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Guest Post: The "Labor Hoarding" Effect
Submitted by Lance Roberts of Street Talk Live blog,
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This page has been archived and commenting is disabled.
Submitted by Lance Roberts of Street Talk Live blog,
Just recently the April employment report was released by the Bureau of Labor Statistics (BLS) which showed a surprise jump in employment for the month of April of 165,000 jobs. The general consensus for the report was 153,000 jobs so the "better than expected" news was credited to the surge in the financial markets.
There has been much analysis of the data since the report with views that ranged from ebullient to dismissive. However, the reality is that, despite better than expected numbers in the report, employment gains to this point have been nothing more than a function of population growth. The chart below shows the 12 month average of the net change in both employment and population. As you can see there have been very few months since the turn of the century where employment has exceeded population growth.
This explains two things:
1) Why the employment to population ratio has plunged along with the labor force participation rate; and
2) That employment gains, so far, have been a function of businesses hiring only to meet the demand increases caused by an increase in population rather than from a growing economy.
The latter point is very important and relates directly to an issue that has been lurking silently in the background called "labor hoarding."
Since the end of the recession businesses have been increasing their bottom line profitability by massive cost cuts rather than increased revenue. Of course, one of the highest "costs" to any business is labor. One way that we can measure this view is by looking at corporate profits on a per employee basis. Currently, that ratio is at the highest level on record. (Scale below is inverted for clarity)
The problem that businesses are beginning to face currently is that while they have slashed labor costs to the bone there is a point to where businesses simply cannot cut further. At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion.
The issue of "labor hoarding" also explains the sharp dorp in initial weekly jobless claims. In order to file for unemployment benefits an individual must have been first terminated, by layoff or discharge, from their previous employer. An individual who "quits" a job cannot, in theory, file for unemployment insurance. However, as companies begin to layoff or discharge fewer workers the number of individuals filing for initial claims decline. This is shown in the chart below which shows the 4-month average of layoff and discharges versus the 4-week average of initial jobless claims.
However, the mistake is assuming that just because initial claims are declining that the economy, and specifically full-time employment, is markedly improving. The next chart shows initial jobless claims versus the full-time employment to population ratio.
Furthermore, if we take a look at the 4-month average of net new hires we see the same story. Net new hires is likely signaling the peak of the employment for the current economic cycle.
The issue of "labor hoarding" is an important phenomenon that is likely obscuring the real weakness in the underlying economy. Without an increase in the demand part of the equation businesses are likely to continue resorting to further productivity increases to stretch the current labor force farther to protect profitability. However, as we may currently be witnessing, businesses may be reaching the limits of what they can do to continue increasing profits at the bottom line while revenue declines at the top. The implications for the financial markets going forward are clearly negative.
The "good news" is that for those that are currently employed - job safety is high. Businesses are indeed hiring; but prefer to hire from the "currently employed" labor pool rather than the unemployed masses. The "bad news" is that for those unemployed full-time employment remains elusive and wages remain suppressed due to the high competition for available work.
The current detachment between the financial markets and the real economy continues. The Federal Reserve's interventions continues to create a wealth effect for market participants, however, it is unfortunate that such a wealth effect is only enjoyed by a small minority of the total population - and it is primarily those at the upper end of the pay scale that have jobs.
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Upper end of the pay scale. I have heard about that but never seen it.
Rather than layoff workers, you use the slowdown to reduce hours to no more than 29.
Lowering the definition to 30hrs for part timers was no quirk, with Obamacare costs soaring, this is a twofer for the administration...hire twice as many people for the cost of one, push people onto exchanges vs. private insurance and show the enormous success of policies although average hours worked each month will continue to drop..also not keeping up with growth of workers so the measure of those in the workforce as a % of population will also keep dropping.
...and make the active choice to screw your workers over. The only valid response is to not have these limits in the first place - by redefining them as immediately attainable - and then making it so that any other attempt at avoidance is made unprofitable.
HAHAHAHHAHAHAHAHAH
Where are all the people who were junking me YESTERDAY when I said that the job figures pointed to hoarding of talented labor capital, and that the problem is there is a distinct lack of educated, talented people in the workforce?
Further affiant sayeth not
Damn, you got junked for that yesterday? I recognized that to be the problem as soon as I entered the workforce. Even the 'educated' ones are shells of people these days. As an old grouchy professor I once had said, "they don't make engineers like they used to."
This trend has been in force for several years now. Try hiring a talented sales professional-- they are impossible to find. The good ones are either staying where they are, or are in such demand that they never even hit the labor market. The bad ones are either marginally employed, or have been unemployed for years.
offer more,, you will find them.
You are totally correct. People that have skills and experience especially in high demand industry (Oil and Gas, IT, etc) cannot be found. They're all working. Pay is continuing to go up for these positions albeit not keeping up with inflation. I have several friends that have had open hire tickets for months, but there just aren't very good candidates out there. Unfortunately, there aren't many options for people to get these skills. All the low-experience positions are highly over-subscribed.
Being that it's so expensive to hire employees (taxes, healthcare, benefits, pay) many companies are doing without. It's just not worth the possible risk. Small businesses are increasingly under pressure. Because the obstacles are so monumental to the point of absolutely needing HR and legal to maintain any sort of staff, small businesses are staying at 1-2 people, and they're outsourcing tasks that they otherwise would have hired employees for. This is simply serving to eliminate competition for the big boys.
The compliance legal and tax regime is completely and utterly fucked.
"The compliance legal and tax regime is completely and utterly fucked."
I've been trying to explain to people that hiring incremental employees is not just a function of their cost (payroll and beneifts), but of their RISK. And I don't just mean business risk in the traditional sense of the word (hiring people for whom work evaporates or never materializes). Nor do I mean compliance cost (cost of complying with regulations). I mean COMPLIANCE RISK. The kind of risk that might result in no additional cost (nothing bad happens) or MILLIONS to defend against a lawsuit or aggressive compliance audit. You can't just "average out" that cost. It hits you or it doesn't. And the more people you have the more likely it is to hit you. Small companies have no defense against this sort of risk- they don't have teams or lawyers on staff nor political connections to avert Sauron's gaze.
Hiring people is easy. Getting rid of them- not so much.
Much easier to hire temps as-needed.
There are good IT people out there. You just have to make it worth their while. $30K to be on call 24 hours per day is not worth their while. More pay and some stability would be great, but thinking outside the box works too. Why can't I develop applications from home and after hours? You obviously don't want to pay enough for me to be there 8-5 and it's not like the work can only be done within those hours...
These positions are in the 90K/year ballpark for consultative high level IT security roles for one friend of mine. Work hours are just fine, no call, some travel, work from home quite a bit of the time.
The other friend of mine doing project scheduling in Primavera is a similar situation. Need experience, but 100K+ is pretty typical.
App dev is being done by Indians and Russians. App security testing and code review, well, that's a different ballgame.
Yeah, and look at the result. Hardly anything works anymore.
Labor hoarding? Looks more like profit hoarding to me. Something about the real cost of providing/manufacturing a real fucking product do come to mind. Margins anyone?
Basic economics..ride that horse as long as it is cost efficient until it collapses then get another one.
Another high cost is health insurance which is not necessary to guarantee to part-time/temp workers.
"You're still "employed" but we'll have to cut your time down by 30 minutes so we don't have to be responsible for your health. Don't worry Obama has you taken care of."
It's funny how everything seems to go back to the early 70s. Now what happened in the early 70s..hmmmm ....oh yeah this..:
https://www.youtube.com/watch?v=vNAvsrY9vR4
and this:
https://www.youtube.com/watch?v=N5V9sP_nDCM
Don't forget the peak of American oil production in the early 70s, which meant that dollars would need to leave the country to pay for many more imports, which meant that the dollar had to be de-coupled from gold or the US would rapidly trade all its gold for oil.
At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion.
"Squeeze" is probably a more accurate term here. I would think that labor "hoarding" would imply paying workers more to lower the chance that they would go work somewhere else instead.
You can't -for instance- "hoard" women by asking them to put out more for less while simultaneously utilizing "temps" in broad daylight.
They spelled it wrong. They meant "whored-ing."
Obamacare forces employers to hire temp workers and at the same time reduce full time employees to part time. That is primarily why the employment numbers are looking somewhat better.
Labour hoarding?
Dont think so peeps. We had 13 years under Liebour here and they fucked everything, evry single damn thing under the sun, then sold our gold reserves at a record low, and then flogged the kitchen sink, while bailing out the death needing bankers with our money, while importing half the third world.
Sorry folks, Labour aint for hoarding, they is all for either selling it off low or giving it away.
While rubbing your nose in it. ;-)
My first thought when I read "labor hoarding" was people selfishly not working. I guess this comes from my crazy idea that an individual owns his own labor.
That might explain the labor participation rate.
Population growth vs. Employment "anomaly" is explained by the fact that homo sapiens does not, generally speaking, birth fully-grown workers after gestation.
Although that chart might help someone understand, say, a honey vs. honeybees curve for Farmer Jones' apiary, most mammals require time to grow and develop brains. (Most).
robots vs labor. robots win eliminating millions of jobs each year. Its accelerating. The only response is central bank stimulus which keeps the robots not humans working and makes the SPX move higher. Inflation is being exported to poor countries which is not so nice. central banks wage war trying to devalue paper money. Youth unemployment is hidden with financial aid but the young end up being debt slaves living at home. Robots win.
Robots cost more to maintain than humans.
Humans self-repair, self-replicate & over time self-improve (not all at once). Robots can work without sleep until they break but are expensive to repair & many are very complicated to design, whereas of course a human comes already 'designed' (don't even start, fundies) to suit needs of an economy (which evolved with us)
Or could the relentless rise in corporate profits vs labor since 2009 be a function of something else?
Perhaps the rise in corporate fudging of profits that don't actually exist. Forward booking sales that will never happen. Booking services never performed and trading profits skimmed from the HFT of worthless securities. GAAP changes in March of 2009 that allowed Mark to Myth to become the rule of law.
Tesla booked a profit due to the trading of green energy credits in CA, not because they made money selling cars. Zumiez reported double digit comp growth even though they have no customers and mall retail is dying. Easy to have comp growth if you channel stuff and book forward profits.
Production and retail commerce is no longer a function of the economy. The economy is now 100% a function of the fraud that can be squeezed from $85b a month coming from Ben Bernanke.
great charts as always, Lance
Based on the common theme I hear from talking with mid and upper-level managers (in high tech), it seems like they are balancing two things: Profit Hoarding vs. Risk Mgmt.
Put another way: "How can we max our profits -- and bonuses, don't forget the bonuses! -- and not have crazy risks in meeting the schedule and deliverables?" The Risk factors that scares them the most is the damn political and fiscal uncertainty that NY and DC keep inflating.
To them, the timeline and outcome is a bit like having smart people reading tea leaves, instead if Gypsies reading tea leaves. Until there is more info/clarity, everyone is staying in this poker game -- with self-reinforced mass-bluffing going on. They're all playing Liar's Poker, until...
The real effect of labor hoarding is that businesses will keep their most productive employees and pay them well. Anyone not in this category will be reduced to temporary or part-time work so as to avoid the costs of benefits. Thus you may technically be 'employed' while working your 27 hours per week, but you are not 'fully employed'. And with jobs hard to find, you do not want to walk away from that 27 hour a week job (where you keep hoping for more hours) , so you don't ever quit and join the unemployment lines.
RE:
Actually, I find most of the time that the employees who do the hard work are the ones paid the least. And now because of this shtity labor market and the crappy JOLTS numbers (quit rates), employers can even do this MORE.
America, 2013. Gotta love it.
You can run anything at double speed but eventually the wheels start to wobble. What I see from Clients is that their employees are going "full tilt boogie" and have been for years. I have been seeing small mistakes and oversights as people start to falter a bit. It is a buyer's market for labor, so the employees do not complain; they take work home & work weekends. IF the avg WW hours are declining, it must really be tanking b/c salaried employees are working harder & longer for less.
corporations can borrow at historically low interest rates to buy back shares. DOW 20K, SPX 2K, it's just matter of time. Anyone counting revenue and margin will be laid to waste.
Labor hoarding my ass.
When the sales tax on labor(employment taxes) is three to four times higher than the sales tax, businesses due their best to automate as much as possible, because it's so much cheaper.
If businesses were hoarding labor, they would be hiring full time employees to keep them from their competitors.
We are in a period of labor avoidance.
Think 80/20 rule. The 20% most productive workers are getting hoarded-- companies are doing whatever it takes to retain them. The 80% have been aggressively pruned off.
The problem of course is that your future 20% come from somewhere in that current 80%. In the next decade, we are going to see a wholesale collapse of those organizations that did not correctly identify and retain the "future 20%".
Closer and closer to when all businesses will shut down and everyone will be employed by The State after all means of production are nationalized. Ayers' dream of a Communist Paradise will be fulfilled by his Frankenstein creation made in a Bath House.
Who said the USSR was dead?
It's alive in Amerika.
Forward, Soviet!
Nonsense! Why, any MBA will tell you everyone but the CEO and BoD is a stupid do-nothing thief so obviously there's lots more to cut without consequence!
I wonder what effect the "part-time work/temping rut" has on the initial claim numbers.
I wanted to change jobs because the corporate culture where I work presently sucks. Enter...**an unnamed bank based in Zurich**..their offer sucked so bad I decided to quit my current job in the Fall, go back to school and not make any money for 2 years. I'd rather eat Ramen, get a worthy degree (Not Liberal Arts, Psych etc.) than work for a fucking bank or my current dipshit employer....or work period. All cash paid college, no loans. Bite me Bernanke. It's called savings and I am going to spend mine before I cannot afford my degree and have to get a bloody loan because my dollars ain't gonna be worth diggity. Cocksuckers all.