Are We Simply No Longer Able to Create Jobs in Western Economies?

02/18/2011


The jobs drought and the coming social crisis at home and abroad.

Are we simply no longer able to create jobs in Western economies? Enough jobs to absorb new entrants to the workforce? Enough to replace jobs lost to off-shoring (globalization), to technological change, and to a now entrenched employer ethic (both public and private sector) of driving productivity gains through the expedient of cutting payrolls rather than by creating innovative new products and industries?

We have to ask.

Radical geopolitical change is underway in the world as a result of chronic joblessness. In turn, unemployment and "under-employment" (settling for a low-paying job not equal to one's skills, or an insecure part-time position) is at the root of three decades of stagnant income growth for North Americans. Our middle class, as we've long understood it to be, is on the brink of destruction.

We tend not to address unemployment with urgency, because it's someone else's crisis until you lose your own job. Or your brother does. We also assume, on past experience, that the lost jobs will come back. But that's no longer the case. Economists will tell you that the amount of time spent relying on jobless claims in the U.S. is of a record length, and that has been the trend in each successive recession. Economists will also tell you that the longer you spend without a job, the tougher it is finally to land one, especially one that is best suited to you.



Protesters in Cairo and Grand Rapids, Mich. (Reuters, AP) Click to enlarge.

Some facts:

1. It is chronic unemployment among young adults (15 to 24) that is driving social upheaval in the Middle East and North Africa. It also fuels the discontent giving rise to Tea Partiers and similar movements in Europe. (At the recent Conservative Political Action Convention in D.C., the average age of the largely discontented attendees was well below 40.) Youth unemployment is a staggering 25% or so in Egypt - enough to topple a 30-year-old autocracy. But in Spain it's 40%. In Britain, 30%. In the U.S., 20%. In Canada, 14.4%. (Against a general-population jobless rate of 7.8%.) Young-adult unemployment is a global crisis, as Bloomberg Businessweek enumerated in a recent, alarming cover story.

This is the next leadership generation, of course. And it likely will be the first, in mature economies, to be worse off financially than the one preceeding it. These grads are entering the job market burdened with, in Canada, an average of $18,000 in education-related debt and slender or no medium-term prospects of paying that off. At America's better colleges, tuition alone is $80,000 in a typical four-year degree program. It's noteworthy that Ivy League graduates Michelle and Barack Obama were able finally to retire their student-loan debts only three years ago, on the windfall proceeds of the latter's bestselling books.

Worldwide, there has been an unintended consequence of the money we've pumped into higher education. Most Arab nations, conspicuously Egypt, have for decades been building universities of near world-class stature. China in the past dozen years has built 20 MIT-class colleges. The calamity has been the dearth of jobs for the ever-increasing flow of graduates from those schools, booming China excepted. The curse of youth joblessness is especially pronounced in North America, the Middle East, North Africa and Western Europe.

The bottom line here is that we have educated a new generation with high expectations of job fulfilment that society cannot seem to meet. And this has been the case for years now. Meanwhile, these same graduates are more threatening in than traditional dissident groups in their acute communication and organizing abilities. A great many of them are freshly minted engineers. To say they have the intellectual means to blow us all sky-high is a wild exaggeration. But don't doubt a rising global legion of jobless young adults to overturn the established order out of sheer frustration. They have the motive and means to do so.

2. The middle class has become the underclass. Again, we have been sanguine about this gathering crisis, since the media that reports and comments on such things has not missing many lunches. (Not until the recent death spiral of traditional newspapers, at least.)



Time was, a single "breadwinner" could support a large family. (U.S. National Archives, Reuters)

But here's the salient fact for U.S. policymakers, the one that explains most if not all of what's wrong with America: Over the past 20 years, the average U.S. taxapayer's income, adjusted for inflation, has actually dropped. In 1988, it was $33,400. Twenty years later, in 2008, it was $30,000.



Source: CNN Money

Which would be fine, if the cost of living also had remained flat. But as we know too well, the cost of everything from tuition to energy to health-insurance premiums to even food has skyrocketed in price. None of these things are luxuries.

You don't have to be Dickins to see the problem here: More money going out than coming in, by an ever widening gap, misery.

3. What has caused this gutting of the middle class, the bulwark of U.S. prosperity? The decline of manufacturing, due to off-shoring of jobs to low-wage jurisdictions and technological advances enabling the world to make more steel, cars, disposable diapers and ketchup with ever fewer workers, has pushed 80% of us in North America into the so-called service economy. Service-economy jobs traditionally offer fewer benefits - pensions, healthcare assistance, even corporate tuition subsidies for employees - than a vastly shrunken manufacturing sector did. In the absence of unions for most private-sector service workers (ever here of a union representing accounting-firm employees?), job security has gone the same way as benefits, into abeyance.

In the second half of the 20th century, which saw the emergence of the mighty American consumer economy based on middle-class incomes, collective bargaining ensured that organized workers on average earned 15% to 20% more than their non-union counterparts. But unions and collective bargaining have been under sustained assault since the early 1980s milestone of Ronald Reagan breaking the air-traffic controllers union. Over the past 28 years, union workers as a portion of the total U.S. workforce have dropped from about 20% to less than 12%. And that includes the public sector, the last redoubt of organized labor. Strip out the public-service union membership, and that latter figure drops to 7% or 8%.

"The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up iwth inflation," Bill Rodgers, a former chief economist at the U.S. Labor Department, now a professor at Rutgers, recently told CNN Money. The hollowing out of America's manufacturing sector in a "race to the bottom" among defectors to low-wage China, Vietnam, Cambodia, Thailand, Malaysia and so on hasn't helped. "As we become more connected to China," Rodgers adds, "that poses the question of whether our wages are being set in Beijing."

4. The rise of job-light industries. By the height of the disastrous U.S. housing bubble, corporate finance in its various forms accounting for a staggering, unprecedented 23% of the U.S. economy. Traditionally that figure is about 8%. The financial services industry manipulates numbers rather than creating wealth through the invention of new products requiring workers to make them - heart stents, more durable tires, strong steel alloys, faster and safer commercial jetliners, more efficient power-plant turbines, less energy-hungry appliances, ever more practical solar panels and wind turbines. Increasingly it is the Chinese, Indians, Brazilians and other non-North Americans who preoccupy themselves with such things. Our rewards system in North America has become so skewed that one feels almost a fool to consider a vocation in geology, microbiology, forestry, nursing, civil engineering, teaching or international relations when the starting salary for stock jocks on Bay Street is $80,000, and a Wall Street trader knows she's for the high jump if she's not "earning" $250,000 by Year Three.

The tech boom - lately the boom in personal gadgetry - will not be remembered as on the world's great job producers. Huge employment and wealth was created by the new 20th-century technologies of electricity, cars, consumer appliances, mass media, miracle drugs and commercial aviation. Not so much the tech revolution. Like the parallel global finance revolution, the communications technology that is our current obsession is not a deep wellspring either of jobs or decent incomes. Together, Google, Apple, Microsoft, Amazon and eBay have created less than 100,000 direct jobs in the U.S. To be sure, each relies on suppliers that create additional jobs. But the hardware components come from the low-wage Pacific Rim and South Asia, as does an increasing amount of the software. And those software writers who are resident in North America often are small businesses with few employees and few benefits for those workers.



CEOs at traditional manufacturers Procter & Gamble, Boeing, General Electric and Caterpillar (which laid off 20,000 workers in a single day in its Peoria hometown two years ago) look at the staggering revenue-per-employee numbers at Google and Microsoft and, under pressure from shareholders and the spell of compensation consultants, hit on the quick fix of slashing the payroll to boost the bottom line. "Productivity advances are not being made in booming new industries," writes the Observer's Will Hutton, detecting similar corporate strategies on both sides of the pond. "They are being made by laying people off or moving production to low-cost countries in Asia. One way or another, falling workforces in the West are producing broadly the same output." And that, it follows, puts the "squeeze on the incomes of middle-class workers. Our scientists and technologists have not been able to create inventions that can be industrialized at the same pace as they once did."

Cannot, that is, create huge employment as they once did. As Detroit did in the first half of the 20th century, not only creating as stupendous number of jobs (stupendous by today's standards) and with above-average pay, but local philanthropic spinoffs and the demographic revolution of luring tens of thousands of African Americans northward from plantation penury in the South.

It's too easy to demonize the "fat-cat" weathy whose incomes have soared in spectacular fashion since that same 1980 benchmark year when Reagan and his fellow travelers declared war on unions demoted the health of the middle class to the lowest of priorities. For the record, the richest 1% of Americans - those earning $380,000 or more - have seen their incomes soar 33% during the same 20 years in which middle-class incomes actually fell. (This is IRS data.)

As FDR said of the wealthy who loathed him, yes, but there are far fewer of them than everyone else. True, the real crisis is not that incompetent bank CEOs are handed $38 million to leave the building quietly and never come back. The real crisis is that the middle class has been demoted to an underclass.

It's similarly too easy to characterize North Americans as spendthrifts, buying homes they can't afford, and maxing out credit cards. With their incomes stagnant for so long - an unprecedented stretch of U.S. history, in fact - Main Street has resorted to credit. Which in any case has been cheap, also for an unprecedented stretch of time, most recently in order to bail out feckless banks. Sustained low interest rates on bank accounts and on Treasuries and other fixed-income securities, dating from the mid-1990s, have mightily discouraged savings. The Canadian average household savings rate is a pitiful 4.4%, down from 13% in 1990. In the U.S., the savings rate dipped close to zero in the mid-2000s, before recovering to about 3% today as families do what they can to prepare for sudden job loss or a catastrophic health event.

And it's too easy, finally, to cheer on the dissidents in the streets of Cairo and Alexandria without realizing that what they're fighting for is little different in kind than what chronically unemployed and under-employed North Americans seek, but are not yet fighting for.

Some of us imagine that at least China and India are on the right track. Indeed, having wisely shunned "toxic assets" peddled during the global financial crisis, each nation's financial system is remarkably sound compared with those of America, Britain and certain other European nations.



In booming China and India, poverty remains the condition for most people. (Reuters)



Yet while China's economic liberalization of the past 30 years has lifted about 300 million Chinese into middle-class status - a middle class the size of the entire United States - China remains home to the world's largest impoverished population, at roughly one billion people. India similarly can claim a new middle class, of about 400 million. But that still leaves another 800 million Indians in various states of continued deprivation. Can the torrid GDP growth of these nations over the past 30 years be replicated, and replicated again, in order to absorb those currently left behind by the fantastic wealth on display in the high streets of Shanghai and Mumbai?

How quaint the notion now seems of the full-employment economy. The days I recall, when first subscribing to business journals in the 1970s, that the most highly admired CEOs were those who could boast the largest workforces. Later we came to believe - were taught as if by rote - that the full-employment obsessions of Germany and Japan, an outgrowth of economic misery that help spur each nation's fateful dreams of imperial hegemony, were muddle-headed. To this day, German and Japanese employers are much slower to lay off workers than their American counterparts when economic storm clouds gather. Today, social conditions in Germany, world's fourth-largest economy, are far healthier than those of America.

There are sound arguments to be made of the superior U.S. model of expediency in cutting expenses to avoid or at least forestall outright bankruptcy. Japan's lethargic GDP growth of the past two decades owes at least in part to sloth in biting the bullet on featherbedding and recognizing a bad bank loan for what it is and promptly writing it off, as American lenders do.



Caterpillar lays of 20,000 workers, one-fifth of its global workforce, one day in 2009. A thriving Cat truck plant in Suzhou, China. (AP, Reuters)

But what if? What if we took pride again in building so important an enterprise that our biggest challenge was recruiting enough skilled workers to satisfy demand for what we do? What if job creation at least vied with shareholder-wealth creation as a corporate priority, as it once did. Blogger Noah Brier noted recently that debates over which has the superior business model, Google or Groupon, have turned on Groupon's disadvantage in being "so human dependent." (It's required to have a large salesforce to serve its local-commerce market.) Which got Brier to musing, "When you're building a company today you're trying not to create jobs...What if you were to create a company with the goal of creating as many jobs as possible, not as few?"

Well, if you went that route, Frank Capra would rise from his grave and make one last picture about your angelic priorities and heroic contribution to the community. But he won't, so you'll instead lose control of your company to a Connecticut-based hedge fund in a proxy battle.

When James Baldwin's The Fire Next Time first appeared, in 1962, even that impassioned author did not imagine that three years' hence Watts would go up in flames, then almost every other American city. And that among the consequences would be the destruction of inner-city America, no more clearly evident than in Detroit, where the reaction to the 1967 riots was a so-far irreversible "white flight" to the suburbs.

Suburbia brought its own problems, everything from the higher per-resident cost of proving municipal services to thinly populated districts to the spike in greenhouse-gas emissions as the North American population relocated to private-vehicle-reliant communities.

We can continue patiently watching this unsettling social transformation unfold - the mass of everyday Americans getting poorer, suffering an ever lower quality of life. I like to think urgent need for change will infect us, as it did with the launch of Sputnik. That era, mind you, followed closely on the shared sacrifice of World War II, and in the midst of the Cold War - each unifying realities. I'm convinced the urgent change will come, but first in the Middle East, whose population of adult unemployed is expected to reach 100 million by 2015. And later on these shores, where a roughly similar number of us will be resentful and desperate enough at being frozen out of the party underway on the first-class deck to storm the gates.

But will violence once again be our answer, in this new century, to yet another crisis that defies solution only out of insensitivity, misplaced priorities, and inertia?







Posted by dolive at 08:59:30 PM

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I have friends - generally sane people - who believe that this is not just opportunism - but rather an orchestrated plan of some small but powerful groups - to reduce most of the world to indentured servants once more. Names like Bilderbergers are breathed in the same breath.

While I am not yet of that mind set - I must say a lot of what is being reported is making me think they may not be so crazy!

Posted by: Wascally Wabbit
02/18/2011 at 10:23 PM

Thank you for this brilliant summary of the current state of the world. Very insightful!

The technological marvels of the past few years have made a tiny number of people very very rich, because that is what they are designed to do. The basic physics of Google implies in its first act it will put all door to door encylopedia salesmen out of work, make most university professors and TAs redundant, and make its two founders insanely wealthy..

I suggest to all the underemployed that they back away from dreams of gadgets and finance (tools of slavery - slavery to wireless signals and compound interest), and learn how to farm and grow food on their own, and how to build things with their hands. If we can replace food-imports and skilled-trades-imports, we can become prosperous again. Failing that, avoid mass-market education and learn to become an artist. Not as in a visual arts, but in living your life in a way no one else can imitate, by which course you then become indispensable, and no one can lay you off.

Posted by: Pat Tanzola
02/18/2011 at 10:51 PM

We have reached a tipping point, where 50% of us can easily produce the goods required by everyone. Unfortunately our economic model diverts that surplus to the richest. 50% are not needed as producers and in the model have no income to consume. 40% whom have income receive enough to consume and the remaining 10% reap the surplus.

Our economic model can't sustain society when we have this level of productivity.We need only 1/2 to produce for all but we have no mechanism for the other half to acquire the surplus and the surplus is spoken for.

Mass philanthropy, inheritance tax, job sharing, early retirement?

As long as capitalism is the end vs the means as it has become in the west's super-capitalist meme. We have no end to harness the dynamic engine of capitalism.

The problem is we are so productive, we have no model to deal with few making all the stuff for many.

Posted by: Dogman01
02/19/2011 at 11:57 AM

I work for BIG, BIG CORPORATE and everything, I mean EVERYTHING, is next quarter. Even thoguh it is a USA corporation and CEO is in every photo op with Obama, we only cut jobs in "mature/declining" North America and Europe and only add jobs to Middle East and Far East and Brazil. With so many companies acting like this, there is structural unemployment especially in manufacturing but also the indirect supporting industries so we are on a major decline. Then, the only way to create an economy is housing and finance and not making anything where most of the fundamental jobs are. So, we are now buried in credit consuming far more than we can afford in general and it wil explode. The newspapers lie and blow smoke up our backsides to make us feel good as they lie about unemployment numbers and real inflation. Real incomes are dropping fast and then taxes. Since we hate taxes, politicians use these inflation games and hidden tax and credit to impoverish us anyways. What has Obama or Harper done for jobs recently?

Posted by: OnlyTheBankersLaugh
02/19/2011 at 12:02 PM

I'm now thinking of my favorite scene from the graphic novel, "Watchmen".

Nite Owl: What's happened to us? What happened to The American Dream?

Comedian: What happened to The American Dream? It came true!

What's happened in the States is pretty much what happened to Great Britain. It was, once, the world's leading manufacturer. But at some point the people in charge decided that finance was a better way to make money. It worked for a while. Much of the money they leant out went to Germany and the United States.

The result was they financed the rise of their major competitors at the time, and their manufacturing had stagnated. The British Empire didn't last long after that.

You'd think people would learn from history, wouldn't you?