THE BLOG

Where the Jobs Went

07/07/2010 10:14 pm 22:14:29 | Updated May 25, 2011

"These jobs are going boys and they ain't coming back" - Bruce Springsteen

8 million jobs have been lost. Where did they go? Who should we blame? Did they go to China? Were they taken by illegal immigrants? Is it the fault of Obama? Or Pelosi? Or Bush? Or Gore? Maybe global warming?

Unfortunately, the truth is far more disturbing. Those jobs are no longer needed as almost every sector of our economy has figured out how to provide more and more products while relying on less and less people. Not only do we have the ability to make many times more of everything than we can possibly buy, but each item has more features and costs less than the previous year.

These scenarios of selling more for less exist across almost every industry. Flat screen TV's cost a fraction of what they did 10 years ago. A top of the line Apple iPhone retails for $599, the same price Motorola sold their then cutting edge RAZR for 5 years ago. BMW has kept the price of their new and improved 3 series sedan the same as the one they sold 10 years ago. Adjust these numbers for inflation and the declines are even more staggering.

There is simply no way that BMW or anyone else can sell a product for the same amount as a decade earlier without significantly reducing employee costs. Each year they do not raise prices, they receive less in total value. But each year each employee costs more and more because of inflation related wage and benefit increases. It doesn't take a Gordon Gecko to see the only possible response is to reduce the number of employees it takes to produce their products in order to maintain profitability.

This trend is being amplified by newer companies like Amazon and NetFlix that are able to generate the same amount of revenue as Barnes & Noble and Blockbuster while only requiring a fraction of the number of employees. According to their most recent annual reports, Amazon generated $24.5 billion in sales with 24,300 employees while Barnes & Noble had $5.8 billion in sales with 40,000 employees. Amazon is generating over $1 mm in sales per employee while Barnes & Noble is generating less than $150,000. Put simply, for every million dollars in revenue Amazon takes from Barnes & Noble, Amazon hires one person and Barnes & Noble lays off seven.

It is these incredible increases in efficiency driven by new and old companies that are responsible for the huge reduction in American employment. The US economy is so efficient now that it can support a significant amount of economic growth with minimal additional hiring. Even a return to pre-recession growth rates will barely make a dent in the number of jobs that have been lost.

These are structural changes that government programs cannot reverse. No amount of tax credits, investment incentives, or retraining programs is going allow companies to be able to remain competitive while employing the same number of people they did in the past. For better or worse, the world has changed and the traditional link has been broken between economic growth and employment growth. The sooner we accept this and stop waiting for the jobs the come back, the sooner we can work on real solutions for the disastrous aftermath of the Great Recession that are based on something other than hopes and prayers.