It’s the Jobs, Stupid!Posted: June 22, 2009
One glance at the national income accounts for the U.S. gives us the bottom line. Approximately 67 % of the spending in the country comes from households and nearly the same proportion of the source of that spending comes from wages and salaries. It may be all about oil revenue in places like Venezuela and Kuwait, but in the United States, it’s all about job creation. The job losses in this Great Recession–when compared with the other post-WW2 recessions–are much worse as you’ll see in the graphic on the left.
The news from the jobs market is bleak and that is one of the reasons I have trouble buying any green shoot hoopla. Take this headline from the Wall Street Journal “Cuts are Here to Stay, Companies Say”.
Many companies that have cut jobs, pay and benefits during the recession may not be quick to restore them.
According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began. The survey of 179 companies was conducted this month by consulting firm Watson Wyatt Worldwide Inc.
Among employers who have cut salaries, 55% expect to restore the cuts in the next year. But 20% expect the cuts to be permanent. Of employers who have increased employee contributions to health-care premiums, 46% don’t plan to reverse the increases. Of all survey respondents, 73% said they expect employees to shoulder more of the cost of health care than before the recession began.
The job market always lags the business cycle since companies are really slow to both fire and hire near the turning points. Companies like to insure they are not letting trained workers go needlessly and they don’t like to take on any costs if their revenues aren’t trending upward. Of course, recessions hit different segments of the labor market differently. A Weekly Standard headline “No Country for Burly Men” has one of the most interesting examples of the demographics of the Great Recession.
A “man-cession.” That’s what some economists are starting to call it. Of the 5.7 million jobs Americans lost between December 2007 and May 2009, nearly 80 percent had been held by men. Mark Perry, an economist at the University of Michigan, characterizes the recession as a “downturn” for women but a “catastrophe” for men.
Men are bearing the brunt of the current economic crisis because they predominate in manufacturing and construction, the hardest-hit sectors, which have lost more than 3 million jobs since December 2007. Women, by contrast, are a majority in recession-resistant fields such as education and health care, which gained 588,000 jobs during the same period. Rescuing hundreds of thousands of unemployed crane operators, welders, production line managers, and machine setters was never going to be easy. But the concerted opposition of several powerful women’s groups has made it all but impossible. Consider what just happened with the $787 billion American Recovery and Reinvestment Act of 2009.
In one of the most truly bizarre stories by a woman to date , Christina Hoff Summers says to blame feminists right there in the subtitle “How feminist groups skewed the Obama stimulus plan towards women’s jobs.” I guess a group of bitter knitters must’ve aimed their not-so-dainty parasols at Larry Summers’ nether regions. At least that’s what the article implies.
The senior economists listened attentively as Gandy and Smeal and other advocates argued for a stimulus package that would add jobs for nurses, social workers, teachers, and librarians in our crumbling “human infrastructure” (they had found their testosterone-free slogan). Did Furman mention that jobs in the “human infrastructure”–health, education, and government–had increased by more than half a million since December 2007?
One could pardon him for not being argumentative. His boss at the economic council, Lawrence Summers, had become a national symbol of the consequences of offending feminist sensibilities and had been opposed by feminists in his appointment to the top White House post. Gandy and Smeal found their circle partners to be engaged and curious and were delighted that they stayed longer than scheduled: “We left feeling that all our preparation would bear fruit in the form of more inclusion of women’s needs, and we were right.”
They were right indeed. Our incoming president did what many sensible men do when confronted by a chorus of female complaint: He changed his plan. He added health, education, and other human infrastructure components to the proposal. And he tasked Christina Romer and Jared Bernstein, Joseph Biden’s chief economist, with preparing an extraordinary report that calculated not only the number of jobs the plan would likely create, but the gender composition of the various employment sectors and the division of largess between women and men.
Just read this article to remind you why there’s a gender gap between the Democratic and Republican Parties.
Meanwhile, back at Wall Street 24/7, a less dogmatic reality applies as they try to make sense of the WSJ poll. They argue that this is an unusual recession and there will be unusual employment trends as we move forward or further down, as the case may be.
The economy will suffer two body blows if the information is accurate. Unemployment is supposed to top 10% by the end of this year and could remain in double digits for much of 2010. Economists hope that the stimulus package and the normal rebound in business and consumer spending that cause a rebound help drive improved employment. The damage from this downturn may be great enough that many businesses elect to get by with less while they take what may be years to rebuild their fortunes. That, in turn, may lead to a permanent elimination of some jobs.
There are a number of reasons that this recession will not end as quickly as optimists expect or that a recovery will be nothing more than a 1% to 2% GDP improvement that goes on for the next few years. That would be quite different from the 4% to 5% GDP improvement that the Administration is forecasting for 2010 and the years beyond. It would almost certainly cause a widening deficit because there will be fewer and fewer people to tax as a way to offset government spending, much of it being done in the name of rebuilding the job base.
A lack of sharp GDP increases and an unemployment rate that could stay above 9% for a number of quarters may be labeled a recovery, but it is simply stagnation which is no recovery at all.
Just last week in the UK Guardian, Dr. Paul Krugman reasserted the specter of a Japan-like lost decade.
WH: So even after what we’ve gone through, you say it’s just a hypothesis that the cause of the crisis is financial?
PK: That the cause is primarily financial. Certainly, Lehman and all of that alerted us all. And it did trigger an immediate drop in demand. But the housing bust was going to happen regardless.
The fall in business investment is at least to a large degree a response to excess capacity, which is the result of falling consumer demand and the housing bust. So we don’t know.
WH: I think we know more than that. The links between bank capital, loan losses, credit availability and economic activity and asset prices have never been clearer. That was why there was a threat of Depression.
PK: Clearly, re-establishing stability in the financial markets is a necessary condition for recovery. But we’re not sure it’s sufficient.
WH: That’s very scary.
PK: Well, that is part of the reason why I am so depressed.
WH: In one of your lecture charts you seemed to be suggesting that we’re 12 months into what you think could be a 36-month period of downturn, albeit at a slower rate.
WH: It’s quite shocking that you think it will be that severe.
PK: If we measure the 2001 US recession by when the labour market finally started to turn around, it was a 30-month recession. It was really 30 months in before you started to see the unemployment rate come down.
I hate to be a Dakinikat Downer but if it’s really going to be at least 30 months before the unemployment rate starts to come down, I think we’re going to see a prolonged period of stagnation. (On the upside, if you work for Goldman Sachs, you’re seeing record bonuses again.) Remember, the 2001 recession only lasted about 1/2 year. This one’s gone past 18 months now. If we see another jobless recovery, we’re going to continue to lose retail stores and many household-oriented businesses. This can only mean one thing. The midterm elections will bring Republicans back to the senate and congress. That is why it is urgent that Democrats act fast and act now if they really want to leave an enduring liberal imprint on the health care, education, and job markets policies.