Why The Slow Job Growth?
By Alex Saitta
January 14, 2011
I was asked this question on the message board. To fully answer it, I had to write my answer here.
Why is the stock market at a 2 year high, yet the economy and employment growth is still struggling? We are 18 months into the economic recovery and unemployment claims are still running at recessionary levels, and the unemployment rate remains near 10%.
A company can raise its profits by growing revenue, cutting expenditures or a combination of both. Right now companies are producing the same output or revenue they did at the 2007 peak of economic activity. Companies are doing that with 7.5 million less workers. While output or revenue is about the same (the economy hasnít grown over the past three years), companiesí costs are much lower, so profits are high and that has helped to boost stock prices along with zero short-term interest rates. ces.
Why arenít companies hiring? This trend of shying away from labor as an input to production has been going on for decades now. The main reason in my opinion is labor in our country has become relatively expensive. Unions have caused wages to be higher than they should be. Governments too. For example, Federal workers got pay raises through the recession (+3% in 2008, +3.9% in 2009 and 2% in 2010). That competition puts upward pressure on private sector labor costs.
As Medicaid and Social Security add more and more to their rolls, those payroll taxes or the amount of income you must pay taxes on has risen. Companies pay half of those taxes. The government is forcing the private sector to provide medical benefits and medical costs are rising significantly. The government is forcing companies to provide other benefits like family medical leave too, or paid holidays. The mandatory minimum wage is also on that list. Companies also pay more in unemployment insurance and workmanís compensation fees.
All these things have made labor relatively expensive. What have companies done in response to this? While many just pay the cost, many are taking one of these two options:
1) Many have taken their plants and moved them abroad where those labor costs are much lower. This has been going on in the US since the 1970ís across the country and that even happened in Pickens County. In the northern part of the county (Six Mile, Pickens, Dacusville), outside of the government there are few jobs that pay a living wage. If it wasnít for some of the big government employers like Clemson University or the school district, Pickens Countyís unemployment rate would be close to 20%.
2) The second thing companies do to avoid expensive US labor is they outsource. For example, when you call Delta Airlines, you now talk to a clerk in India.
Companies have now gotten on this going green kick. Good grief. While there are some merits to the trend, going green is expensive and it will cost more US jobs because China and Mexico isnít going green.
True, this is the longest recession since the Great Depression. While that is a big statement, I think there is a bigger one to make here. The slow growth of this past decade, this long recession and weak recovery is part of a long-term economic slide. Sure we are in an upswing right now, but an upswing in a slide that started around 2000.
I noticed slower economic growth in the mid-decade and have been talking about all the structural problems we are facing since then and where they will lead this country if our leaders donít address them. Is anyone doing anything about these structural problems? Few of our leaders are talking about them. The rest are still pushing for ways to make labor more expensive, looking to create more regulation and further empower the government sector. All those things are a big weight around the economyís neck that continues to get heavier and heavier. As a result job creation and growth will remain weak over the long-term.
By the way, when I write about a collapse occurring in the next decade or two, Iím talking about a financial and economic collapse. That is stocks fall significantly, interest rates rise significantly and economic growth becomes depressed. Iím not talking about a total collapse and destruction of the nation and its boarders. To me such an economic/ financial collapse will have the effect of something like the fall of the Roman Empire, British Empire or the USSR. The US will survive an economic/financial collapse as a country, but it will lose much of its superpower status in my opinion. In some ways that decline has already started. (E.g., The US is losing its power as an economic superpower.)
Today the world economy is so connected, when the US economy collapses, so will the rest of the world. I would be surprised if war breaks out all over the place because each country will be dealing with its own economic problems and social unrest, trying to hold themselves together. Countries are more likely to break apart from within or get caught up in civil wars, rather than due to outside attacks.