The stagnation behind the excellent jobs report

By Felix Salmon
March 8, 2013

Today’s jobs report is an unambiguously positive one: America had 236,000 more jobs in February than it had in January, and the unemployment rate is down to 7.7%, the lowest it’s been since 2008, before Barack Obama was even sworn in. (Although, it’s still nowhere near the 6.5% at which the Fed will start thinking about tightening monetary policy.) Things are getting better, US fiscal policy notwithstanding, and it’s great to see construction in particular, especially non-residential construction, finally making a substantial positive contribution to the numbers.

All is not entirely sweetness and light, though, as Brad DeLong and many others have noted. The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks.

In terms of the economy, it’s not good enough to simply increase employment and decrease unemployment, if the proportion of people with jobs isn’t actually going up. Which is why this chart, from Calculated Risk, is the most important one to look at right now:

Both the employment-to-population ratio ad the labor force participation rate are much lower than they ought to be: if this is a recovery, the former in particular ought to be going up, rather than going nowhere. Yes, it’s important to ensure that the unemployed get jobs. But in many ways it’s even more important to try to create jobs for people who simply aren’t working, rather than just for the people who are actively looking for work.

To turn these ratios into hard numbers: there are 89.3 million Americans who are not in the labor force, of whom just 6.8 million currently want a job. The economy ought to be able to find good, rewarding jobs not only for the 6.8 million, but for a large chunk of the other 82.5 million as well. Just imagine what that would do for tax revenues: all our fiscal problems would be solved at a stroke!

18 comments

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“The economy ought to be able to find good, rewarding jobs not only for the 6.8 million, but for a large chunk of the other 82.5 million as well.”

Doing what? Partly by tying health care to employment, we’ve made it prohibitively expensive to hire anybody. If you aren’t certain that adding the job will more than cover those costs, or you aren’t certain that the individual will be productive, then the job is either not created or not filled.

As you note, the marginal cost to society of adding a job is much lower than the marginal cost to the employer because that created job reduces the burden on the social welfare net and produces additional tax revenues. Restructure the system to bring these back in line — perhaps by assessing taxes and health care on wealth or consumption rather than on employment — and the gap might close.

Posted by TFF | Report as abusive

Google is cutting 1200 Motorola jobs because:

(A) It can’t find people to fill them.

(B) It doesn’t have the money to pay them.

(C) It is pretty sure that these employees are not producing enough to pay their keep.

When you have companies answering “C” for a wide swath of their workforce, year after year (we are now four years into job cutting from Corporate America), then you have to acknowledge that something is structurally broken.

Posted by TFF | Report as abusive

As long as the Federal Government continues to permit our dollar to be overvalued by foreign governments with predatory intent on our economy, we will have what appear to be high costs for labor here. Our expenses are high because we get, for instance, 7 Chinese Yuan for a dollar when we really should only get 3 Yuan. Of course cooperating with this currency manipulation results in higher kickbacks (“campaign contributions”) from foreign and multi-national organizations for our politicians. But it impoverishes our people and will continue to do so as long as the public tolerates a hostile and corrupt governmental structure here in the USA.

The problem is indeed with American character, but not with that of ordinary people but with that of our political and economic elites.

Posted by usagadfly | Report as abusive

TFF, you might be right in general, but Motorola is not a good example. They have been poorly managed for years, and it’s not necessarily the fault of the employees. There are lots of companies that cut jobs just to increase profits, even when the workers are productive enough. And then those profits get stashed in a zero-interest bearing account somewhere, so the damage is double.

usagadfly, every government believes their currency is overvalued. They all want their exports to be cheaper, so they can ship more. I don’t know when governments embraced the idea of devalued currency, but that used to be a source of national embarrassment. Now they all strive (consciously or not) to reduce the value of their currency by borrowing or printing lots of money, but since the governments of every major currency are all borrowing enormous sums of money, no currency is really being affected as much as they should be.

And why are governments borrowing so much money? I think it’s because the distribution of income has shifted so much that more income is flowing to fewer people, that governments are being politically forced to spend more. Business managers, in their quest to maximize profits that they aren’t utilizing or distributing to shareholders (because they are hoarding them), are forcing the governments to offset the capital that the hoarders are effectively removing from the economy.

Posted by KenG_CA | Report as abusive

Another perspective-

Top Line Employment Looks Good, But Full Time Job Growth Is Falling Apart Since QE3 http://wp.me/p2r1d8-BYh

Posted by LeeAdler | Report as abusive

Another perspective-

Top Line Employment Looks Good, But Full Time Job Growth Is Falling Apart Since QE3 http://wp.me/p2r1d8-BYh

Posted by LeeAdler | Report as abusive

First it wouldn’t post, then it posts twice. Sorry.

Also, cannot post comments from Chrome.

Posted by LeeAdler | Report as abusive

Part-time jobs don’t carry benefits, and thus are much cheaper for employers.

I wonder if the increase in part-time jobs is related to the push by the IRS to redefine “independent contractors” as “employees”? Not counting her full-time employment or regular part-time job, my wife is now on three different payrolls for what is essentially piecework.

Posted by TFF | Report as abusive

“Both the employment-to-population ratio ad the labor force participation rate are much lower than they ought to be”

Why?

Your own graph shows that we now have a higher participation rate than before about 1979 and ALL the preceding years, which supposedly was the golden age.
One hears that Americans take very little vacation – well, perhaps a number of other options and are deciding that going to work isn’t all that wonderful…

One

Posted by fresnodan | Report as abusive

@fresnodan: pre-1979: think about when women entered the workforce en mass, and that dual-earner households are now much more common, and arguably necessary, than pre-1980s.

A lower participation rate (than now) can sustain economic growth if a one-earner household can be solidly middle-class. Since the latter is increasingly difficult, so is the former.

Posted by SteveHamlin | Report as abusive

Both fresnodan and SteveHamlin have a point…

We can definitely function as a society with a lower labor-force participation rate. Productivity is up dramatically since the 1980s. But the DISTRIBUTION of labor force participation is also critically important. If all households are headed by a married couple, with one job per household, then you have a workable system with even 50% employment. If many households are headed by a single adult, you need a much higher labor-force participation rate.

Looking at the BLS statistics, we are seeing rising labor force participation among those 55 and older. Those age 55 to 64 have increased their participation from 30% to 40% over the last twenty years. Those age 65 and older have increased from 12% to 17%. At the same time, labor-force participation for those age 20-24 has fallen from 78% to 71%. Participation among the core 25-54 demographic is also slipping.

http://www.bls.gov/emp/ep_table_303.htm

In effect, we seem to be seeing an “extended adolescence”, with many individuals age 20-24 either still in school or not yet ready to support themselves. Again, this can work as long as their parents are capable of providing support — but in many cases the parents themselves are squeezed.

SteveHamlin makes an important point. Trickle-down economics has failed. The economic gains over the past 30 years have barely trickled down to the top 25%, and definitely have not reached those below the median. A bit like the Colorado River, which no longer makes it to the sea.

Posted by TFF17 | Report as abusive

“The economy ought to be able to find good, rewarding jobs not only for the 6.8 million, but for a large chunk of the other 82.5 million as well. ”

You going to conscript these people into work camps? Beat them if they don’t perform? Let those who won’t work starve? That is what it might take. In all honesty some good portion of them cannot find jobs because their production under normal conditions and motivation is insufficient to offset the cost to their employers.

Sally no math skills and bad attitude and attendance problems might only be able to produce a few dollars an hour of value in most jobs. Well when she costs at minimum something around $10/hr, well it is going to be hard to employ her. Now the prospect of starvation might motivate her to improve herself, but that isn’t on the table in our society.

Certainly we need a more liquid labor market that more quickly and easily redistributes labor among people as demand for labor rises and falls. But retraining and more importantly solid education and job skills (being polite, showing up on time, not telling your jerk boss to screw) are a huge portion of that.

Unfortunately, many people are too far gone and have too little value combined with too high working condition sand wage expectations. That isn’t a quick or easy thing to fix short of forcibly demanding they work for their government assistance at the point of a gun. Certainly we as a society have demonstrated our inability to countenance people starving in the streets, so turning off the government assistance isn’t an option.

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