Friday, November 8, 2013

High Employment Costs the U.S. $1 Trillion a Year

The U.S. Labor Department reported that the unemployment rate edged up to 7.3 percent, from 7.2 percent. One reason cited is that hundreds of thousands of federal employees were furloughed during the 16-day fiscal standoff in Congress. (Although they have returned to work, some say any lingering impact of the shutdown should fade quickly.)

In September, the economy added a revised 163,000 jobs. Before today's labor figures were released, the economy had added an average of 177,000 jobs a month (The US has had over 3 million high school graduates every year since the Great Recession began.)

CBS: "At [the current] rate it would still take years for the labor market to bounce back to its levels before the 2008 financial crisis devastated the economy. The jobless rate also has declined largely because many discouraged people having stopped looking for work. Such workers are not counted in the government's headline unemployment figure."

The U.S. Commerce Department said Thursday that the economy expanded at a 2.8 percent annual rate from July through September, the best quarterly performance so far this year. Yet that one quarter GDP snapshot overstates the strength of the economy, because it's largely due to businesses who are re-stocking their shelves (not increased consumption or sales).

Ian Shepherdson, chief economist with Pantheon Macroeconomics, wrote in a note to clients before the latest jobs data were released that "consumption is too weak to support economic growth at the sort of pace needed to close the output gap, and we see no prospect for any real improvement in the near-term."

Americans have been consuming less --- unemployment, especially long-term unemployment (including those who are no longer being counted) continues to be very high, as those long-termed unemployed have exhausted all available resources for spending. Many older long-term unemployed Americans were forced into taking Social Security early for reduced benefits. And wages have been stagnant for decades. All this has contributed to sapping people's purchasing power...and that's why we know have a mutilated economy.

From "The Mutilated Economy" by Paul Krugman (Excerpts from November 7, 2013)

Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment — the number of people who have been out of work for six months or more — is four times what it was before the recession.

By failing to address unemployment, we have, in fact, been sacrificing the future, too. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come. Or so say researchers from the Federal Reserve.

[According to the Fed], our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags, thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.

[The Fed] suggests that economic weakness has already reduced America’s economic potential by around 7 percent, which means that it makes us poorer to the tune of more than $1 trillion a year. And we’re not talking about just one year’s losses, we’re talking about long-term damage: $1 trillion a year for multiple years...The evidence is overwhelming that by failing to respond effectively to mass unemployment — by not even making unemployment a major policy priority — we’ve done ourselves immense long-term damage.

The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.

Manufacturing has been in decline for the past three decades due to the offshoring of domestic jobs to low-wage countries like China. One study shows that almost 1/3 of all current domestic jobs are still prone to being outsourced, leaving the US workforce with an economy primarily made up of low-paid service and retail jobs. So with our current political system the way it is today, expect a much more mutilated economy years from now.

Editors' Note: Unlike the many opportunities we had available to us when we graduated from high school (so many years ago), it makes me wonder what will become of the millions of our young people graduating from school today. We may think that we have it bad now (the older long-term unemployed), but where will THEY all be when they reach our age? At least we caught the tail end (of the peak) of the middle-class --- but many young people today may never know what a "middle-class" lifestyle ever was. If they don't take to protesting in the streets today, they may end up living on them tomorrow.


  1. ---

    "The economy added 204,000 jobs in October while the unemployment rate increased to 7.3 percent, the Labor Department reported Friday. Analysts had expected job growth of about 120,000, according to a Bloomberg survey of economists."

  2. 3,958,691 jobless Americans are receiving some form of unemployment insurance benefits --- but by the end of the year, those on extended federal benefits (1,370,774) will be terminated --- meaning, more people with less to spend.

  3. Huffington Post: October Jobs Report: U.S. Creates 204,000 Jobs, Unemployment Rate Rises To 7.3%

    Jared Bernstein: "Payrolls were up 204,000 last month, well above expectations, and the unemployment rate ticked up slightly to 7.3 percent, due in part to the government shutdown, which lasted through the first half of the October."

  4. "The Emperor Has No Jobs"

    Not in Labor Force (October 2013) New all-time records:

    -- Seasonally Adjusted: 91,541,000 -- up +932,000 from September's all time-record.

    -- Not Seasonally Adjusted: 91,463,000 -- up +831,000 from September's all-time record.

  5. UPDATE:

    Statement of Labor Secretary Perez on October employment numbers:

    "Today's jobs report demonstrates continued steady growth, with the addition of 212,000 total private sector jobs in October. The unemployment rate, which fell in September to a nearly-five year low of 7.2 percent, remains essentially unchanged at 7.3 percent, while American manufacturers added 19,000 jobs in the month of October...American businesses continue to add jobs — 7.8 million over the last 44 months of private sector job growth." (But we also had 16 million high school graduates during that time.)

  6. It is going to take time, but there is an encouraging trend of manufacturing reshoring back to America. Companies are now investing in US facilities for a host of reasons, but unsurprisingly, numbers play a large part. "Wages in China have been rising by 15 or 20 percent per year since 2000," and shipping costs are also a factor. There's also a price to pay that can't be measured, but can be summarized using the old cliche "time is money....

    You may disagree violently with me, but I think one other factor that has improved the competitiveness of American labor is the demise of our labor unions. I have worked in a factory a long time ago, and the union work rules added huge manpower overheads. Case in point - Twinkies and Hostess snacks have made a comeback with the unions gone as well as many of the jobs there. When it is fully staffed, the company will have some 1,800 employees in the United States. Previously, the workforce was more than 10 times that number.

  7. What are the Hostess employees being paid now, compared to before? What sacrifices did they have to make? Did they lose their pensions and take cuts in pay? Did they lose benefits like healthcare?

    When wages go up in China, factories move to Vietnam (or wherever), they don't come back to the least, not until the US becomes the next "emerging market".