobs per month, on average, to reduce the headline unemployment rate to 8 percent. But if it goes to 65.5 percent, as the Bureau of Labor Statistics has predicted, an 8 percent unemployment rate would require the addition of 294,000 jobs per month.

As it is, unemployment statistics are chilling. Some 14 million people are unemployed; 27 million have part-time jobs, 8 million of whom would prefer full-time jobs. Two and a half million people, described as marginally attached to the labor force, have stopped looking. The mean duration of unemployment continues to rise and now approximates 39 weeks, up dramatically from 29.8 weeks in February 2010. Over 5.8 million workers have been unemployed for 27 weeks or longer. If you include as unemployed those people who applied for a job in the last six months rather than just the past four weeks, discouraged workers, and people working part time who wish to work full time, the real unemployment rate is not the headline rate of 9 percent, but almost double that: It approximates 18 percent.

The depressing numbers regarding job creation went undetected for much of the last decade, as the National Journalnoted earlier this year, because the national unemployment rate had stayed persistently low, ranging between 4 and 6 percent. Alas, the rate was low not because the economy was adding jobs, but because fewer people were joining the workforce and many had left.

Two other job-eroding factors have emerged. One is globalization interacting with technology, which has effectively hollowed out many of the country's middle-skilled jobs, such as assembly line workers and call centers, and replaced them with lower-paid foreign workers and software. Then we have the invasion of the smart robots, semi-intelligent machines that have produced a wave of mechanization. They can do a substantial number of routine, specialized jobs that do not require the full intellectual breadth of a human brain, thereby bequeathing us structural unemployment, more worrying than cyclical. Ultimately, automation will consume the jobs that are fundamentally routine and repetitive, eliminating many of those at the base of the job-skills pyramid.

A serious fraction of service workers, technicians, healthcare employees, and even management will be at risk as we develop more dexterous robots with an IQ equivalent of 60, able to understand and speak using simple grammar. Cheap robots may push expensive humans out of vast numbers of jobs; estimates are that as many as 50 million jobs will be in jeopardy within the next several decades. The first messengers of the robotic takeover can be found in the automatic checkout lines and kiosks in places like Home Depot and McDonald's. Even teachers may be vulnerable to online learning systems extending the reach of good teachers.

What can we do?

-- Train people for jobs that depend on uniquely human traits or talents and require greater creativity or innovation.

-- Focus on policies to push more students to a higher level of education. We could mandate that students complete at least a year of higher education or vocational training at the public's expense.

-- Reform America's corporate tax code to reduce the rates but pay for it by eliminating many deductions, especially provisions that give companies incentives to keep and spend their global profits outside the United States.

And start acting now. People will resist the elimination of their capacity to earn a living. Remember the Luddites, the 19th-century English craftsmen who rioted and destroyed the textile machinery that was displacing them. Remember the term sabotage, which can be traced to the Dutch workers who threw their wooden shoes, or sabots, into textile looms to break the gears. Remember the labor violence that Americans experienced with the 1892 Homestead strike, the 1894 Pullman strike, the Colorado labor wars of 1903-04, and many others. We will not be immune to social turmoil if we bequeath our children and grandchildren a jobless future.

 

Unemployment Jeopardizing U.S. Economic Recovery