Category Archives: jobs

The Recovery that Isn’t

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In a recent piece in The Wall Street Journal about post-Panic borrowing increases, James Sterngold and Matt Wirz had an interesting graphic showing the evolution of the US economy from just prior to that Panic to today.  Excerpted below is the part of that graphic indicating the jobs market evolution.

The graph is hard to read; here are some highlights:

  • More than 21 million Americans wanting a job at the 2010 peak, over 18 million still in that strait today.
  • Just under 16 million Americans out of work for at least 27 weeks (over 6 months), still nearly 12 million in that strait today.
  • Dropping out of the market due to discouragement in finding work—of any sort—peaking at over 1 million per year and still nearly that today.
  • Labor force participation rate near a 35 year low.

And there’s this, which takes a longer look at that last bullet:

Notice that bit on the right: after the Panic’s official end, participation rate continued to plummet.

As the WSJ points out,

If the participation rate merely returned to what it was at the end of the recession, nearly four million more Americans would be collecting a paycheck.

Had our recovery progressed as a normal one does, we’d be here:

A normal recovery coming out of a downturn as deep and steep as the Panic of 2009 typically sees growth rates of 5%-6% per year, or more.  This Obama recovery has been 6.7% over the entirety of his term in office—nearly five years.  Had we seen a normal recovery (and using a pessimistic 5%/year growth rate), we would have reached today’s unemployment rate after a bit over one year—late 2010—and we would have been back to full employment (in the range of 4.8%-5.5%) in just under 2 years—two years ago.

Had our recovery progressed as President Barack Obama promised it would when he was stumping for and signing the massive 2009 Stimulus Bill, we’d be here:

He promised in 2009 a 5.5% unemployment rate by a couple of years ago.  How many new jobs would have been created had we actually reached his promised number?  In December 2009 (some six months after the nominal end of the Panic of 2009), the civilian labor force was 153 million, of which 137.8 million Americans were employed, a 10% unemployment rate, according to BLS statistics, and using round numbers.

In August 2013, again using BLS numbers, the civilian labor force was larger, at 155.5 million (and it had a smaller participation rate than in 2009, but we’ll gloss over that for now).  There were some 144.2 million Americans actually employed.

However, a 5.5% unemployment rate corresponds, if my 1st grade arithmetic serves me well, to 94.5% of the civilian labor force actually employed: 146.5 million Americans.  Again consulting my 1st grade arithmetic book, there are some 2.3 million Americans that should be employed but aren’t—because Obama’s proudly proclaimed policies have come up short, and we aren’t anywhere near 5.5% unemployment.

Finally, there’s this:

Current population: 313.9 million
Current civilian labor force: 155.5 million
Current labor force participation rate: 63.2
Current unemployment rate: 7.3%
Employed Americans: 144.2 million
Unemployed Americans: 11.3 million of those looking for work

2007 population: 301.1 million
2007 civilian labor force (last full year before the Panic): 153.1 million
2007 labor force participation rate: 65.8%
2007 unemployment rate: 4.6%
2007 Employed Americans: 146 million
2007 unemployed Americans: 7.1 million

Over the last six years, our population grew by 4.3%; our labor force population grew less than that, at 1.6%; our employed population shrank by 1.2%; and our unemployed population grew, a lot.  We’re not even keeping up.

Yet despite these obvious failures of Progressive policies, Obama and his Senate counterparts threaten to shut down our government and blow up our national credit rating and with it our economy, if he’s not allowed to have more spending increases, yet higher taxes, and a yet higher debt ceiling so he can borrow to pay for his spending (because he knows higher taxes won’t cover it; he just wants the higher taxes because…well, just because).

Some Employment Numbers

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Here are some graphs of our nearby employment history, from Express Employment Professionals, a 30-year-old provider of professionals for temporary employment.

This first graph shows the labor force participation rate since its peak in 2007.

This second graph shows the unemployment rate over the same time period.

There are two items of interest in these two graphs.  The first is that although participation rate was starting to drift down from its early 2007 peak, it didn’t get going in earnest until late summer 2008—with the unemployment rate peaking just a few months later.

The other takeaway is that the unemployment rate began drifting back down from that peak, and fairly steadily so, in concert with the labor participation rate drop-off.  While the unemployment rate has fallen by roughly 2.5 per centage points, the labor force participation rate (the denominator of the unemployment fraction) has also fallen by almost 2.5 per centage points.

Folks just aren’t able to get back to work.  More than 4 million Americans have been out of work for more than 6 months, and that number hasn’t shrunk much over these last 4, and more, years.

What kinds of jobs are being had?  Americans working part-time workers for economic reasons (they would work full-time if they could, but full-time work isn’t available) numbered some 8.2 million as recently as last July.  That’s “only” some 5.5% of those employed that month, but so far this year, there have been nearly 4.5 part-time jobs created for every full-time job.  Last year, that ratio was reversed: 0.2 part-time jobs were created for every full-time job.

We have to think about whether this is a structural change to our work environment and our labor force composition, or whether this is “just” an aspect of the continuing failed economic recovery.

A Thought on Minimum Wage

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The current minimum wage is $7.25/hr, and under the guise of that being not enough to live on (it works out to about $15,000/yr before taxes), there’s move afoot to raise the minimum—to anywhere between $9/hr and $15/hr.

I’ll ignore in this post the fact that the jobs that get minimum wage are low-skill and/or entry-level jobs whose product simply isn’t worth very much money.  I’ll ignore, also, the fact that very few minimum wage earners have this job as their sole source of income—it’s a second job, intended to supplement the income from the primary job.

I want, instead, to propose a wholly radical idea: how about reducing regulations, especially for small businesses (the ones hardest hit by minimum wage laws) and lowering tax rates (of which min-wage earners aren’t paying much, but which taxes contribute to the cost of the goods min-wage earners are trying to buy)?  Those tax and regulatory costs drive up our (which includes min-wage earners) cost of living, as the cost of the things we buy is driven by those regulatory and tax costs of doing business.

Here’s a brief look at (aggregated) regulation costs for small businesses.  Daniel Sutter, a Professor of Economics at Troy University, had this information in a recent piece in the Troy Messenger:

…compliance [with Federal regulations] often requires spending on new equipment, signs, or other changes to workplaces.  Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion.  …this $1.8 trillion (largely hidden) cost of [Federal] regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined.  It represents almost 12% of GDP, or nearly $15,000 per family, annually.

There’re those $15,000, again.  Also, that aggregate cost equals 10% of the current national debt.

Sutter also had this:

Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays.

They aren’t even allowed to run their own businesses without the Feds looking over their shoulder, telling them how to do so.

And it goes beyond compliance costs.

Regulation reduces the freedom of individuals and businesses to innovate or create new products.  Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs.  The greatest cost is likely the new products, services and businesses that are never created because of regulation.

Now, about those taxes….

The small business owner, rather than the business itself, typically pays the taxes on the business’ income, as that, and its costs, typically are passed through to him.

A small business might have an annual income of, oh, say, $500,000—and if it’s really successful, that’ll generate a profit of $50,000.  Any salary he might take out of the business is on top of that, but let’s ignore salary and only concern ourselves with the income tax on that profit.  On those $50k, he’ll pay roughly $8,400 in ordinary income tax—nearly 17% of that profit ultimately lost to the government—at 2013 single rates.  At married, filing jointly, the bite will be roughly $6,600—13% of his profit lost.

Rather than raising the minimum wage, and pricing the worker out of the labor market, it’d be better to enable the existing wage to go farther by getting rid of all those Federal regulations, and their costs, and lowering tax rates.

Executive Pay and Jobs

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TJ Rogers, Founder and CEO of Cypress Semiconductor, wrote in part about executive pay and income taxes in his experience in a Wall Street Journal op-ed a while ago.

A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant.  That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with US small businesses.  If progressive taxation in the name of “fairness” had taken my “extra” $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?

According to recent Congressional Budget Office statistics on the Obama administration’s 2009 stimulus program, each job created has cost between $500,000 and $4 million.  Thus, my $1.2 million, taxed and respent on a government project of uncertain duration, would have created about one job, possibly two, and not the 65 sustainable jobs that my private investment did.

On the other end of the capital-intensity scale, Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants.  Between 1983 and 2003, those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created.  Thus, my own experience on the cost of job creation ranges from $18,000 to $198,000 per job, compared with $500,000 to $4 million per job created by the Obama stimulus program.

That got me thinking about CEO compensation and the number of employees working for the CEO’s company more generally—how much was the CEO paid per employee on the payroll for stable companies that were not (yet, or anymore) actively investing in plant expansion?

Here, for some not very randomly selected large corporations, are CEO compensation, total employees in the company, and the CEO’s compensation per employee.  The data, for the year 2011 (except as noted), are from CNN Money.

Company

CEO Total Compensation

Total Employees

CEO $ Per Employee
GE

$21.4 million

287,000

$74.6
Wal Mart Stores

$17.7 million

2,200,000

$8.0
Exxon Mobil Corp

$29 million

(2010)

99,100

$292.6
AT&T Inc

$27.3 million

256,420

$106.5
UnitedHealth Group Inc

$10.8 million

99,000

$109.1

 

Here are the same data for small businesses (contra Rogers’ example, fewer than 25 employees), averaged across selected industries.  The CEO $ per employee is figured, naively, on 15 employees, since most small businesses won’t have 24 employees, and 15 made the arithmetic easier than 12 (the mid-point of the employee range).

Industry

CEO Total Compensation

CEO $ Per Employee
Business Services

$138,000

$9,200
Construction

$148,500

$9,900
Healthcare

$130,800

$8,720
Retail & Wholesale

$175,300

$11,690
Internet

$131,900

$8,795

 

These guys, despite being an order of magnitude, or two, more expensive than a large corporation CEO on a per job basis, still are enormously more efficient job creators than the Federal government.

The real takeaway, though, from these two tables has to do with the compensation “disparity” between CEOs and line workers, especially concerning those highly paid large corporation MFWICs.  Given the hiring rates they’re generating, they seem to be worth their pay.  (And none of this disputes the thesis that it’s small businesses that are the engines of economic growth and employment hiring.  It’s a whole lot easier to ramp up a small business than it is a large one.)

Some Labor Day Questions

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The Wall Street Journal asked some questions on Labor Day 2012, and supplied some answers.  Here are some of those questions and answers, which remain as valid this Labor Day.

  • Q: How are America’s workers doing? Not good. Over the past decade, over the ups and downs of the economy, taking inflation into account, the compensation of the typical worker — wages and benefits—basically haven’t risen at all. … The Labor Department recently said that 6.1 million workers in 2009-2011 have lost jobs that they’d had for at least three years. Of those, 45% hadn’t found work as of January 2012. … Federal Reserve Chairman Ben Bernanke said Friday that unemployment is still two percentage points higher than normal….
  • Q: Things ARE getting better, though. The U.S. economy is creating jobs, right?  Back in December 2007 when the recession began, there were about two jobless workers for every job opening.  When the economy touched bottom in mid-2009, there were more than six unemployed for every job.  At last count, the BLS says there were 3.4 jobless for every opening.
  • Q: How much of this elevated unemployment is because the unemployed just don’t have the skills that employers are looking for right now?  Some.  …the bulk of the evidence is a lot of the unemployment really is the old-fashioned kind: the kind that would go away if the economy was growing at a stronger pace. Mr. Bernanke said as much at the [2012] Jackson Hole conference….

The Democratic President has taken a bad situation and done little to improve it.  He has, though, actively attacked businesses—the hirers—demonizing them, (over)regulating them, demanding to raise taxes on them.

Happy Labor Day.