People Stuck in the Employment Shadows

Economists quote labor statistics all the time.  The unemployment rate, number of people underemployed, the labor participation rate, etc.  It is important to remember that these are not just numbers on a page, they represent people – real people with real needs and real fears.

I was reminded of this when “Dave” commented on my blog post “Is the Air Leaving the Balloon”. Dave believes more analysis and concern should be directed at the underemployment situation.  He was downsized in 2013, and it took him over two years to find a position comparable to the one he had.  In the meantime, he was earning 30% less than previously.  He knows of many people, also downsized during that period, who are still struggling to get back to where they were.  From my personal experience after The Great Recession, I know he is correct in his assessment.

Some analysts and politicians may claim the job market is strong, but there are many people in the “employment shadows”; they are hidden in the statistics, and they feel forgotten.  And … there is something wrong about this economic recovery that the numbers aren’t reflecting.  Dave was downsized in 2013, over four years after the job market bottomed out in 2009, and it still took him two years to find a comparable position.  This is far, far, from a healthy economy, and it is not getting much better with time.

The major labor issues are occurring at opposite ends of the demographics.  Older workers got hit hard in The Great Recession.  Many of them retired early or took marginal disability claims because their skills were either too specialized, or no comparable jobs were available to move into.  Some above age 50, but too young to retire, are still faced with being severely underemployed or very long-term unemployment.  Can you see why the labor participation rate has dropped?

At the other end, the youth flocked to college in record numbers to pursue degrees, but unfortunately, a sluggish economy has yet to create jobs for these degrees.  The government and banks provided the cheap, easy cash, the universities jacked tuition, and the naïve kids took the bait.  Now you have college grads working two part-time, low-skill jobs just to pay living expenses, with nothing left to pay-off their huge student loans.

This economy is not serving either of these demographics well, and not providing much advancement for the nation as a whole.  This has resulted in the angriest and most volatile presidential election in our lifetime.

Also, the employment numbers do not make sense when taken as a whole.  The U.S. unemployment rate decreased to 4.9% in June.  Economists consider around 5% as full employment, because traditionally a percentage of the work force is constantly “between jobs.”  Wages have been fairly stagnant since The Great Recession.  If everyone who wanted jobs was working traditionally good jobs, wages would have risen substantially, and the economy would be growing in excess of 3%.

However, the employment numbers lie.  We are nowhere near traditional full employment, and there is massive underemployment.  The jobs being created are increasingly low skill, low wage, positions.  I sense the job numbers are even masking the fact that we are trading high-wage jobs for low-wage jobs. Mere numbers may camouflage the problem, but it is a cold reality for thousands of people.

If you had a job, and were able to hang on to that job through the recession, you are doing well.  If you have a skill or acquired a skill that is in demand, you are good.  However, if you got swept away by the recession and your skills are outdated or not in demand, you are struggling to regain your income.  If you are starting out and unable to latch on to an entry-level position in your field, you are a “have not.”  The result is wider income inequity.  Yes, this is a real problem which needs to be addressed.  No, it is not the result of some sinister plan.  It has occurred naturally due to many complicated factors and is difficult to rectify.

Income inequity is a huge issue and a major cause is the lack of higher wage, higher quality, job creation.  As stated above, we may even still be losing these jobs.  To address the shortage of good-paying jobs, politicians have presented two vastly different solutions.

The first idea is to turn “free trade” into “fair trade” and bring back higher-wage production jobs to the U.S.  This could be effective in industries where there are clear indications of unfair trade, but it carries risks if done haphazardly.  So it might improve things some, but the impact has limitations.

The other strategy is to raise the minimum wage.  This is basically creating more “good jobs” by artificially paying workers more than market wages.  You pretend these are higher-skilled jobs by assigning an arbitrary higher wage to them.  This could produce benefits if the minimum wage was adjusted to the “optimum” level, where increased wages produce increased spending, and the number of jobs do not decline substantially. This is fine, except no one knows what this level is, and some economists would argue that the minimum wage is already higher than optimal.  This is a band-aid approach.  There are also pitfalls with this strategy, the main one being the incentive to eliminate jobs with automation. 

The solution is to get the economy growing at a strong rate of over 3%. This is where the debate needs to focus.  This will begin to create the jobs needed to get people employed, reduce the number of people underemployed, and reduce income inequity.  A job training/retraining program/strategy would also help. We need people going back to work, valuable work, and to get them out of the shadows and into the sun.

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)