Rethinking hiring and employment

February 10, 2011

In all respects save employment numbers, the United States economy is back to normal. Real growth in 2010 was 2.9 percent — not spectacular, but any developed nation would take that figure. The adjusted U.S. GDP just rose back above its prior peak of late 2007 — meaning U.S. economic output has never been higher than right now. Sales numbers are good across most industries, corporations are sitting on ample cash, banking and equity liquidity is fine, no primary resource is scarce and the index of Standard & Poor’s 500 earnings per share is at an all-time high.

That’s a healthy economy — except for unemployment. Job numbers have improved somewhat but are nothing to write home about. Even considering that hiring usually trails a recovery by several months, unemployment numbers are spooky. President Barack Obama just implored the U.S. Chamber of Commerce to “hire and invest”.

Let me propose an uncomfortable notion. Namely: two mainly unrelated phenomena happened at once, the recession and a job contraction. Though the former triggered the latter, they actually had little to do with each other. The job contraction would have happened regardless.

That’s why the end of the recession — and federal stimulus spending — hasn’t cured the jobs problem. And until we accept that the surge in unemployment is mostly something that would have happened even if the autumn 2008 financial-markets meltdown never occurred, we’ll continue to be puzzled about why jobs have not bounced back though growth has.

Workplace productivity has improved markedly in the last generation, and it’s led to the point where far fewer people are needed for many kinds of output. Twenty-five years ago, about 150 hours were required to manufacture an automobile. Today the average is down to about 80 hours, and it’s still declining. The car produced today is of much higher quality than the car produced then, meaning used cars last longer and don’t require replacement as often. The net is a huge decline in automotive assembly employment, while cars, as products, are the best they have ever been.

This isn’t just happening in Michigan and Indiana. The decline in auto manufacturing jobs in Stuttgart — the Detroit of Germany — is about the same as in the United States, though Stuttgart quality and production remain robust.

And it’s not just happening in cars. In the early 1990s, Boeing’s main aircraft factory in Washington state required 22 days to build a 737 airliner. Today that factory builds a 737 that is technologically improved over earlier models, and completes each plane in 11 days. That means fewer jobs.

The drop in manufacturing employment — often blamed on jobs fleeing to China — emphatically is not happening for that reason. In the last 20 years, the United States has lost eight million manufacturing jobs. Over the same period, China has lost 26 million manufacturing jobs. China and the United States both have great numbers for industrial production, and should for decades. But steadily fewer people are needed, owing to improved productivity and advancing technology.

Should we ban productivity improvements? Outlaw better technology? If we’d done that in the 1950s, we would all be driving 10 MPG finned Cadillacs without seat belts.

Manufacturing is hardly the only sector where job reduction is mainly caused by trends other than the 2008-9 recession. Communication technology allows steadily more output (as cell calls, as news reporting) with smaller staffs. Shipping, wholesaling and  warehousing have shown major improvements in productivity per worker. Other fields have as well. This was in the cards whether there had been the 2008 meltdown or not.

Now think about the fact that employment is down since 2008 — but GDP is up. That means the economy is functioning just fine with fewer jobs.

Perhaps the economy would function even better with more jobs. Maybe if businesses that are flush with cash would “hire and invest,” as the president hopes, there would  be another boom. A plausible case can be made for this. Let’s hope we find out.

But the fact that nearly all economic indicators have bounced back quite nicely without a return to the previous jobs level seems to tell us the recession and the job drop happened mainly independent of each other.

And it may mean a fundamental rethinking of hiring and employment policies is needed — by business as well as by government — if the United States is to return to the five percent unemployment level that ensures a job is always waiting for those who need one.

7 comments

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Your argument would be even stronger if you used Under-employment figures (factoring in those who have accepted part time/contract/reduced role employment but are qualified for and are looking for more appropriate work).

What we haven’t seen yet is the “next big thing” – that industry that will absorb all the under-utilized talent. I think the Obama administration is betting on Green Tech; do you believe it will come from there, or somewhere else?

Posted by RonDumsfeld | Report as abusive

I’d make the case computers, the internet, automation and the unrealistic profit expectation of corp. merica will continue to chip away at jobs! Also, our national debt is 100% of GDP now and 25% of total world debt and doesn’t include the trillions in IOUs for Boomers/unfunded entitlements, state problems and deficits for the next decade, loan defaults, lack of confidence, etc etc! If we could find the will to cut spending to match the decline in the private sector we may just come out the other end a better country! 1 out of 5 work in government now-will require many more PT and Temp. public employees and a greater appreciation for decent morals & ethics too! One nation under God- a nation divided falls-Ab Lincoln!

Posted by DrJJJJ | Report as abusive

What is the “fundamental rethinking” you are talking about? Care to give us an explanation instead of keeping it a mystery? This is a useless op-ed that regurgitates what people have been saying for 2008. Next time, it would be far more useful if you actually talked about some solutions.

Posted by BB1978 | Report as abusive

There is an entirely different factor to consider: population growth that continues beyond some critical level begins to erode per capita consumption. Overcrowding drives people into smaller quarters, from single family homes with yards and gardens to apartments with neither, forces people to abandon autos in favor of public transit and, in general, drives down per capita consumption of virtually everything except food and clothing. And attempting to trade freely with badly overpopulated nations like Japan, Germany, South Korea, China and a host of others – utterly dependent on manufacturing for export to sustain their bloated labor forces – imports and exacerbates the effect of rising unemployment.

With the half of nations above the world’s median population denisty, the U.S. had a trade deficit in manufactured goods of $422 billion in 2009. With the less densely populated half of nations, the U.S. had a trade surplus in manufactured goods of $102 billion. Same number of nations. The difference couldn’t be more stark.

Of the 20 most densely populated nations on earth, the U.S. had a trade deficit in manufactured goods with 15 of them in 2009. But among the 30 least densely populated nations, the U.S. enjoyed a surplus of trade with every single one.

The relationship between population density and per capita consumption is the biggest factor at work in driving trade imbalances and unemployment, yet continues to elude economists too chicken (in the wake of their black eye over the whole Malthus thing) to ever again consider the economic ramifications of population growth.

Posted by Pete_Murphy | Report as abusive

Need New Salvation Army. Until employers can see the value of the workforce things may never change. In the name of humanity we need another branch of service for those that are out of the loop to include the low end and unwanted/unprofitable/uncompetitive improvements for temporary family and child (living) assistance, re-training, emergency/preventative healthcare for those that should but may not qualify for any other program. This might be a consolidation and move of existing programs. A cost comparison of existing vs. a structured complete solution should likely show this idea to be better for security with an eye to use a portion of this workforce in it’s infrastructure and for disaster response. This could include rehabilitation with a future in a military service or hard to fill critical public service position. Not looking for tax handout, looking for a hand up while improving the less desirable aspects of our society to pick everyone up. A four day work week would help manage costs at first.

Posted by phyvyn | Report as abusive

Motivated people often create their own jobs. This motivation is diminished to some extent by the omnipresent clamor that government or existing businesses must create jobs.

A parallel message should be emphasized that a person can create his or her own job by finding and meeting a need, even a humble one, in the neighborhood — fixing, maintaining, or producing something. A one-person new business might support just the one person, or it might grow to support more, as many have.

Indeed, such beginnings built the business powerhouse that America became. We didn’t always have General Motors, Boeing, and ConAgra.

Posted by VictorValiDity5 | Report as abusive

I believe it is the anture of the technology economy that has in fact led us to have decreasing manufacturing jobs (as mr easterbrook states) AND leads us to a place where more ” government” jobs are the answer!
I work in medicine in the USA. I can tell you that for every doctor there are at least 5 employees involved in billing and administering insurance. Imagine in a world with “government” healthcare, without billing. Those same 5 employees could be paid to take care of elderly shut ins, keep track of post ops, or non compliant diabetics, etc… No increased salaries, just more productivity (without profit). It is jobs of these nature that the government should begin to bring to the country, jobs that give people meaningful work, that improve our staqndards of living , yet can not be provided in a for profit context. these same situations apply to other social services, such as education, police, etc… It is exactly the opposite of the low tax free market approach. The alternative is a future with more and more hopelessly unemployed looking through the window at the rest of us.
As for those who suggest the unemployed should create their own jobs? well certainly that should be available, and profitable for those who try and succeed, but in an economy where fewer and fewer employees are needed to provide goods and services, and fewer and fewer peopel will have any income to spend, creating jobs is not reasonable for the many. (for instance most of humanity we each hunted or grew our own food. that is no longer necessary nor practical. what can you get people to buy when they have no money and their survival needs are met?)
We must look at employment in a new way, decreasing everyones work hours so that more can work, sharing our increased productivity among all of us rather than just a few, and finding important meaningful work that raises the quality of life around us, even when there is no profit to be made from it. ( What profit is there in universal education, yet it truly raises the quality of life for all, for instance. Or profit in increasing the population’s health? Reducing infant mortality?) The last part should become the increasing role of the government. Its purpose should be to combine society’s efforts to help with quality of life issues while still allowing those who are entreprenurial profit from their risks. The resulting maintenance of a middle class committed to the whole will provide consumers for the entrepreneurs, and keep the pitchforks from their hands should they find themselves looking in at wealth for too long!

Posted by aht772e | Report as abusive