A jobless recovery?
Wilmington NC – [Click the Listen button to hear Dennis' commentary.]
Jobless recovery - if I had a dollar for each time I?ve heard this phrase in recent months, my own economic fortune would be well in hand.
Until the current economic recovery picked up steam in mid 2003, the term jobless recovery would have been an oxymoron. After all, what is an economic up-turn if it doesn?t mean more income earned by more people? Yet, here we are. The economy has been growing at a 4 percent annual rate since last fall ? even more rapidly last summer ? and new jobs are hardly visible. In the past 3 months, the monthly gain in jobs has averaged less than 50 thousand. Just 21 thousand were added last month.
At this rate, it will take years just to recover the 2.3 million jobs that have been lost since 2001. Last month the Bush Administration, attributing the economic stimulus effects of its tax cuts, predicted that 2.6 million new jobs would be created this year. This would require an average monthly gain of about 220 thousand jobs, more than 4 times the current pace.
In terms of new jobs, gains so far actually represent a rather poor return on tax cuts, which cost the Treasury 195 billion dollars last year alone. For that money, 2 and a half million people could have been hired to dig holes, and another 2 and a half million to fill them in, all paid the nation?s average wage.
To compound matters, slow job growth threatens the sustainability of the economic upturn. Slow job growth allows employers to limit wage increases. Hourly wages are up just 1.6 percent from a year ago, the smallest gain since 1986 and below the 1.9 percent rate of inflation. Thus, increases in consumer spending ? which have fueled the up-turn so far ? have come mainly from tax cuts, mortgage refinancing, and a stronger stock market. Consumer confidence fell sharply last month, with a significant share saying jobs are hard to get.
So, how can the economy be growing, with a stagnant job market? Some argue it is a matter of productivity ? the quantity of goods and services produced per hour worked. Recent increases in productivity have been remarkably strong ? twice the long-run annual average gain of 2.1 percent. As Federal Reserve Chairman Greenspan recently put it, unless we get a slowdown in productivity growth, it?s very difficult to translate even fairly robust economic growth into job creation.
In part, recent productivity growth reflects a logical caution by employers when re-hiring workers as sales begin to recover from a recession, waiting for assurance of a long-term expansion trend. But, this time around, there is more to it ? a fundamental, structural change in the job market.
In the past, the greatest productivity gains have come in the goods-producing sector ? manufacturing and the like ? as machinery replaced human labor. In the 1990s, much of this took the form of electronic devices ? IT, or information technology if you will ? that vastly expanded the scope of one person?s control over the production process.
Now, IT is rapidly expanding in the production of services ? white collar jobs like those in finance, accounting, even broadcasting ? with the evolution of work-flow platforms that integrate things such as e-mail, scanning and digitalization with fibre-optics and increased band width. This brings productivity-enhancing functional specialization to the services sector, which now makes up nearly 70 percent of the US economy.
It will take time to adjust to these changes. Newly-created jobs tend to be high-tech; based more on ideas than mechanics. This requires a better-educated work force. And, it calls for stronger legal protections for intellectual property, to do much what patents did for a previous generation of mechanical innovators. But that is a subject for another day.