Guest Post: Why Employment Is Dead in the Water

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Employment is dead in the water because opportunities for organic expansion are few and the cost basis of doing business in the U.S. keeps rising.

Let's start by reviewing the basics of employment in the U.S. Courtesy of the St. Louis Federal Reserve, here is the non-institutional civilian population of the U.S. (Note that the Civilian Non-institutional Population With No Disability, 16 years and over (LNU00074593)--roughly speaking, the workforce of the nation-- is 215 million).
Here is the percentage of the population with some kind of job: note this could be self-employment that earns $1,000 a year or a job with 4 hours a week; recall that 38 million American workers earn less than $10,000 per year, 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually. All these numbers are drawn directly from Social Security Administration payroll data.
Here is real (adjusted) gross domestic product (GDP), which includes government spending: (in other words, as you borrow-and-blow trillions of dollars, GDP rises).
Unfortunately, employment hasn't risen along with the population or the GDP: the only metric with any meaning is full-time employment, as self-employed and part-time jobs may pay a few thousand dollars a year and should not be included in the same category as full-time jobs.
In sum: the population and GDP have both expanded smartly since 2000, but full-time employment has barely edged above levels reached 13 years ago.
Academic economists and political progressives would have us believe that the only thing restraining employers from hiring millions more people is lack of access to cheap credit.
The explicit assumption here is that cheap credit is all employers need to expand their workforce. This is so out of touch with reality that it beggars description.Progressives and academic economists generally claim the Federal Reserve's zero-interest policy (ZIRP) and its other policies of flooding the economy with liquidity "are working," i.e. boosting the economy.
Here is what the Fed's policies are boosting: financial sector profits Please compare this chart with the chart above of full-time employment, and then decide where the Fed's free money/easy credit is flowing.
Here are financial profits per capita:
The only way to understand why employment is dead in the water is to stand in the shoes of a potential employer or entrepreneur. Remarkably, this perspective is unknown to economists and progressive politicians because they have never been an employer (and no, hiring a grad student to grade papers or an illegal nanny to watch your kids does not make you an employer.)
I have described this vast divide between small business employers, entrepreneurs and the self-employed and those working in government or Corporate America as one of the least explored social/economic divisions in the nation.
Those who have spent their careers in government or academia have little idea what it takes to hire more people. Number one is a business with strong demand for one's products or services. In a developed world with too much of everything except energy, that is no small challenge: the world is awash in over-capacity in every field except niche industries such as deepwater oil rigs.
Second, you need a process that generates so much value (specifically surplus value) that you will generate immediate profits by hiring more people.
If the value added by additional labor is low, then you have no reason to hire more employees, even if Ben Bernanke personally knocked on your door begging you to borrow a couple million dollars at low rates of interest.
If an additional unskilled worker will cost $10 an hour and might generate $100 a day in additional gross revenues, that is $20 in gross profit. But the overhead costs of operating a business are rising faster than inflation: junk fees imposed by cities, counties and states, workers compensation and disability premiums, healthcare costs (if you hire full-time workers), energy costs, and so on.
For most businesses, overhead costs 50% to 100% of total employee compensation--wages plus benefits and payroll taxes. So adding another employee to gross 20% more doesn't make it worthwhile--it actually generates a loss once overhead costs are paid.
The only time it makes sense to hire another worker is if that worker will create 100% or more surplus value from their labor. For example, a worker paid $200 a day in total compensation generates $400 more in gross revenues--enough to not only support the added overhead but net the business a profit.
In a global economy, competition constantly lowers the premium most businesses can charge. That places most businesses in the vice of declining gross margins and higher labor/ overhead costs. The only way to stay solvent is to grow revenues and slash costs so declining gross margins are still enough to pay the bills and leave some return on capital/time/risk invested.
Cheap credit doesn't create surplus value, increase gross margins or get rid of over-capacity. It is a financial non-sequitur for all but a relative handful of enterprises. The only firms interested in borrowing money for expansion are those relative few in sectors that are not burdened with overcapacity. That might include oil services, network security and a handful of others.
But high-margin sectors such as technology either get funding from venture capital or their high margins generate enough income to fuel expansion without taking on debt.
The only companies borrowing vast sums of money are those paying off higher-cost existing debt with new cheap-credit loans. The savings from lower interest payments don't flow to new hires, they flow to the bottom line and from there to executives, owners or stock buybacks that boost the portfolios of institutional owners.
Employment is dead in the water because opportunities for organic expansion are few and the cost basis of doing business in the U.S. keep rising. That vise forces businesses large and small to reduce labor costs while boosting productivity. There is no other way to stay solvent in a post-bubble, over-capacity, over-indebted consumerist economy awash in too much of everything but energy, common sense and fiscal prudence.

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icanhasbailout's picture

"real GDP growth is not translating into full-time jobs" because that GDP growth ain't real.

NemoDeNovo's picture

Truth is Treason in the New 'merika Bitchez!!!!


What we NEED is some 'ol Skool Wall Street Pro....memeber him?


In case you forgot ---->


A BLAST from the PASt but worth the trip.......

wee-weed up's picture

But do not dispair...

Obama & Biden will soon give us the Fifth Annual Summer of Recovery!

trav777's picture

Maryland wants to raise the minimum wage to $10/hr because of all the people it would help.

As if the money can just come from fucking nowhere.  I guess that's really how it is for legislators.  And some idiot gov talking head said also that you should object if the retailers try to pass the CC fees on to you (that visa, mc, amex charge for processing).  LOL, who the fuck do they actually think PAYS those fees?

fonzannoon's picture

"As if the money can just come from fucking nowhere"

85 bil a month. Every month. Split it up and send everyone a check. There are no consequences. So let's stop arguing over trivial shit.

TruthInSunshine's picture

Now that King Obama has been re-installed, the Main Stream Media has begun to leak some quite depressing (suddenly discovered & reported, huh?) facts about how many millions more decent paying, middle class jobs will be lost in the U.S., the EU, and in other nations/regions due to the absolute human labor displacement phenomena of automation & technology.

You see, things will get FAR WORSE, but it won't be Obama's fault, despite his pre-election pledge that things were about to get FAR BETTER:


AP IMPACT: Recession, Tech Kill Middle-Class Jobs; Tens of Millions More Jobs About To Be Lost in U.S., EU, Other Nations

ABC News ‎- 2 hours ago

NEW YORK -- Five years after the start of the Great Recession, the toll is terrifyingly clear: Millions of middle-class jobs have been lost in developed countries the world over.

And the situation is even worse than it appears.

Most of the jobs will never return, and millions more are likely to vanish as well, say experts who study the labor market. What's more, these jobs aren't just being lost to China and other developing countries, and they aren't just factory work. Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers.

They're being obliterated by technology.

Year after year, the software that runs computers and an array of other machines and devices becomes more sophisticated and powerful and capable of doing more efficiently tasks that humans have always done. For decades, science fiction warned of a future when we would be architects of our own obsolescence, replaced by our machines; an Associated Press analysis finds that the future has arrived.


EDITOR'S NOTE: First in a three-part series on the loss of middle-class jobs in the wake of the Great Recession, and the role of technology.


"The jobs that are going away aren't coming back," says Andrew McAfee, principal research scientist at the Center for Digital Business at the Massachusetts Institute of Technology and co-author of "Race Against the Machine." ''I have never seen a period where computers demonstrated as many skills and abilities as they have over the past seven years."

The global economy is being reshaped by machines that generate and analyze vast amounts of data; by devices such as smartphones and tablet computers that let people work just about anywhere, even when they're on the move; by smarter, nimbler robots; and by services that let businesses rent computing power when they need it, instead of installing expensive equipment and hiring IT staffs to run it. Whole employment categories, from secretaries to travel agents, are starting to disappear.

"There's no sector of the economy that's going to get a pass," says Martin Ford, who runs a software company and wrote "The Lights in the Tunnel," a book predicting widespread job losses. "It's everywhere."

The numbers startle even labor economists. In the United States, half the 7.5 million jobs lost during the Great Recession were in industries that pay middle-class wages, ranging from $38,000 to $68,000. But only 2 percent of the 3.5 million jobs gained since the recession ended in June 2009 are in midpay industries. Nearly 70 percent are in low-pay industries, 29 percent in industries that pay well.

In the 17 European countries that use the euro as their currency, the numbers are even worse. Almost 4.3 million low-pay jobs have been gained since mid-2009, but the loss of midpay jobs has never stopped. A total of 7.6 million disappeared from January 2008 through last June.

Experts warn that this "hollowing out" of the middle-class workforce is far from over. They predict the loss of millions more jobs as technology becomes even more sophisticated and reaches deeper into our lives. Maarten Goos, an economist at the University of Leuven in Belgium, says Europe could double its middle-class job losses.

Some occupations are beneficiaries of the march of technology, such as software engineers and app designers for smartphones and tablet computers. Overall, though, technology is eliminating far more jobs than it is creating.

To understand the impact technology is having on middle-class jobs in developed countries, the AP analyzed employment data from 20 countries; tracked changes in hiring by industry, pay and task; compared job losses and gains during recessions and expansions over the past four decades; and interviewed economists, technology experts, robot manufacturers, software developers, entrepreneurs and people in the labor force who ranged from CEOs to the unemployed.

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trav777's picture

they need people who can tell the machines what to do.  I do that.

And I've seen the shit that passes for "development" from indians...ugh.

I plan to tell the machines to vaporize all of you when the time comes, just fyi

economics9698's picture

"Those who have spent their careers in government or academia have little idea what it takes to hire more people. "

Yea they do but they do not give a shit as long as the paycheck is signed every two weeks.  

YBNguy's picture

"Hide yo kids, hide yo wife, THEY rapin' e'ry-body!"

Oldrepublic's picture

after the great reset many of those "workers," will be working in flea markets. Like the over educated ex government workers in Ukraine and Russia who use to sell shoes with a  PHD in physics!

bnbdnb's picture

I'm a programmer/developer for healthcare billing firm. We added over 5 million patients and 10 new million dollar clients.


We hired zero.


OOP kills.

Gimp's picture

Yes, OOP kills but for the developers inheritance, polymorphism rocks!

nicxios's picture

The march to technological takeover is an earth-changing event that we're witnessing. 

If people don't wake up, all that excess capacity and unemployed people will be put to use--war. War fixes the problem for the top. Since I have no confidence in the stupid masses, it will be a reboot and not a change in paradigm, with the top remaining at the top and continuing the thievery and fraud.




TMLutas's picture

The one glaring job opportunity I see to avoid this dynamic is in overseeing government to dig out and kill those overhead costs. It's not a job that will ever be finished and unlikely to be outsourced. The only question is how to do it profitably. 

Son of Loki's picture

TIS, the NYT just published what sectors have the lowest unemployment rates:

1. clergy;

2. policemen; and

3. petroleum engineers.


That's what I remember. All of these about 1.2% joblessness.

onthesquare's picture

windows 8 will save us from advancing technology

kchrisc's picture

"That's funny! I don't care who you are. That's funny."

kchrisc's picture

If it's in the propaganda media, it's propaganda.

The propaganda here is "more job losses coming, but don't blame us pols, crats & elites, 'cause the machines did it."

If they are making excuses in advance, then the shit is going to get real bad soon.

"And in other news, the administration today announced that 'we are war with the machines, always have been.'" hujel

SafelyGraze's picture

"Note that the Civilian Non-institutional Population With No Disability .."

however, if you include prison population making 11 cents per hour, non-civilians, persons with disability, and undocumented workers, the employment picture actually looks very strong 

Quantum Nucleonics's picture

Sadly, most politicians really do think raising the minimum wage is good, and they really do think the money comes from nowhere.  After all, we are talking about people like Shelia Jackson-Lee who asked mission control if the Mars rover would be able to see our lunar landers and extoled the peaceful North Vietnamese "merger" with the South.

They also know very well where those CC fees flow.  From consumers, to retailers, AFTER, the politicans get their cut and Dick Durbin gets his papal ring kissed.

LawsofPhysics's picture

"As if the money can just come from fucking nowhere. "


But it can Trav, central bankers create money from nothing all the fucking time.  Like Jamie Dimon said, it's too complicated for you debt-slaves to understand, now shut up and pay the interest bitch.

Karlus's picture

I herd Lambos are selling like hotcakes in DC, besides Obama sez private sector doing fine

kaiserhoff's picture

Things are just peachy now.  Wait until Obamycare rapes small business next year.

wee-weed up's picture

Next year??? So I guess the last four years have been just inappropriate foreplay?

lunaticfringe's picture

How about Oct 1 this year? i can't wait. A single guy if he smokes? How does 700 a month sound?

willwork4food's picture

What if I smoke, drink, and text while I'm whistling at the hottie in the car next to me?

Parrotile's picture

Hope you've still got a "Middle Class Income" then!

(Or you have useful friends in high places!!)

SamAdams's picture

In Soviet Amerika all jobs are created by the Government to support the machine.  How many jobs in surveillance or police has our government created since 2007?

Gun grab = They want civil war so they can throw the dissenters into those FEMA camps and the shadow government can come out in a full 4th Reich tyranny.  It will almost be worth it just to see the look on the liberals faces.....


reader2010's picture

JOBS is just another four-letter word in English.

clara-to-market's picture

Employment is dead because all the jobs were shipped overseas.

The powers-that-be forgot what makes America great.

And it ain't fucking rich people.

It's the middle class.

Without them, we're just another banana republic.

trav777's picture

the middle class was built via labor pricing power through unions.  These unions then sold out to business and government which sold out to each other and banking.

Now there is a revolving door between government, union, corporate, and's because they all merged.  You won't get a fair shake from anybody these days.

augustus caesar's picture

bullshit the middle class was not built by unions way to buy into the propaganda, the union middle class just REPLACED the old middle class, just as the army of government workers REPLACED a good portion of the private sector union members as our current middle class

espirit's picture

It's all good if the govenment workers pay the bulk of the taxes.

ZeroSum Game? Keeps the ole velocity up to speed.

Things that go bump's picture

Government workers don't pay tax; they claim to, but they lie.

trav777's picture

there was no middle class before unions, you fucking moron.

How do you think communism gained so much traction?

augustus caesar's picture

You're out of your element Donny, tell me how you feel about black people

FreeMktFisherMN's picture

Unions did not create the MC. Private enterprise and wealth creation did. An entrepreneur seeks a profit, and he needs to hire people to help him pursue profit. The people may be very skilled, and if he's not paying them well enough, they can go elsehwere. Labor is subject to competition, too, although now it is all about minimum wage and 'social justice' that has killed free enterprise. 

The only way in a free market somebody makes a profit is to figure out something somebody wants, build it, and sell it to them at a price they can afford/will pay, and that leaves the supplier some equity after covering his costs. He thus serves his fellow man, and even if he gets super rich, this is just a signal that he is productive. Meanwhile peoples' std. of living goes way up as more stuff gets built, and more efficiently, such that even the lower classes live higher than the highest classes of many countries.

FreeMktFisherMN's picture

Just like OSHA didn't make the workplace safer. Technological advances spurred by profit motive did. Firms have reputations to maintain, and people won't work there if it's too dangerous and/or there are better alternatives. 

FreeMktFisherMN's picture

Just like OSHA didn't make the workplace safer. Technological advances spurred by profit motive did. Firms have reputations to maintain, and people won't work there if it's too dangerous and/or there are better alternatives. 

icanhasbailout's picture

a bit tough for that to be the case given unions date to the 19th century and middle classes goes back hundreds of years before that

onthesquare's picture

face it.  The last 100 years have been a freefall for spoon fed labour.  The man who employs you benefits more from your labour than what he rewards you with.  Slave.

Work for yourself and never look back.  You eat, drink and sleep your work but you are constantly focussed.  You will learn how to relax and forget the work and how to enjoy life and work together.  Stay out of retail.  Some jobs are out there that are fixing legacy equipment.  40 year old components that are not replaceable for numerous reasons and the cost to keep the system going, based on that legacy component?...priceless.

Quantum Nucleonics's picture

Its' government that made American labor unproductive with crushing regulation and high taxes.  You can't really blame the business.  They either move overseas or they shut down.  Either way the job here is gone.

Sane regulation and lower taxes would make the US worker competitive.  They'd be the catalyst to lower unemployment, but we'll have to wait for 2017.  In the meantime, get your popcorn - QE should wear off soon and were exiting the seasonal adjustment twilight zone back to spring reality.

HurricaneSeason's picture

The corporations really don't like sending jobs overseas for $250 labor a month, but they have no choice because their profits would be taxed at 25-35%.  If they'd cut the corporate tax rate, the jobs could come back, but pay $1.50 an hour and none of that unemployment, social security, healthcare, workman's comp, EPA or that other crap.

Poetic injustice's picture

Okay, I am willing to hire you for 1,50$ per hour without any paperwork. Send me your CV, I need engineers and IT workers.

TrustWho's picture

...and using Apple as a model, innovation does not create American manufacturing jobs, so the future employment outlook is bleak.

onthesquare's picture

Apple as a model for what?

world_debt_slave's picture

yep, went from a $105 per hour 1099 to now $8.75 per hour W2 slave.