A Jobless Horizon

Many economists are still forecasting a rather bleak jobless recovery in our future.  The latest outlook  from Macroadvisors (h/t to Mark Thoma & Economist’s View) suggests that we won’t see substantial job creation until the end of 2013.  This would be a full four years after the technical end of the recession.  That’s not good.

A jobless recovery is an unpleasant and stubborn thing.  Basically, the GDP of a country will grow which means the production of goods and services available to the economy increases, but that growth rate isn’t sufficient enough to create jobs.  This has all kinds of ramifications and none of them are pleasant.  In the past, we’ve trended towards decreasing employment in many sectors and there’s a lot of reasons for that.  First, we’ve improved processes through technology or consolidation of businesses which were typical of earlier points in time.  This continues but to a lesser extent.  Second, globalization has been an important factor–especially recently–as manufacturing and other industries seek outsourcing and other countries’ markets as a way to improve their bottom lines.  The interesting thing about the Macroadvisor forecast is that it indicates that the main source here is just plain slow growth. This is the most troubling because it’s usually the easiest thing for the government to correct by increasing its domestic demand.

Here are their main points:

• The U.S. is in the midst of another “jobless recovery,” in the sense that employment gains have been meager relative to enormous job losses that occurred during 2008 and 2009.
• We anticipate that job gains will continue at a moderate rate, and that the pre-recession peak in private nonfarm payroll employment won’t be reached until 2013, nearly 4 years after the recession ended.
• This would be roughly comparable to the time it took to regain the pre-recession peak in employment following the 2001 recession, but approximately twice as long as the recovery in employment following the 1990–91 recession and approximately four times as long following recessions in 1970, 1973–75, and 1981–82.
• The overwhelming factor contributing to the much more sluggish pace of job creation in recent recoveries is much slower growth of output.
• In contrast, other factors — including productivity growth and changes in the workweek — have played only minor roles in accounting for slower growth of private nonfarm payrolls in recent recoveries.
• The severity of the decline in employment during 2008 and 2009 is largely accounted for by the weakness in output during the recession, and not by anomalous behavior of productivity.

This is also troubling in other ways.  Some of it, as their analysis points out, seems to be due to an increasing trend in our economy.  In other words, this has become a pattern in the last three recoveries and it’s just progressively getting worse.   It is looks like we’ve reached a growth plateau.

Some of this is also because of the reasons pointed out above.  The U.S’s strongest periods of growth occurred during periods where other countries were not growing so quickly in terms of production.  If you think of the post World War 2 period–a time many folks consider the ‘golden age’ of the US–you should realize that we were one of the few intact industrialized nations left standing.  We were nearly the world’s sole supplier and every one else needed goods.  The last 60 years have been a story of the rest of the world developing its production capacity.  We are no longer the world’s company store.  Now, we have become the world’s biggest customer.

Another reason is the political climate that changed abruptly during the Reagan Revolution. We seem keen on supporting business who can go just about any where for workers and consumers now, but have no desire to prop up U.S. households.  Incomes have been down for some time.  Now, borrowing capacity is down.  While businesses can take their capital some place else, households are unlikely to do that.  We keep our labor some where in the U.S. and with the recent decline of our home values and ability to sell homes, we are almost limited to our current situations at the moment. U.S. Labor is not a very mobile factor.

At one point, government could be counted on to give some Keynesian tweaking by increasing its employment.  This still happened during the Reagan years by revitalizing the military capital. Think about all those new Navy ships.  This was less necessary during the Clinton years because of the boost to productivity and incomes from information technology plus the cold war peace dividend.  Now, all we see are state balanced budget amendments that force states to take recessionary actions during recessionary times and ignore spending prohibitions during good times. We also have such low taxes from the Dubya years, that any attempt to regain some traction there is going to be met with intense political ill will.  This imbalance–if anything–will get worse because the last two years and Democratic political capital were wasted on political efforts not associated with job creation.  We’re seeing meager attempts at tax incentives and those are likely to continue. This will not help the American household or create jobs for them.  Eventually, forces will be such that deficit reduction attempts will prevail and all bets will be off if job growth isn’t sufficient by then.

What does that mean for most of us?  Well, it means more stagnant incomes and downsized lives.  It means trying to avoid using credit and looking for ways to pad that rainy day fund.  It also means that it may take a very long time to find that job you really want and deserve.  You may have to move to get it and you may have to sell a home–if you have one–at a price that will put a hamper on your retirement plans.  And ah, you’re retirement days, with decreased income  and employment comes decreased contributions to both social security and related funds.  Something you should–if you can–try to offset.  Something, however, the government cannot offset without doing something to the programs.

One of the most troubling things of all of this is the likely decreased contributions to sustaining Social Security and Medicare from the decreased incomes and labor participation.  This–and political will to decimate the system–will make it highly unlikely that either program will make it through the next five years unscathed.  I can almost guarantee it given the Cat Food Commission’s goals and composition.  I can also foresee Wall Street attempting to get access to your funds to play speculation games.  This will make your return subject to market momentum and whims.

I think it’s more important for us to make our voices heard to government on all these issues or an erosion of middle class lifestyles will likely result.  This is where it’s also important to argue from a rational economic viewpoint rather than the anti-government hysterics of the tea party. Yes, we all agree that’s something amiss.  Yes, we can see that our dollars are going to the wrong people.  But the deal is this, if you continue to lose income and job standing, taxes are really irrelevant.  And this brings me back to the slow growth forecast above.  You see, we are a consumer economy, and of course our economy will grow slow if there are no jobs and no decent pay levels with which we can purchase things.

Again, corporations can buy things and people from any where and they can move at will. There are growing markets in China, India, and even Vietnam.  We, however, are pretty much stuck with situation.  And that is why every one needs to vote their interests and not their anger.