I ran into a couple of articles Thursday that got me thinking about a big, important topic: the mismatch between supply and demand in the labor market. And not just the cyclical part since the Great Recession took hold, but the structural part the pre-dated it.
The first piece, by Bloomberg's Mike Dorning, documents the long term decline in the employment rates (share of the population employed) of "prime-age" -- 25-54 -- men. The employment rate is the economist's first proxy for labor demand, and the long-term, structural decline for men suggests demand shifts against them, especially those without college degrees.
Economists tend to ascribe such trends to two factors: technology and trade. Globalization and the ability to shift production abroad have surely hurt non-college educated prime-age men, both through increased labor supply and decreased labor demand.
Technology is trickier to assess. There's lots of talk about "skill mismatch" -- employers' skill requirements leaving such workers in the lurch, and while there's something to that, the evidence is scarce. Dorning cites interesting work by labor economist Larry Katz on technology's impact as a "hollowing out" of the middle in terms of skill demands:
The impact has been greatest on moderately skilled men, especially those without a college education, though even men with bachelor's degrees from less selective schools are beginning to see their position erode. "There's really been this polarization in the middle," Katz says, as men at the top of the education and income scale see their earnings rise while those in the middle gravitate downward.
The idea is that repetitive, mechanized tasks not involving human contact can be replaced by computers. So at the low end of the pay scale, there is demand for child-care workers, home-health aids, and food prep workers; at the high end, for designers, systems analysts, physicians, lawyers, etc. But in the middle, if you did repetitive work in a factory, for example (and the factory was by some miracle still here in the U.S.), you could find yourself competing with a robot.
Here again, I'm sure there's something to this, but it's not obvious why growing fields like health care, office work, building (once we recover from the housing bubble), transportation, security, maintenance, can't generate considerable demand for middle-skilled men.
The second piece, by Catherine Rampell, featured the recent, sharp decline in youth employment (age 16-24) using the same metric. This looks somewhat more cyclical to me, though the decline predated the recession. That's a hint which I'll come back to in a minute.
Both of these articles led me to reflect on this next graph -- one I've posted before showing the growth in productivity -- output per hour of work -- and employment, with both series from the private sector. And I'm continuously and deeply troubled by the divergence between growing, even accelerating, productivity and stagnating job growth.
The basic reason why these lines grow together over the long haul and why I believe they diverge at the end is a common concept, a common word you hear all the time, but is poorly understood these days, even (especially) by many economists: DEMAND.
I think, perhaps even more so than globalization or technology (and they're all intertwined), this concept explains all three of the above figures.
Throughout our history, and that of other economies, while we were more productive, we also created more demand for goods, services, projects, trips, endeavors, energy, public infrastructure, moonshots, schools, music, knowledge... you name it. That was the intervening variable that soaked up, if you will, the faster productivity growth, and enabled us to keep adding jobs, even as we could produce more output per hour.
But since the 2000s, when the split in last graph begins, the U.S. economy simply hasn't been creating enough demand to absorb productivity's growth. That been particularly acute and evident in the recession, of course, but it predates the downturn, especially, though not exclusively, for prime-age men.
And here is the teaser. We can do something about this. We can surely do something in the short run, as I hope and believe we'll hear from President Obama in early September. But we can also do something about it in the longer term, if we have the will.
I'll elaborate soon, but for now, look at the end of that last figure and ask yourself the key, central, most critical question about the future of this country: are we capable of self-correction? Because a system that cannot self-correct is a system in decline.
This post originally appeared at Jared Bernstein's On The Economy blog.
Economic growth - Wikipedia, the free encyclopedia
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World prices for most products are set by Asia's low cost producers...the "sweat shops".
Americans decided in the 1980's that they would not pay a premium for "Made in USA", allowing Walmart to distribute Asian products here at a deep discount to US manufactured goods. That cost/price discount is now 40%.
Federal regulations impose a $2 Trillion cost burden on US made goods, about a 15% cost premium
US wages and benefits add another 25% cost premium, for a total US made cost penalty of about 40%. US corporations earn 5% on sales after tax, leaving them 35% in losses if they forgo their greedy profits entirely.
The US government provides many "free lunches", but it can't bridge the enormous cost gap between here and Asia.
There can't be US manufacturing job growth in the global economy for blue collar, middle class workers, until we align our costs with world prices.
Or we could blockade Asian production, establish tariffs, charge import duties, or start a trade war in some similar form. Of course, US consumers would pay the 40% premium to our government...unlikely to be a popular outcome with voters.
If and when the underlying factors are openly discussed in the future, we could save our middle class. For now, obfuscation, denial, and dissembling is the expected course.
1) 2000 is about the time that the Internet reached critical mass as far as business is concerned.
2) Off-shoring began to hit its stride in the early 2000s.
3) The upward redistribution of wealth really accelerated with Bush43.
4) While productivity has increased, the workers are not being compensated for that increased productivity.
5) Conservative ideology sank deep into the economy during Bush43.
These are all structural, not cyclical factors. They are not prone to self-correction, particularly because they were not random events.
http://www.zeitgeistmovie.com/
I was aware of some of the historical, cultural, and mythological facts presented, and am inclined to agree with the conclusions of the makers of "Zeitgeist." I am sure there are many who, even if the facts are indisputable, will not arrive at the same conclusions. I am also sure there are many who will not avail themselves of this information, some who will call it sedition and rally against it, and some who will find it so painful, they will reject it completely.
I have not seen anything that brings the elements of human experience together so well. Perhaps it is the dawning of the "Age Of Aquarius." However, the way things are looking, it doesn't promise to be an easy transition...but was it ever?
Mitakuye Oyasin (We Are All Related) . . . Welcome aboard the "Ark" of Creation!
http://www.youtube.com/watch?v=485zJYDOYJQ&feature=related
Namaste . . . Fanned back!
Since this appears to be happening at a rate of 1% per year there is every possibility we will have more than just a lost decade before demand picks up.
You cannot persuade someone who is having a hard time paying off their credit cards and keeping their mortgage current to go out and blow the budget on a new car--or even a new stove. Or, for many people, new clothes. It would also go a long way to explaining why banks are doing so well. They are about the only businesses the middle class is throwing money at right now.
When the vast middle class gets back to saving after they have retired their debts they may splurge occasionally, but they are not going to outrun their wallets again in the next generation. This makes the drop off in demand structural, not cyclical.
I believe you are going to see many more one earner families in the coming years.
Big company, multi-national company, and monster bank business leaders are personally profiting far too much for that to be allowed.
American politicians are being paid (through donations) to act on their behalf.
Washington is a fully corrupted corporatist kleptocracy for plutocrats.
Obama, Geithner and Holder are working to settle with the banks - against the interests of the mortgage holders.
Geithner, while working for NY Fed and with Paulson - worked to make the big banks even bigger.
Since the Bush administration, the level of effort on behalf of the plutocrats has increased by a factor of more than three - the top 1% went from taking 7% to more than 23%.
The 537 elected federal leaders have chosen to act ONLY on behalf of their donors / masters. They have abandoned the U.S. economy and 98% of the American people so that they can receive more payments from their corporate paymasters.
Kleptocracy is most common in third-world countries where the economy (often as a legacy of colonialism) is dominated by resource extraction. (as in moving our money and jobs offshore).
Such incomes constitute a form of economic rent and are therefore easier to siphon off without causing the income itself to decrease.
Yes. Kleptocracy.
There may also be a boomer effect. Boomers are looking for ways to maintain a "reasonable" lifestyle in retirement, and costs in the US are prohibitive, rising, and uncertain. This drives some level of frugality, but most boomers have done well and I'd expect that they'll be spending........the problem is that it may be for BMW's, Lexus's, high end golf clubs, high end retirement communities, international travel, and other activities that may not generate a lot of US jobs :-) How do we plan for medical costs that are likely to be more than all of the assets that we have accumulated over a lifetime?
I think that we need to look at both sides of the equation for supply and demand to determine what it is that we need to do to create sustainable demand going forward. Perhaps much of our recent demand was created out of marketing hype that was chasing loose dollars rather than sustainable customers :-)
Off shore production has kept consumer prices low and consumer value high in the US, so that, in itself, has not effected demand. What it has done is reduce the value of US labor, and therefore its long term ability to buy these products.
We can cry all we want, but capitalism will blindly seek the lowest costs and the highest profits. It is the job of Government to "encourage" capitalists to have some mercy on local workers. The question in a global economy is: how do we do that, and Washington is struggling with exactly that problem (whether they admit it or not). This is complicated by the fact that US multi-national corporations are doing just fine with this new status quot. So, some of the new questions become: how do multi-national corporations fit into our economy? How does the country as a whole benefit from the intellectual property of generations of workers that is encapsulated in multi-national corporate expertise? Who pays for the massive Defense expense that is required to keep markets open so that multi-national corporations can continue to penetrate markets and profit? Are multi-national corporations 'citizens' of any one country? Etc.
Many have recognized this as a problem but we have yet to have any serious high level discussion on realistic ways to correct it. "Doubling exports" will be an utter failure if the import side of the equation is ignored; no surplus country seems willing to step up and absorb global demand at the moment needed to bring the global economy into balance; multinationals could care less, they will do whatever they can to increase their profit margins within the regulatory environment setup by the countries they operate in. You've identified some very important questions; now is the majority of the population smart enough recognize it will take short term pain to achieve long term gain, and more importantly will they actually be given the choice to make or will we continue be stuck with two choices that both give big corporations the ability to buy favorable policy to the detriment of the American economy.
In other words, there is a problem, used to be called "technological unemployment", that more and more people are forced out of jobs due to developing technology. In the states the loss of jobs is amplified by depleting middle class level jobs market by outsourcing - for now. Some time down the road the countries now providing cheap workforce will have to raise the wages and face our problems.
In the long run we'll face having more and more people that can't get employed, period (the service industry can't possibly employ them all). So, we either have to provide them some level of living (yes, from tax money)- or let them starve and die (probably making Ayn Rand smile in the other world).
If there are other solutions, I'd like to know about them. When you consider the right opposing extending unemployment benefits and cutting "entitlements", it should be clear what is the solution they prefer - the second, sociopathic one.
FTAs, tax cuts and stimulus programs have all failed to produce jobs in the US. FTAs create offshore jobs, not domestic jobs, tax cuts give individuals more money to spend on offshore products as does stimulus programs. The reason is that there are no US produced products for sale in retail stores in the US. No Multinational will invest in the US when any product contemplated can be made for $14.00 for a 12 hour day in China or 50 cents an hour in Indonesia. Until products SOLD in the US must endure the costs mandated by congress for products MADE in the US, there will be no job creation.
In any event, if an importer can't prove a product is made with the same regs that apply to US producers, it can't be sold in the US. Until this is done, jobs will not return to the US and our fiscal problems will continue which will result in continued lowering of services.
Democrats haven't figured out the solution because it is complex. It does involve questioning some fairly fundamental issues about what multi-nationals are, and how they conduct business. It also requires that we find a way to 'increase the value' of American labor by increasing productivity or by creating global products and services that justify its cost. All of this is complicated by the fact that there are some strong benefits in having these other countries following the American model.
We will work it out if we don't simply surrender and support the Republican race to the bottom.