Curious Capitalist

What Are the Jobs Figures Really Telling Us?

  • Share
  • Read Later
Sandy Huffaker—Getty Images

Current and former military personnel stand in line for interviews at the Opportunity Job Fair on Sept. 6, 2012 at the old Naval Training Center in San Diego, Calif.

Has anything really changed in the labor market? That’s the question I’ve been asking myself since last Friday’s jobs figures, the most positive in three and a half years, came out. Unemployment is finally below 8%, and there was pick up in surprising areas, like public sector employment. No, that had nothing to do with the Obama administration manipulating BLS data, as Jack Welch would like us to believe. The improvements were at the state and local level, rather than the federal, in areas like education and healthcare, and they probably had a lot more to do with seasonal adjustments than anything else, at least according to the smart folks in JP Morgan’s economic research division. What’s more, if the President actually had the ability to tweak the figures, he probably would have focused on manufacturing, an area that was still shedding jobs thanks to the slowdown of Europe and many emerging markets, which is hitting U.S. exporters.

It’s that last bit that worries me. The Obama administration and everyone has been counting on the nascent manufacturing resurgence in the U.S. to create some of those better paying middle class jobs that we’ve lost so many of over the last few decades. And indeed, the forces that have been fueling the manufacturing resurgence in this country aren’t gone – energy prices are high and may get higher if Iran tries any funny business in the Straight of Hormuz. Higher energy means more risk and higher shipping costs, which makes companies more inclined to source parts and jobs closer to home. What’s more, American manufacturing is becoming more competitive – the Boston Consulting Group estimates that by 2016, the gap in total manufacturing cost between producing in the U.S. and China will have narrowed to just 7%. Yes, we’re getting more globally competitive. But that’s partly because a lot of us are not making any more money than we did in 1968.

(MORE: Unemployment Rate Drops to 7.8% But Path to Recovery is Murkier)

That’s the thing about today’s labor market that’s perhaps most troubling: Income growth is still basically flat. More people have jobs, but almost nobody outside of the very top tier is getting a raise. Paul Ashworth at Capital Economics told me recently that he believes that unemployment would have to get below 7% for there to be any real increase in wages in this country. Many others agree with him. That’s a problem when the bulk of your economy is still based on consumer spending: No raise, no real spending bump.

So, what’s to be done? That is becoming a very interesting question, economically and politically. Classical economics would have us believe that the market simply sets the wages we all deserve. Supply, demand, and the relative productivity of each worker get thrown into a pot, and the most productive, in-demand people get paid more. But as the FT’s John Kay pointed out in a very smart column last week, that’s not the only way to think about wages. In the complicated world of modern work, where a lot gets done in large teams across many divisions and time zones, it’s very, very difficult to determine exactly who should be getting credit for what. Contacts, connections, and lobbying power (both at the personal and industry level) have a lot to do with how much people get paid, too.

(MORE: Local Food Grows Up)

If you buy the idea that the market isn’t actually quite as fair as we’ve always thought, that opens up a whole host of possibilities, like government intervention in wage setting — and I’m talking about more than just raising the minimum wage. Sure, it’s still possible to work up a lot of Americans by crying “redistribution,” as the Romney camp, desperate to deflect attention from Mitt’s 47% gaffe, tried to do a couple of weeks ago by releasing an old video of Barack Obama arguing for just that.

But those cries don’t have the power that they would have even a few years ago, before the Great Recession made it clear just how bifurcated our labor markets have become. And I suspect we may be headed towards an era in which there’s at least some government push-back against laissez faire labor markets. Peter Atwater, the head of the market research firm Financial Insights and a behavioral economist whose work I very much admire, recently told me he thinks we may in the next few years see the U.S. government start to charge multinational firms for laying off American workers. After all, why should the state have to pick up all the downside of globalization (in the form of more benefit payouts) while companies get to keep a record share of the upside, in the form of the largest profit margins in history? It could be just a hop, step, and jump to more government intervention in wages, particularly if the current system doesn’t evolve in such a way that the proceeds of the pie are shared more fairly. I’m talking to you, Jack Welch.

MORE: How Different Generations of Americans Try to Find Work

(Updated 10/8: This post was updated to reflect that the Boston Consulting Group projects that the gap in total manufacturing cost between producing in the U.S. and China will by 2016 narrow to 7%, not 7 cents per hour.)

30 comments
Sort: Newest | Oldest
bob3905
bob3905

"Income growth is still basically flat. More people have jobs, but almost nobody outside of the very top tier is getting a raise."

Thank you Rana for pointing this out. I've yet to see this point made elsewhere and I've been posting my opinion on the subject whereever and whenever I can. We don't make enough. Our wages have not kept up with inflation over the past 30-40 years. I don't make any more money today than my father did in the mid-eighties and yet the price of everything has risen greatly in that time.

I'm sure the fat cats sitting at the head of industry think it's all okay. After all we, the public, the working middle class (and poor even), are still buying stuff aren't we? Well, I don't by as much as I once did. I went bankrupt and gave up the credit card debt and the cards with it. I buy what I can afford today and it's not much. There are still quite a few living the lie, buying on credit, but the bill will one day come due for them as well. When it does the econamy will sink again. 

The plain truth is we need to be paid more to buy more. When we buy more companies will need to hire to fill the greater demand. This is the only way we'll get new jobs. Until or unless this happens we slide right back in a recession or worse.

Robert Cassis
Robert Cassis

In the end you control what you are paid by the choices you make.  People make so many silly decisions that destroy their value to employers.

But we aren't really in this mess because of that.  We've always had a large portion of the populace that makes poor decisions or have had obstacles in their lives that render them incapable to achieve everything they want.  What I see is that with technology it is harder and harder for people to run small businesses that can efficiently compete with larger ones.  (Large companies have brand recognition that makes people at ease with purchasing their products online.)  It is harder to raise capital than it used to be.  Regulations disproportionately effect smaller businesses; taxation does the same.  Hence we are destroying small businesses just when we need them the most.  Business start-ups during this recession are abysmal compared to most downturns, which is why the recovery is so weak.

Bhujangarao Inaganti
Bhujangarao Inaganti

We were all sleeping for the last 30 years in a fantasised world of prosperity while all the jobs were shipped out by the corporates in search of more profits and suddenly we realised that all our jobs are gone and the real profiteers of wall street bouncers are benifitted even in local economics. In addition the Govt has found that more of these 1%ers have stashed their dollars in foreign accounts unidentified and they think patriotism is not in their blood to live as an american but want to be american for safety.

Gregory Dittman
Gregory Dittman

Jobs aren't shipped overseas as much as other countries can build factories too.  The problem in the U.S. is the number of start ups as a ratio of established businesses has been on the decline since 1977.  Most hot named brands now are actually created during or before that decade.  The big businesses after that period are internet companies with many of those not actually creating anything and therefore not needing or creating many support companies.   Name a major non internet/software U.S. company created 1980 or later.  Chances are you will not find one.  Even in the last 10 years I doubt there was a major software or internet company that was created.  Twitter has less than 1,000 employees and Facebook has less than 3,000 employees.

drabidea
drabidea

That is only because big corporations keep buying out the small companies that create those physical products. Instead of the small business being able to take their great idea and start their own company, large business bully them out and force them to sell their company at much less than they would actually make.

Yae Chan Shin
Yae Chan Shin

Well you wouldn't necessarily call it bullying. Small companies are hoping that large companies buy them for the capital gains. 

Small businesses know their average life-span, if they're bought out by large companies, they know their businesses will survie and they themselves have some cash to spare when the big businesses buy them. 

All to say, what is fair? I don't think you can judge businesses because it buys other businesses for more profit. It's a free market, small companies selling themselves is their own economic choice. No one is going to force you to sell your business to them, it's usually the enticing $$. 

All business are driven by $$. 

Rumionemore
Rumionemore

I don't think the job numnbers are fixed, but the reality is that 60% of jobs created are low-wage. That's never going to significantly move the economy forward. Part-time jobs, whether from a government stimulus program or private sector, will not sustain our economy. Just won't happen.

Gregory Dittman
Gregory Dittman

Yes, the numbers are cooked.  There is a part of the equation totally left out which started in 2010 and which should make up most of the equation.  Since 2010, the baby boomers stared to hit 65 and are hitting 65 around 10,000 per day which is about 300,000 per month.  Of course not all of them had jobs or quit.   In September, the number of jobs created was 114,000, but if 115,000 did retire, it still means that 1,000 jobs vanished.

Rumionemore
Rumionemore

The reason I will vote for Romney over Obama is that I trust him more than O. and admire his proven track record of leadership. At the end of the day, it's Obama who has heaped more hurt on families and individuals than Romney trying to shleter some of his wealth. So what? If I had that kind of money, I'd do the same. Obama's healthcare plan is already costing families more money. His scandals - Solyndra, Secret Service (frequent) whoring, Fast and Furious, stimulus programs, and the GSA scandal can be laid right at O's door. These are the kinds of things that cost taxpayers. Having worked for the government twice, I can tell you that the GSA-type over-the-top spending and boondoogle meetings and conferences are the order of the day. Yes, I think ther numbers could be fixed, but we'll never know. And one week's numbers are relatively meaingless. The media helps their candidate out on this.

drabidea
drabidea

Maybe I am not understanding you correctly but if 115,000 people retire that means that 115,000 people are going to be hired to replace their position.

JZimm09
JZimm09

I worked at a Fortune 50 company for 11 years.  During the mid 90s that company started outsourcing jobs to India consulting firms.  Then it increased the number of employees in India by 4x opening a huge office there.  I've consulted at various companies over the past 10 years and have seen outsourcing from Thailand and India to the Philippines and Vietnam.  I can tell you first hand in 2004, the white collar labor costs in India were 1/8 what they were in the US.  This is a huge problem for the white collar labor force here.  The labor cost differential is changing but not enough to bring back these jobs substantially.  To suggest that this has anything to do with Obama is partisan amp; just plain ignorant.

Obama is right in supporting tax breaks for companies that bring jobs back home.  He is also right in pushing for education.  I have seen the education system in India firsthand.  There is a reason why it is turning out so many capable people.  All of this is being done through government supported programs.  In primary education when you are competing with global programs there is no way the chaotic free market can compete with government focused programs.  And in countries like India, even higher education programs among public universities are much more focused amp; competitive through government intervention amp; direction.

akpat
akpat

The free market only works if there are no cartels and a level playing field. Whatever happened to capitalism. It seems if you are big enough you can make all sorts of mistakes and be bailed out. Those crying most for unbridled capitalism were the biggest receivers of tax payer bailouts.

drabidea
drabidea

Actually the free market theory also falls apart when you start putting value to a good or service that is above its intrinsic value. This creates a bubble that is forced to collapse eventually.

akpat
akpat

The free market only works if the playing field is level. It only works if there are no cartels. Unfortunately both these are out there and profiting very well from being able to leverage commodities and manufacturing.

There is no way the cost structure of a family here in the US can compete with the cost structure of a Chinese or Mexican worker.

Then its time to get rid of speculation in the energy and food markets. Before re reflated the banks crude dropped and gas was $2.80/ gallon and as we poured money int them they started fooling with energy prices again.

Strangely although they all want a capitalist society they are not prepared to take the losses of their own greed or incompetence, requiring the public taxpayer to bail them out.

Whatever happened to the free market then you know where people go bust and the wealthy lose their money.

Robert Cassis
Robert Cassis

The president would get plenty of Republican support if he was about strengthening anti-monopoly statutes.  Even if there are elements of the party that would want to protect their corporate donors, there are plenty that would work with him too.  

THIS I would love to see...

Gregory Glass
Gregory Glass

So, Time once again pushes the propaganda of the White House.

Hey Time, just a quick news flash. THe reason the job market and wages are stagnent is because of GOVERNMENT laws and regulations that cripple job growth here in America.

Now, if you guys are so big on "pay equity", if you guys are so big on the "redistribution of wealth, then show us.

The AVERAGE American makes around $34,000 a year. Now, I know you "jopurnalists" make much more than that.

So, to show you believe all this crap you are pushing, ALL of you journalists, from ALL the MSM need to take any money you make over $35,000 and redistribute it to the poorer people, the disadvantaged, the "poor" you all say you are so concerned about.

So, when you start giving away your money, excuse me, redistribute your own wealth, then you can tell the rest of us to do so.

Until that time, SHUT THE HELL UP, YOU HYPOCRITES!

bob3905
bob3905

How can you so completely miss the point? Are you happy with prices that keep rising while our salaries don't? This isn't about redistribution of wealth. This is about American middle class and working poor getting a decent wage. Ever since the unions messed it up for us demanding wages and conscessions for unskilled, under-educated workers manufacturing jobs have been shipped overseas. Now, we are conditioned to ask for less to hold onto our precious jobs. We are supposed to be happy with a 25 cent raise where once a dollar or more was common.

As for Goverment laws and regulations I suppose you would rather we do away with most or all of them. We can go back to brown skies and I can put my seven year old to work like back at the dawn of the industrial revolution. We can live in factory towns and buy all we need at the company store. We'd have jobs again but at the cost of our health an well-being. We seem to be heading this direction already. 

Dan Bruce
Dan Bruce

More people have jobs, but almost nobody outside of the very top tier is getting a raise.

And a President Romney would only accelerate that trend by further skewing the system to reward the wealthy.

Gregory Glass
Gregory Glass

 GET A JOB!

foodandart
foodandart

You hiring?

foodandart
foodandart

Robert.. no. *I* have my own business - such as it is when it is dependent upon the real estate market. I have many pokers, so to speak in the fire, but the problem with 99% of the service sector is that it does not generate wealth, but it merely re-distributes it. The service sector is basically people doing for others what they do not *want* to do themselves. People don't want to cook, they go out to eat. Same for painting and papering their walls, troubleshooting their computers or replacing the exhaust of their car. But when you don't have any money you end up DIY and those in the service sector take a hit.

My question was more rhetorical to Gregory Glass and other strutting peacocks who think finding work is as simple as 'just getting a job.." - like it's 1956, and the US is the dominant *wealth-creating* manufacturing power across the globe, right?

It's not that there is a shortage of entrepreneurs, but a shortage of capital - at a certain economic level it's not reaching down far enough in meaningful amounts.

Judith J. Broussard
Judith J. Broussard

@drabidea:disqus The AVERAGE American makes around $34,000 a year. My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do, >>..NDOQESB.TK

drabidea
drabidea

Yes Robert Cassis. There are many people keeping me from starting my own business. How about the corporations slinging out patent lawsuits or the corrupt bankers who aren't lending out money needed to start a business.  

Robert Cassis
Robert Cassis

Is someone keeping you from starting your own business?

c_laird478
c_laird478

'Classical economics would have us believe that the market simply sets the wages we all deserve. Supply, demand, and the relative productivity of each worker get thrown into a pot, and the most productive, in-demand people get paid more.'

This is what the naive think when they first start out on their careers.'Contacts, connections, and lobbying power (both at the personal and industry level) have a lot to do with how much people get paid, too.'

This is what they finally realize after a few years of experience in the real world.

Robert Cassis
Robert Cassis

It is ALL in the little hypenated word.  "in-demand"  Your labor(life effort) is nothing except a commodity.  Fortunately, we live in America where it is up to you to make your labor what it is.  You can choose to use it to clean up rest-rooms or you can use it to design computer chips.  (Assuming you are capable)  Can it be effected by contacts?  Absolutely!  That's why people schmooze the boss.  Course if you think about it, you could lump all that into the "demand" you create for yourself.

drabidea
drabidea

So what you are saying is that someone's value to society or a company should be a popularity contest?

c_laird478
c_laird478

If you really believe that, you're still in the naive stage. From my decades of experience as a computer programmer I can tell you that I observed a lot more promotions going to those who schmoozed well with the boss and won office political battles than workers like me who had little skill or interest in schmoozing or fighting office political battles but who tried to get ahead just by doing the best and most programming.

That was where my skills and interest and efforts lay, in doing the actual programming work, not in the socializing and schmoozing with the boss and co-workers or fighting office political battles. But I was constantly left behind when it came to promotions because they went to those who schmoozed the best with the boss and won the office political battles rather than worker bees like me.

c_laird478
c_laird478

You're right that employers are only human. But it disgusted me and worker bee oriented co-workers like me when things happened like co-workers who weren't very work oriented but who got promotions to supervisory positions because they took the boss out to dinner at expensive restaurants and picked up the tab, or played golf with the boss, or bought large quantities of the boss's daughter's girl scout cookies.

The thing is, the organization still thrives despite those things because the worker bees like me do the work that makes it thrive. We just don't get the promotions nor the increases in compensation that the pro schmoozers/office politicians get just for being so good at schmoozing and office politicing. So what do you do about things like that? I solved it by investing as much of my earnings as securely and profitably as I could until I could leave without having to worry about money.

But I keep trying to inform people who are so naive that they still believe that the way to get ahead is through hard work for the boss, when my decades of personal direct experience in the real world has shown me just how naive that really is. Apparently some people just have to learn the hard way, like I did.

Robert Cassis
Robert Cassis

I said that is part of the equation.  People are willing to pay more for a feel-good experience.  Bosses amazingly enough are people too.  So part of the job to keep yourself "in-demand" is to pay attention to the things that your boss wants.  To give them social status by employing you...

Will employers who rely too much on that factor (as opposed to who produces the best product) be less efficient?  Absolutely.  But you aren't responsible for that.  You are responsible for making the most of your perceived value to whoever decides your compensation.

Your solution to this issue would be what?  Have the government decide what is "fair value"?  I remember how well that worked when I was working at a place that was union represented.  I performed great and maxed out the "salary pool" increases every year.  2 years before I left became a manager.  Worked there 13 years and when I left I DOUBLED my salary.  Cause governments and unions are slow to react to changing market conditions and true supply and demand.