U.S. No Longer the Great Job Creation Machine
Mortimer B. Zuckerman
There's a little candle in the dark in the trend of unemployment just reported. But to give it perspective,
The volume of eager workers is a tsunami. Employers have shed 8.2 million jobs since December of 2007; 5.9 million Americans have been out of work for more than half a year. On top of that, the unemployment rate has risen by 5.1 percent of the workforce in the past 18 months, the largest increase since the Great Depression. The proportion of the workforce out of work for more than 15 weeks is the highest in 60 years. We have lost 6.6 million manufacturing jobs since 2000. We can take a little consolation, but not much, in the fact that the average workweek has increased from 33 to 33.2 hours.
Today, 21 percent of all families have an immediate family member who is unemployed, and 33 percent have an immediate family member or close friend who has lost a job. This affects not only the unemployed but also the family members who depend on them.
Naturally, millions of people fear they are next. Families are already living with a decline in their net worth because home values have dropped by an average of 30 percent and financial assets are worth nothing near what they were.
The nervousness of millions of Americans is entirely justifiable. They see economic head winds all about them. The biggest economy in the world is held hostage by shoppers and consumers who are scared and pessimistic.
What are our job prospects? The problem in the job market going forward is not so much layoffs in the private sector, which are abating, but a lack of hiring. The federal stimulus program is offset by the estimate that there will be a 2010 budget shortfall for states, cities, counties, and school districts in the range of an astonishing
Medium-size businesses are constrained by the risk-analysis lending of the financial world, which prefers to lend to large businesses that are deemed more creditworthy. But while these big businesses have access to financing, they are holding back in hiring because of anxiety over the Obama administration's policies on such matters as increased healthcare costs, higher taxes, more corporate regulations, and disaffecting labor policies.
The result is a new business attitude and a business model that focus less on revenue growth and more on that part of the businesses that executives know they can control: their costs. This means cutting personnel (and also advertising) to improve operating margins and reflects their lack of confidence in the growth of the economy.
The consequence is that the U.S. economy, which was for decades the greatest job creation machine in the world, is taking longer and longer to replace the jobs lost in the recession.
In the 1970s and 1980s, it took as little as one year from the end of a recession to add back the lost jobs. After an eight-month downturn that ended in March of 1991, jobs came back in 23 months. After the downturn from the dot-com bust in 2001, it took 38 months. This time, it could take five years or more to recover all of the 8 million-plus jobs lost since the "Great Recession" began.
Employment will continue to fall into 2010, and perhaps through it. If the jobless rate peaks at around 11 percent, we will be lucky to begin a proper jobs recovery before the end of 2010.
What accounts for the growing lag times?
Fundamentally, it is that households and businesses are stepping back from spending levels that were artificially pumped up by debt. American consumers realize they had been on a binge. The ratio of consumer debt to the nation's GDP rose to 97 percent in the first quarter of this year, up from 45 percent in 1975. Every dollar that scared consumers save is one less for consumption and output.
Then there are all those young people just entering the labor market. To keep the jobless rate from rising,
Furthermore, in the past decade, globalization and deregulation have forced companies to focus far more on productivity and on controlling costs. This means they seek to produce far more with the workers they have. Simultaneously, factory automation is wiping out assembly-line work, and information technology is making many white- and pink-collar jobs extraneous. Finally, companies are moving operations abroad to take advantage of cheaper labor in places like
We must face the hard fact that many of the lost jobs are gone forever. In this cycle, 56 percent of the currently unemployed have permanently lost their jobs, according to
As Fed Chairman
Why is the long-term outlook for umemployment so dismal? One critical reason is the U.S. housing shock. The 30 percent average decline in home prices is far greater than the normal threshold of a 15 percent or greater fall in past sluggish recoveries. Add to this the drop in value of financial assets, and you have a colossal shock to household balance sheets, much greater than in previous recessions, adding up to
The U.S. economy is facing a sustained adjustment process that will deepen this recession. It is not simply a shortfall in demand but reflects deeper shifts relating to the unraveling of financial imbalances.
The result is an economic framework in which labor markets are still deteriorating; pay rate deflation is increasingly common; small businesses remain under stress without precedent in more than 60 years; business bankruptcies have been rising exponentially; and credit remains extraordinarily tight for most households and moderate-size businesses and is continuing to worsen. Large corporations are downsizing, but the worst job losses are in the small-business sector. Small- and medium-size enterprises -- and especially start-ups -- have been engines of job growth. Firms with fewer than 20 workers employ a quarter of the workforce. But in the last economic expansion, they accounted for 4 out of 10 new jobs. These are the businesses that are getting crushed.
Some estimates predict the unemployment rate will be as high as 8 percent for as long as five to 10 years, worse than in any previous 10-year period since the 1930s. Such high unemployment will shrink the number of households, undermine housing demand, devastate discretionary spending, intensify defaults on debt, reduce export growth and hence capacity needs, strengthen forces for protectionism, and demoralize millions of people.
Under these conditions, only the government has the capacity to launch the necessary compensatory programs to increase job creation.
One suggestion is to undertake an all-out infrastructure program reminiscent of President
Another critical measure must be to help out fiscally strapped state and local governments that have seen their tax receipts plunge and face huge layoffs. A third step would be to dramatically expand
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U.S. No Longer the Great Job Creation Machine | Mortimer B. Zuckerman
(c) 2009 U.S. News & World Report