This chart comes from the Bureau of Labor Statistics:
[click on the chart for clearer view]
Not only is the unemployment rate high, those who are unemployed remain so far longer than before. For example, in October 2009, 35.6% of those unemployed were jobless for 27 weeks or more. As the chart illustrates, this is a record high.
The following is an Economic Policy Institute [EPI] “snapshot” written by Algernon Austin:
Many of the 8.1 million jobs lost during the current recession, have been good jobs. EPI defines a good job as one that pays at least 60% of the median household income and also provides health care and retirement benefits. By that measure, American men are losing ground. The figure shows that the share of male workers employed in good jobs dropped from 46.5% in 1979 to 31.3% in 2008. Of the major racial and ethnic groups, Hispanic men experienced the largest percentage-point decline although in 1979, they already had the lowest rate of employment in good jobs. In 1979, 30.8% of Hispanic men were employed in a good job. By 2008, only 15.3% were in good jobs.
As policymakers consider ways to create more jobs to reverse the longstanding rise in unemployment, which stands at 10.2% nationwide, they should also focus on creating the kinds of jobs that pay more than poverty level wages. The federal minimum wage is currently $7.25 per hour and pays $15,080 annually, based on a 2,080-hour work year. That wage is below the poverty level for a family of four. By contrast, the 2008 “good job” wage was $14.51 per hour, or $30,180 a year – twice as much. Without a national agenda to create good jobs, more fulltime workers will struggle to pay for basic necessities.
We are in quite the fix. According to some experts the 3.5% growth in GDP last quarter (July-September) is proof that all is now well. Unfortunately most of that growth was driven by very temporary government spending.
For example, key to last quarter’s growth was a 22.4% increase in car sales, a consequence of the government’s temporary Cash for Clunkers program. This increase in car sales accounted for 42.0% of the entire quarter’s growth!
Consumption as a whole (which includes auto sales) grew at a 3.4 percent annual rate. Take out the auto sector and consumption grew at only a 1.0 percent annual rate. For more details see here.
Since the Cash for Clunkers program is now over, and disposable income continues to fall (because of continued job losses and declining wages and hours), next quarter is bound to show quite limited growth at best.
The sad reality is that the government’s response to this crisis has been far from adequate. Most of its direct stimulus spending, hundreds of billions of dollars, has been designed to be short-term in nature. It has spent far more, trillions of dollars in fact, to save the financial system. But again it has made no attempt to ensure that the money would be used to promote a fundamental restructuring of our economy.
It might be comforting to know that Lloyd Blankfein, Goldman Sach’s chairman and chief executive, believes that he is doing “God’s work,” but the fact is that the financial system we saved with our tax dollars continues to refuse to make loans.
Look at the following two tables taken from a blog post on Mish’s Global Economic Trend Analysis. The first table shows that “Total bank credit is in uncharted territory at -5%. The series has never gone below 0 before.”
So what are banks doing with the money? The second table shows that that the money is piling up as excess reserves.
Why aren’t banks lending? Mish’s blog post provides the following four answers:
1) There are no credit-worthy businesses that want to borrow.
2) Consumers are tapped out and do not want to borrow.
3) Banks are scared to death of pending commercial real estate losses, credit card losses, residential real estate losses, home equity lines of credit losses, and losses in general.
4) Asset prices are simply too high (and banks know it) and the securitization market has dried up
While all of the above are probably true, the post concludes that “Number three above is the most critical one.”
The “bottom line” here is that our economy remains weak and far from any serious recovery. And it will remain that way unless we get far more aggressive government action to ensure a meaningful increase in jobs that pay a living wage and produce needed goods and services.
All the talk about the need to restructure our economy and end our dependence on debt financed growth has tended to overlook a critical issue—declining worker earnings. The downward pressure on wages helped to boost profits but only because worker consumption could be sustained by ever greater debt. If we are going to change the way our economy functions we need to address the forces that have been driving down wages.
The blog Angry Bear recently had an interesting post dealing with this issue. Among other things it offered data illustrating the fact that labor’s share of income has been declining for decades. In other words, we are dealing with a long term structural problem. And unless you hear policy makers address this reality you can be pretty sure that what they propose to do will not be of much help to the great majority of working people.
Here is the relevant part of the post:
This shift to an environment of stronger productivity and weaker real growth generated an interesting development that has received little attention among economists or in the business press.
This development was a secular decline in labor’s share of the pie. [See chart below.] Prior to the 1982 recession there was a strong cyclical pattern of labor’s but it was around a long term or secular flat trend. But since the early 1980s labor’s share of the pie has fallen sharply by about ten percentage points. Note that the chart is of labor compensation divided by nominal output indexed to 1992 = 100. That is because the data for each series is reported as an index number at 1992=100 rather than in dollar terms. So the scale is set to 1992 =100 rather than in percentage points. But it still shows that labor payments as a share of nonfarm business total ouput has declined sharply over the last 20 years and prior to the latest cycle we did not even see the normal late cycle uptick in labor’s share.
If this chart gets a lot of attention it will be interesting to see how the libertarian and/or conservative analysts who keep coming up with all types of excuses to explain away the weakness in real labor compensation in recent years explain this away. If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.
[click on chart for easier viewing]
The 2007–2009 recession has been an employment disaster. In the twenty months from December 2007 (the start of the recession) to August 2009, we have lost more than 7.0 million private-sector jobs.
What makes this even more serious (suggesting deep structural problems) is that this recession follows an economic expansion (November 2001–December 2007) that was one of the weakest in terms of private sector job creation; annual average private sector employment grew by approximately 1 million jobs a year. By comparison, annual average private sector employment grew by 2.4 million jobs a year during the 1982-1990 expansion and by 2.2 million a year during the 1991-2001 expansion.
As a consequence we are set to experience what economists are calling a lost employment decade. “As of August 2009, the nation had 1.3 million (1,256,000) fewer private sector jobs than in December 1999. This is the first time since the Great Depression of the 1930s that America will have an absolute loss of jobs over the course of a decade.”
While the media and the government talk about economic recovery because the stock market and profits are up—the employment crisis continues and can be expected to continue for years. And of course these statistics do not take into account the worsening of employment conditions (including the growing number of part-time and temporary positions, intensity of work, and employment insecurity). Real recovery is going to require real structural change and so far that remains off the mainstream political agenda.
At one time economists argued that our shift to a service oriented economy would encourage employment stability. The argument was that since firms could not build up a big inventory of services (like they could with parts and components), private sector service employment could be expected to be relatively recession proof. Well that seems to be changing.
The table below shows “the total private-sector employment loss in each of the last four recessions, the decline in jobs in the goods-producing and in the private service-providing sectors, and the share of each in the total loss.” In contrast to past recessions, service sector employment has taken a big hit this recession; in fact this sector accounts for more than fifty percent of total private sector job losses.
Is it safe anywhere?
[Click on table for easier view]
It may seem puzzling—the stock market and profits are recovering while living and working conditions for the majority continue to decline. Well, it is not so puzzling. In fact, worker losses are an important reason (along with government bailouts) for capitalist gains. Yes, it is that kind of world.
Here is what a Business Week article had to say:
The signs [for corporate earnings] look good, and last month’s employment data are part of the reason. Through the third quarter, businesses continued to slash labor costs at rates not usually seen even in past severe recessions. In fact, for the past six quarters, companies have cut employees’ overall hours worked by far more than they have pared output. The result: a striking 2.8% annual rate of growth in productivity, a rare pace during a recession. Productivity gains averaged only 0.8% annually during the previous nine downturns. . . .
The September payroll numbers showed that overall hours worked in the third quarter fell at a 3% annual rate from the second quarter. If economists are correct in expecting about 3% growth in real gross domestic product for the quarter, then productivity may well post its second consecutive quarterly advance of about 6%. That would mean unit labor costs, or pay adjusted for productivity, are set to plunge for the third quarter in a row. In fact, unit labor costs, which are a key factor in determining profit margins, appear to have posted the largest three-quarter decline since quarterly data began in 1947 [see chart below].
Said differently, businesses have been able to boost profits in the face of poor demand conditions by slashing labor costs. The profit rise was weak in the first and second quarters of this year because sales actually fell in both quarters.
The third quarter (July-September) was different. Overall demand rose (thanks in large part to the stimulus) while labor costs continued to fall (which means fewer people worked harder for less). The result: significant gains for business and a stock market rally.
However, as Business Week also noted: “Of course, these are not long-run productivity gains: Businesses cannot slash and burn their way to prosperity.”
One wonders if they have a different long term plan? And if not, whether workers do?
Here is a depressing one for the start of the new academic year. It is by Michael Mandel and it comes from BusinessWeek, the September 28, 2009 issue.
College: Rising Costs, Diminishing Returns
This hasn’t been a good decade so far for young college grads. Full-time workers ages 25 to 34 with only bachelor’s degrees saw a sharp 11% decline in their real earnings between the end of the tech boom in 2000 and 2008. That’s according to income statistics released on Sept. 10 by the U.S. Census Bureau. The drop in pay for young college grads looks even worse when compared with the continuing rise in college costs over the same stretch (chart below). Adjusted for inflation, tuition, fees, and room and board rose 23% at private four-year schools and 36% at public institutions. The final blow: Young college grads saw a bigger pay drop, on a percentage basis, than peers with only an associate degree.
It is often hard to know how our fellow Oregonians are doing — for a good look check out “Survey shows how recession has hit Oregon households” by Richard Read in The Oregonian, September 17, 2009.
The articles makes clear that there is a lot of suffering going on in Oregon, even more than in the nation as a whole. Some highlights:
There are danger signs pointing to the real possibility of a double dip recession—a short “recovery” followed by another recession. One of the most important is the terrible labor market conditions (little job creation and short hours and low pay for those with jobs). Unfortunately, while public employment had helped to offset the collapse in private hiring, a crisis in state government financing is forcing major cutbacks in the public sector as well.
Facing huge budget deficits, states are laying off growing numbers of workers and furloughing even more. This not only makes it difficult for people to get needed services, it also threatens to undermine any (stimulus driven) recovery impulses—you know those famous green shoots.
As the Wall Street Journal reports:
The furloughs, which basically act as salary cuts for state workers, are the latest response to plunges in tax revenue because of the recession. State legislatures have struggled to cover shortfalls that have ballooned to $168 billion, or 24% of their general-fund budgets, for the current fiscal year, which for most began July 1, according to a report released Thursday by the left-leaning Center on Budget Policy Priorities.
State governments have cut some 33,000 jobs over the last year with more to come. Furloughs, where workers are told to stay home for several days a month without pay—resulting in significant wage cuts—are growing even faster. Hundreds of thousands of workers are currently affected, more than 200,000 in California alone. Slashing the public sector may help balance the budget in the short run, but such a strategy only intensifies our long term economic and social problems.
The chart below (taken from the above cited WSJ story) highlights the size of the problem.
