Zuckerman: "Why the Jobs Situation Is Worse Than It Looks"
From Mort Zuckerman, originally posted in Forbes
Why the Jobs Situation Is Worse Than It Looks
The Great Recession has now earned the dubious right of being
compared to the Great Depression. In the face of the most stimulative
fiscal and monetary policies in our history, we have experienced the
loss of over 7 million jobs,
wiping out every job gained since the year 2000. From the moment the
Obama administration came into office, there have been no net increases
in full-time jobs, only in part-time jobs. This is contrary to all
previous recessions. Employers are not recalling the workers they laid
off from full-time employment.
The real job losses are greater than the estimate of 7.5 million.
They are closer to 10.5 million, as 3 million people have stopped
looking for work. Equally troublesome is the lower labor participation
rate; some 5 million jobs have vanished from manufacturing, long
America's greatest strength. Just think: Total payrolls today amount to
131 million, but this figure is lower than it was at the beginning of
the year 2000, even though our population has grown by nearly 30
The most recent statistics are unsettling and dismaying, despite the
increase of 54,000 jobs in the May numbers. Nonagricultural full-time
employment actually fell by 142,000, on top of the 291,000 decline the
preceding month. Half of the new jobs created are in temporary help
agencies, as firms resist hiring full-time workers.
Today, over 14 million people are unemployed. We now have more idle
men and women than at any time since the Great Depression. Nearly seven
people in the labor pool compete for every job opening. Hiring
announcements have plunged to 10,248 in May, down from 59,648 in April.
Hiring is now 17 percent lower than the lowest level in the 2001-02
downturn. One fifth of all men of prime working age are not getting up
and going to work. Equally disturbing is that the number of people
unemployed for six months or longer grew 361,000 to 6.2 million,
increasing their share of the unemployed to 45.1 percent. We face the
specter that long-term unemployment is becoming structural and not just
cyclical, raising the risk that the jobless will lose their skills and
become permanently unemployable.
Don't pay too much attention to the headline unemployment rate of 9.1
percent. It is scary enough, but it is a gloss on the reality. These
numbers do not include the millions who have stopped looking for a job
or who are working part time but would work full time if a position were
available. And they count only those people who have actively applied
for a job within the last four weeks.
Include those others and the real number is a nasty 16 percent. The
16 percent includes 8.5 million part-timers who want to work full time
(which is double the historical norm) and those who have applied for a
job within the last six months, including many of the long-term
unemployed. And this 16 percent does not take into account the
discouraged workers who have left the labor force. The fact is that the
longer duration of six months is the more relevant testing period since
the mean duration of unemployment is now 39.7 weeks, an increase from
37.1 weeks in February.
The inescapable bottom line is an unprecedented slack in the U.S.
labor market. Labor's share of national income has fallen to the lowest
level in modern history, down to 57.5 percent in the first quarter as
compared to 59.8 percent when the so-called recovery began. This
reflects not only the 7 million fewer workers but the fact that wages
for part-time workers now average $19,000—less than half the median
Just to illustrate how insecure the labor movement is, there is
nobody on strike in the United States today, according to David
Rosenberg of wealth management firm Gluskin Sheff. Back in the 1970s, it
was common in any given month to see as many as 30,000 workers on the
picket line, and there were typically 300 work stoppages at any given
time. Last year there were a grand total of 11. There are other indirect
consequences. The number of people who have applied for permanent
disability benefits has soared. Ten years ago, 5 million people were
collecting federal disability payments; now 8 million are on the rolls,
at a cost to taxpayers of approximately $120 billion a year. The states
today owe the federal insurance fund an astonishing $90 billion to
cover unemployment benefits.
In past recessions, the economy recovered lost jobs within 13 months,
on average, after the trough. Twenty-three months into a recovery,
employment typically increases by around 174,000 jobs monthly, compared
to 54,000 this time around. In a typical recovery, we would have had
several hundred thousand more hires per month than we are seeing
now—this despite unprecedented fiscal and monetary stimulus (including
the rescue of the automobile industry, whose collapse would likely have
lost a million jobs). Businesses do not seem to have the confidence or
the incentive to add staff but prefer to continue the deep cost-cutting
they undertook from the onset of the recession.
But hang on. Even to come up with the 54,000 new jobs, the Bureau of
Labor Statistics assumed that 206,000 jobs were created by newly formed
companies that its analysts believe—but can't prove—were, in effect,
born in May under the so-called birth/death model, which relies
primarily on historical extrapolations. Without this generous assumption
in the face of a slowing economy, the United States would have lost
jobs in May. Last year the bureau assumed that 192,000 jobs were created
through new start-ups in the comparable month, but on review most of
them eventually had to be taken out, as start-ups have been
distressingly weak given the lack of financing from their traditional
sources such as bank loans, home equity loans, and credit card lines.
Where are we today? We have seemingly added jobs, but it is not
because hiring has increased. In February 2009 there were 4.7 million
separations—that is, jobs lost—but by March 2011 this had fallen to 3.8
million. In other words, the pace of layoffs has diminished, but that is
not the same thing as more hiring. The employment numbers look better
than they really are because of the aggressive layoffs in the early part
of this recession and the reluctance of American business to rehire
workers. In fact, the apparent improvement in job numbers has been made
up of one part extra hiring and two parts reduced firing.
Even during past recessions, American firms still hired large numbers
of workers as part of the continual cycle of replacing employees. Of
the 150 million workers or job seekers in America, about one third turn
over in a typical year, leaving their old jobs to take new ones. High
labor "churn" is characteristic of our economy, reflecting workers
moving to better jobs and higher wages and away from declining sectors.
As Stanford business professor Edward Lazear explains so clearly in the Wall Street Journal,
the increase in job growth over the past two years is attributable to a
decline in the number of layoffs, not from increased hiring. Typically,
when the labor market creates 200,000 jobs, it has been because 5
million were hired and 4.8 million were separated, not just because
there were 200,000 hires and no job losses. But when an economy has
bottomed out, it has already shed much of its excess labor, as
illustrated by the decline in layoffs—from approximately 2.5 million in
February 2009 to 1.5 million this April. In a healthy labor market like
the one that prevailed in 2006 and into 2007, American firms hired about
5.5 million workers per month. This is now down to about 4 million a
month. Quite simply, businesses have been very disciplined in their
We are nowhere near the old normal. Throughout this fragile recovery,
over 90 percent of the growth in output has come from productivity
gains. But typically at this stage of the cycle, labor has already taken
over from productivity as the major contributor of growth. That is why
we generally saw nonfarm payroll gains exceeding 300,000 per month with
relative ease. This time we have recouped only 17 percent of the job
losses 23 months after the recession began, as compared to 207 percent
of the jobs lost from previous recessions (with the exception of 2001).
There is no comfort either in two leading indicators of employment, with
no growth in the workweek or in factory overtime.
Clearly, the Great American Job Machine is breaking down, and
roadside assistance is not on the horizon. In the second half of this
year (and thereafter?), we will be without the monetary and fiscal
steroids. Nor does anyone know what will happen to long-term interest
rates when the Federal Reserve ends its $600 billion quantitative easing
support of the capital markets. Inventory levels are at their highest
since September 2006; new order bookings are at the lowest levels since
September 2009. Since home equity has long been the largest asset on the
balance sheet of the average American family, all homeowners are
suffering from housing prices that have, on average, declined 33 percent
(compare that to the Great Depression drop of 31 percent).
No wonder the general economic mood is one of alarm. The Conference
Board measure of U.S. consumer confidence slumped to 60.8 percent in
May, down from 66 percent in April and well below the average of 73 in
past recessions, never mind the 100-plus numbers in good times. Never
before has confidence been this low in the 23rd month of a recovery.
Gluskin Sheff's Rosenberg captured it perfectly: We may well be in the
midst of a "modern depression."
Our political leadership in both Congress and the White House will
surely bear the political costs of a failure to work out short- and
long-term programs to fix the job shortage. The stakes are too high to
play political games.
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