Rethinking hiring and employment
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.