First, the good news!
From all appearances the U.S. economy is showing signs of a sustained recovery from the Great Recession of 2008. Unemployment claims are down, the stock market is up, housing starts are up, car sales healthy, and businesses are sitting on huge cash reserves ready to invest when demand improves. We haven’t had a single month of net negative job growth in over a year. Except for the recession, after-tax corporate profits have been rising since 2001.
Adding to the good economic feeling was the recent annual Christmas consumer confidence boost from the U.S. news media intended to give us the warm and fuzzies about the economy and encouraging us to spend heavily for the holidays. The mainstream media played its traditional seasonal role in our capitalist economy: promoting Christmas sales by blowing sunshine about the economic good news. (In late January the actual sales data, not a self-serving forecast, will tell a more accurate data-driven story of actual sales.)
In the rollup to the 2012 elections the Obama administration will likely shift the timing of federal spending so that within-year expenditures are maximized. Though this spending is below the radar of the American public it will still temporarily boost the economy and contribute to the public impression that the U.S. is on an up-trend with even more jobs and higher incomes just around the corner.
Word in the mainstream media is that the Great Recession is over. We hear that all is well. Move along now, nothing to see here. Workers of the world don’t believe it!
Now the bad news!
The news media constantly makes a big deal about the latest downtick in the unemployment rate. Any positive data about the labor market is published with great fanfare: unemployment is down two-tenths of a point, unemployment insurance claims are down a few percent, GDP is up a tenth, etc. The real impact of these relatively small fluctuations in the data are obscured: the economy is still terrible for many Americans and the jobless rate has decreased mainly because many more workers have dropped out of the labor force entirely and so are not included in the government calculation of the unemployment rate.
Every month this year we lost public sector jobs, more than 250,000 in total. Every month we added private sector jobs, more than 1.5 million, but that’s only a small down payment on the 12+ million jobs we need to get back to where we were before the Great Recession. Incredibly, there was no new net job creation in the first 10 years of this century. The average duration of unemployment has surged to historic highs. Many workers have been stranded outside the job market and will not get back in anytime soon, if at all. This is seldom mentioned in the news media.
Most Americans, even recent graduates, have suffered permanent damage to their earnings. Adjusted for inflation, wages have been falling for many years, especially for the middle class. Young workers have particularly been hit hard. Employment numbers for workers over 55 have improved since 2007 but for all other age groups the picture has worsened. Since 2007, workers age 55 have experienced wage growth of 7.6%. Workers aged 25-44 have seen their wages dip 7.5% since 2007 and those 16-24 have lost 13.2% (U.S. Bureau of Labor Statistics.) Because of the bad economy many older workers are not retiring but are holding on to their jobs longer and not allowing younger workers to take their place.
Some say that deleveraging—reducing the amount of debt held by consumers—will soon allow the economy to rebound. Unfortunately, the oversupply of housing and commercial real estate will continue to exert drag of the economy to a degree that demographics alone will not quickly cure the problem. We won’t grow our way out of this one for a long time.
The implosion of the U.S. economy which began in 2008 is still wreaking havoc with employment and worker wages. The businesses doing well are those selling into emerging economies which is good for multinationals and our GDP but what about most American workers? Washington has lost interest in the unemployed, replaced by misdirected concern over the deficit and austerity.
Now for the really bad news!
Recovering from our economic meltdown is not the biggest problem workers face. Prior to the current decline other forces had been at work for decades that would have eventually brought us to the same dire straits. Wall Street (and their facilitators, most aligned with the Republican Party), by driving our deregulated economic bus way too fast, ran the wheels off the financial system in 2008 but the underlying fundamentals of global labor and rising productivity would have hurt American workers sooner or later anyway. Worse than anything we have seen so far.
This is not hyperbole. How we as workers react to these economic and employment truths today will determine our way of living tomorrow. Like a frog slowly boiling to death in gradually heating water, the powers that be in this country are depending on us keeping our mouths shut and our children adapting to a permanently lowered standard of living. The Occupy Wall Street movement, and even the Tea Party, suggests the capitalists may not get away with this crime of the century. It’s up to us.
Knowledge is power and we need to know more about how we got here. There are many dirty truths that have brought us to this critical juncture in American history. Here are four:
DIRTY TRUTH NUMBER 1: EMPLOYMENT WILL TAKE YEARS TO RECOVER TO PREVIOUS LEVELS, IF EVER
It is important to realize that given no change to our system of dividing the gains of production our previous standard of living will never return to what most of us still remember as normal. Unless we radically change direction, workers are going to be suffering with the overhang of Wall Street’s financial and debt excesses for a long, long time. Estimates of the time required for a return to previous levels of employment vary depending on the assumptions made. These estimates can be like a Rorschach test for economist attitudes toward economic growth but the Hamilton Project of the Brookings Institution has bracketed the best and worst case scenarios (see CHART 1).
The Brooking projections are based not on economic models but the actual behavior of the economy in the past. (It gets a little thick here but please bear with me.) The most optimistic scenario (dashed green line) assumes we will recover at a rate equal to the maximum rate of job creation in the 2000s: 472,000 jobs in a single month. Keep in mind this rate was for a single month, not a sustained period of time, but under this assumption it would still not be until 2015 before we closed the “jobs gap” by regaining all our lost ground. Change that assumption to the best average rate of job creation in the 1990s (321,000 jobs monthly, the orange dashed line) and it will be 2017 until we get back to normal. Make that assumption 208,000 jobs per month (the red dashed line) as experienced in the best year in the 2000s and the recovery period stretches to 2024. Last month the Bureau of Labor Statistics reported job growth of 200,000 of which 42,000 were seasonal delivery jobs. In other words, the worst pre-Great Recession job creation rate was still better than December’s “rosy” recovery rate the news media cheered about so heartily. Workers, households, and communities will struggle for many years to adjust to this “new normal” to use a popular phrase.
At the current pace of recovery, consumer and business demand (and spending and employment) will come back very slowly so the jobs gap will be likely not be closed until 2020 or later. The worse news here is that we may never regain past employment levels (see Dirty Truths 2 and 3). Even if the Great Recession had never occurred, the U.S. labor market had been deteriorating alarmingly for decades. Long-term unemployment (LTU) has been rising since the 1960s—over fifty years ago (note the up swinging red trend line in CHART 2). As a nation we keep waking up to the fact that there have long been non-cyclical, structural changes occurring in the national, and now global, economy. These trends are going to take a long time to work out of our system, if they ever do.
What are the reasons a recovery will take so long, if ever? There are long-term forces at work: some national, some global. Increasing productivity due to deepening automation (see Dirty Truth 3) has sharply cut into the workforce. Also, the global price of everything, including labor wages, has tended to converge over time lowering U.S. pay levels (what economists call factor price equalization). The huge labor forces of India and China will continue to pull U.S. wages down for any occupation not involving hands-on labor such as massage therapy.
As more workers experience LTU more of them drop out of the labor force entirely. Labor force participation (LFP) has been dropping since 2000, especially for certain demographic segments of the population like white males. People have been squeezed out of the workforce by lower wages or obsoleted skills. CHART 3 shows that for the period 1967 to 1990 Americans were increasingly joining the labor force. Initially, workers were pulled into the vibrant economy of the 1960s and even more were pushed into the workforce in the 1980s when the Reagan administration began to cut back on the social safety net which had been established less than 20 years prior. During the George Bush years LFP began to plummet with the onset of the Great Recession and the decline of the housing and construction industries. Conservative economists like to imagine that former workers are sipping pina coladas by the pool or retiring earlier but the truth is that many workers have found that work is not available or does not pay a living wage. Many have accepted a lower standard of living by downsizing their previous life expectations, scraping along by the skin of their teeth. Some have turned to part-time jobs or moved into the shadow economy where a cash-based system replaces above-ground jobs with health benefits. This death by a thousand cuts has increasingly been draining workers and their families dry and is indicative of a system that no longer cares for its workers.
DIRTY TRUTH NUMBER 2: LONG-TERM LAGGING DEMAND FOR GOODS AND SERVICES
For years the U.S. economy has always had something big going. During the 1950s-60’s we were the world’s factory and middle class household and community incomes grew rapidly; in the 1970s and ‘80s women came into the workforce which sustained middle class household incomes; the 1980s and ‘90s saw rapid growth in the financial and tech sectors (though manufacturing declined) which stabilized incomes for many households; and during the 2000s construction and housing boomed while households maxed out on cheap debt sending the economy into hyperdrive.
We have lived on the demand generated from one fluky economic circumstance after another until we had no more rabbits to pull out of the hat. We had quite a ride but it could not be sustained indefinitely. At this point it’s difficult to see where the next big thing (or bubble) is coming from. The bad news is that there probably isn’t one. A push toward export-oriented manufacturing would help but there are always the Germans, Chinese, and others to moderate our success. Aside from American pride there’s really no reason other countries cannot equal any achievement we might make.
The demand for goods and services is fed by people with money to spend. In turn, employment feeds on the demand for goods and services. Economic stability requires a careful balance between the labor supply and consumer demand. In the 2000s this balance was destroyed by the disastrous deregulation policies which started during the Carter and Reagan administrations, greatly accelerated during the Clinton administration, and reached full pitch during the George W. Bush administration. On Wall Street soaring executive compensation depended on keeping the economy at a fever pitch and a compliant Congress was only too willing pave the way by tearing down the regulatory barriers which had until then somewhat moderated the “animal spirits” of the capitalist class. America spent too much and saved too little during the good times. Indeed that’s what made the party so big. Now workers are paying the price of such extravagance with depressed wages and persistently high unemployment.
DIRTY TRUTH NUMBER 3: MANY INDUSTRIES WILL NEED FEWER WORKERS IN THE FUTURE
Since WW2 the American economy has steadily grown more productive. The good news is that output—food, health care, cars, housing—has increased dramatically giving us all the potential for a much higher standard of living. The bad news is that much of this productivity increase has come from using fewer workers to produce a given level of goods and services. For those with good jobs times have been, well, good. For those without jobs times have been tough.
In the almost 70 years since WW2 American productivity has increased tremendously (see CHART 4) in large part due to the more “efficient” use of labor. In this context labor efficiency has been due to squeezing labor out of the productive process with more and better machines. In particular, automating the manufacturing process revolutionized the factory floor. Everything from computerized robots to enormously improved transportation and logistics networks have allowed American industry to produce vastly more while reducing the number of workers required.
For years white-collar workers watched passively as blue-collar employment was decimated through automation and off-shoring to low-wage countries but now their own jobs are under heavy threat. Early in this process most of the labor saved was from substituting workers with machines but the bad news now is that most of the work in the U.S. that can be replaced with machines has been replaced already.
The impacts of off-shoring are often discussed but the more significant culprit is automation. The advent of small, powerful computers in the 1980s set in motion a thorough reworking of the productive process. It took us almost 20 years to figure out how to use these technologies but the result has been a revolution in how we go about making and doing things. Labor is increasingly out and capital is in.
The next wave in automation is the replacement of traditionally white collar jobs. Increasingly, white collar jobs can now be moved off-shore with the advent of high-capacity computer and telecommunications technologies. Computers (really smart software) excel at tasks which can be made routine. More and more white collar, non-routine work tasks fit into this category: paralegals that scan reams of words on paper and report on the contents will gradually be replaced by foreign workers or computer software designed to increase profits through reducing labor content. This gradual “hollowing out” of the white-collar labor market will continue to eat away at middle class incomes shifting even more of the political balance of power to the capitalist class.
In an ideal world obsoleted workers would find new, hopefully better paying, occupations but the long-term trend of unemployment does not bear out this expectation (again, CHART 2). In an ideal world, obsolete lamp-lighters would find new jobs working for the electric power company. But what really happens is much messier. A few of the lamp-lighters adjust to new occupations but older workers, in particular, experience a steep loss in their standard of living. They make do for a while and then die never regaining their previous standard of living. Our economic system is designed to exact the cost of technological change from the individual, not the nation as a whole (that would be socialism). There is no guarantee of a new job much less one at the old wage. You get a few bucks for a while—at most about 25% of your previous earnings—and then you’re on your own. Aside from paeans about self-reliance from government leaders, the burden falls completely on the worker. The nation benefits from productivity improvements but it’s the worker that pays the price.
DIRTY TRUTH NUMBER 4: THE IDEA THAT WE CAN EDUCATE OURSELVES OUT OF A NATIONAL ECONOMIC HOLE IS WRONG
Wage statistics tell us that the more education a worker has, the higher the income the worker receives. The talking heads on TV, and our political class, tell us that all we need to do is ensure more workers graduate from college with at least a Bachelor’s degree and all will be well. The important questions here are: 1) How many workers can improve their education without significantly driving down wages for their occupation?; 2) Are there a sufficient number of these jobs requiring more education to meet the national employment challenge?; and; 3) Which jobs actually are in the highest demand and what education is required for them?
We have created a convenient mythology, supported by Democrats and Republicans alike, which promises that if workers upgrade their manual skills to “high tech” skills they will improve their living standards and those of the nation as a whole. The notion that what may work for a single individual will work for the many is an example of a logical fallacy that occurs when a truth is extended well beyond its proper scope. Ph.D.s generally do well economically but we can’t all be Ph.D.s. We can’t all be wealthy financiers selling hot paper to each other anymore than we can all be drug dealers. What works for the individual succeeds precisely because, for whatever reasons, it never comes true for most everyone else. Only in Pleasantville are we all above average. Upgrading skills cannot be the answer except for a comparative few. Beyond that, new graduates flooding the labor market will moderate or even drive down wages.
For decades industry groups have complained that supplies of engineers, nurses, accountants, and many other occupations are in such short supply as to constitute a national emergency that can only be mitigated by greatly increasing the number of students training for these professions. The unstated purpose of these press releases is to deluge the labor market with graduates so as to drive down wages. Equivalent results could be obtained simply by increasing the wages firms are willing to pay workers who have left these fields to pursue more lucrative or more rewarding work but that would unacceptably decrease industry profits (at least to Wall Street).
The idea that putting more people through college can uplift the middle class is no longer true. In the last few years college graduates have searched in vain for jobs that never materialized. Many of them accepted jobs they could have landed without a degree. Hopefully, most of these graduates will find jobs in the future but huge student loans will burden many for years to come. On the blue-collar side of the labor market many of the unemployed have done job training only to find their new skills are not in demand any more than their old skills. In the mean time even more high school graduates, fleeing a hostile labor market, will enroll in college in hopes of finding the good life at the rainbow at the end of their studies.
With deepening automation and the off-shoring of jobs to low-wage countries there are some occupations that will be in continuing high demand in the future. Most jobs in our economy—waitresses and waiters, retail counter help, cashiers--require only a high school education, if that. That’s not going to change because those jobs need to get done somehow and they have to be done locally. The bad news is that the jobs in highest demand in our economy (see TABLE 1) are not high-wage, high-skill jobs but occupations considered by many to be menial. Most work done by low-paid workers have already been eliminated or are hard to automate. Maybe you will pay for a haircut from a machine but I don’t. Foreign labor has its limits. Hands-on labor, and its exploitation, is going to continue to be a factor in the future.
Unfortunately, the idea that we can educate ourselves into economic prosperity is fallacious. I wish good things for every individual attempting to improve their lives with more schooling but the dirty truth is that education is not an answer for the nation as a whole. And if we could all magically get jobs that currently pay well, past experience suggests that Wall Street would find ways to expropriate that income cancelling any collective gains from education. The most crucial question for all workers, college-educated or not, is how we divide the earnings from the production of goods and services between labor and capital.
THE LAST DIRTY TRUTH ABOUT AMERICAN JOBS
So, what can we do about these, and other, dirty truths about American jobs? To start with what has our government done? To date the answer has been nothing.
Actions by our national government leaders show they believe that nothing can be done. For politicians of every stripe the problems of persistently high unemployment and low wages are in the “too hard” pile. Their inaction is a reflection of the groupthink of the status quo and their collective lack of imagination at devising solutions to the problem. Their fatalism is a sign of their powerlessness. Like Lord Voldemort, our seemingly intransigent unemployment problem is the one whose name cannot be spoken. To even attempt to do something meaningful would anger the most powerful reactive forces in the nation and world because it could potentially affect the split from the gains from production between the controlling owners (Wall Street and other financial centers) and the workers. Vested interests and their huge investment in the sunk costs of the existing system of production are the underlying basis for our prolonged period of conservatism. But right now, conservatism is not what this country needs.
Ronald Reagan was selected to run for the Office of the Presidency precisely because he could best lull the American public through a period of managed decline for the American worker. He played his part only too well. Far from being an inspirational figure exuding “sunny optimism”, Reagan furnished the public relations cover for the rise of the financial sector and the decline of manufacturing, a source of the good life for many blue-collar Americans for generations. Factory work, especially well-paid work, is not likely to return with the same job-creating capacity. The issue at hand now is how to make the remaining work pay enough to raise a family at a decent standard of living with adequate health care, housing, education, and community services.
For decades the American public has been distracted by nonstop stories about the resurgence of the great American entrepreneurial spirit. The truth is that most workers do not want to run their own businesses. We can’t all be and don’t want to be bosses. Most workers just want to make a good living and they see their jobs as a means of achieving that end. Most would rather spend time with their families and other personal pursuits. That’s what freedom really means to most Americans. Workers value stability in their lives and don’t want to play in a casino economy that confiscates the gains from their productivity to further enrich the already rich. There’s room for entrepreneurs, too, but it’s not all about them. Workers should not have to spend all their days on a never-ending treadmill of someone else’s idea of what they should be doing.
WHAT CAN WE DO ABOUT IT NOW?
This diary has focused on the daunting employment challenges facing the American worker; some medium-term (the Great Recession) and some longer-term (productivity improvements and increasing global competition). At the very least, digging out from this mess will require creative solutions to the problems described here. But it’s not that easy. The environment for political and economic change has radically changed for the worse over previous periods in American history and an unprecedented effort from workers and their supporters will be key to overcoming the political obstacles posed by the powerful economic status quo.
The past 35 years witnessed a dramatic transformation in the relationship of America’s political class to the financial sector. Any vestige of obligation to the middle class has been replaced by what can be called the “reign of the top tenth” percent of income earners. To an unparalleled degree the attention of America’s politicians has been focused on helping the richest tenth become even wealthier; a feedback loop gone wild where the Congress is re-elected with financial support from the richest tenth so they can further rig our regulatory and legal systems which buys politicians even more contributions from the tenth.
How can we reverse the decades-long decline of America’s working class? To counter this we need another move of the political spirit similar to that of the 1960s. Before, the issues were Civil Rights and the Vietnam War. Today the issue is our very standard of living. Despite what you hear on corporate television, the living standards of the American worker can be maintained and even improved even as some of us compete with well-trained, highly educated foreign workers. But you should understand that doing something about the problem will require a thorough rethink about our capital-intensive (read labor-squeezing) economy and our approach to global trade which flattens wages in a global race for the bottom. Doing something also means going up against the most powerful forces in the country and all the assets they have at their disposal including the media and legal system.
The myth of the “free market” has mesmerized two generations of Americans with the fictitious fatalism that nothing can be done to stem the decline of American living standards. The truth is that the continuous bargaining for the national economic pie is a political process that has always determined how big the worker’s share will be. For several decades after WW2, workers held a good poker hand when bargaining with owners but with the domination of the party of business in recent years, workers have increasingly been on the short end of the stick. A fierce and protracted political fight will be necessary to restore the bargaining power of labor.
In 1971 Lewis Powell, an Associate Justice of the U.S. Supreme Court wrote in a letter to the American Chamber of Commerce that “Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.” His letter described a strategy to counter the spontaneous outburst of democracy that occurred during the 1960s with a plan for the corporate takeover of the dominant public institutions of American society but this can just as easily be turned on its head. To paraphrase a great man, “Workers of the world, unite. You have nothing to lose but your chains.” The guy was right.