The Employment Numbers are Worse than You Think

Where are we? There are currently 15,000,000 unemployed workers in the U.S. Approximately 9,000,000 of them are receiving unemployment benefits, either from the states or the feds. (Many of them are about to lose their benefits, unless Congress passes the Obama/Republican tax bill, which will extend benefits for many unemployed people by another 13 months.)


We need to add 120,000 jobs per month just to keep up with population growth. Assuming we can add another 100,000 jobs per month on top of that (which hasn’t happened since 2006), it will take over 7 years to get back to “just” 5% unemployment. (This assumes that you accept the “official” unemployment rate of 10%. The real number is over 15%.) If we “only” add 170,000 jobs per month, it will take 15 years to get back to 5% unemployment. Where are all of these jobs going to come from?


The short answer is they aren’t going to materialize in any great numbers any time soon. For the last decade, most of the job growth in the U.S was based on the housing/construction industries. (And their kissing cousins, the mortgage lending and securitization industries.) Unfortunately, most of the job growth was the result of stupid fiscal and monetary policies which encouraged everyone to build, buy, and finance ever bigger houses and ever more junk to fill them. The end result was a credit bubble which generated a housing bubble which was unsustainable. We are now facing the economic reality that “build it and they will come” doesn’t work. (Am I the only one who remembers the S&L crash of the mid-1980’s? Remember all of the “see-through” office buildings? Same song, second verse.) Housing prices will correct to historical norms. (They always do. That’s why they call them historical norms.) And oh by the way, we aren’t there yet. Housing prices still need to fall another 10% or so. (More or less, depending on where you are in the country.)


With all of the houses that have been foreclosed on and will be foreclosed on and because lenders have actually re-imposed some semblance of minimal mortgage qualification (and because so many people are unemployed), the demand for new housing will be depressed for several years. The demand for all of the “stuff” that goes with buying a house will be depressed, as well. Those jobs aren’t coming back in any great numbers any time soon.


In addition, manufacturing jobs are still leaving the U.S. and will continue to do so. Face it. We can’t compete with China (and Vietnam and ……) on labor costs. Unless it is something that requires truly skilled labor, those jobs are leaving and they aren’t coming back. Even the skilled jobs aren’t going to pay as well as they used to. The deal the autoworkers cut with the big automakers provides for two pay tiers – one for the old timers and a different lower one for the new hires.


Where will the job growth come from? There has been a recent increase in private hires for construction, but part of this is state and local government construction projects being paid in whole or in part with federal stimulus dollars so those aren’t really “private” industry jobs. And there isn’t any more stimulus money coming. (At least not yet.) Unfortunately, one of the long term employment trends is that more and more of the new jobs being created are in the “service” industry, including retail, medical, and hospitality. The harsh reality is that those jobs are typically low paying and frequently provide no benefits like health insurance and retirement. I guess a crummy job is better than no job, but those folks aren’t going to be buying houses any time soon.


Another problem is that the unemployment numbers for some groups are substantially higher than for the country as a whole. Unemployment numbers for young black men are over 25% and even higher in some places. Unemployment numbers for recent college graduates are high (and getting higher) because no one needs them. (And college graduates are graduating with higher student loan debt loads. How are they going to pay those loans back with no job? Even if they get a job, will they make enough to pay back the loans and buy a house? More and more twenty-somethings are living with their parents.)


The U.S. is seeing a fundamental shift in the in the labor market. Things are changing, and not for the better for most Americans. Most of Western Europe has a semi-permanent underclass of un- and under-employed people, and their unemployment rates hover around 10%. Americans generally see 5% unemployment as “normal” or “acceptable.” We are going to have to accept the harsh reality that an unemployment rate of 5% is unrealistic, at least for the next decade (or so) and that the vast majority of Americans are going to be making less (at least in inflation adjusted terms) for several years to come. Merry Christmas.


Michael Baumer



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by Michael Baumer