from Theflyonthewall.com
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U.S. Job Growth
It’s often been said that Americans make sacrifices to secure two important economic goods: 1) earnings, [also called profits] and 2) jobs.
Or put anther way: How many investors will invest and risk their capital for little or no return on equity? Very few.
Similarly, how many citizens – particularly young citizens – would live in a nation where the job outlook is continually bleak? Very few.
That the United States’ economic system – basically, the American way of doing things, economically-speaking – rests on those two tangibles – profits and jobs – is beyond dispute. Americans in particular and the United States in general face a daily drumbeat of criticism and brickbats from critics far and near, across the Atlantic and just to our north, academic and governmental, regarding the liabilities and costs of the American system. Policy wonks and pundits opine on about “the harshness of the economic system,” its “inadequate social welfare state,” and the “costs of corporatism.”
To this, Americans and America has always had the check-mate retort: Profits and jobs.
Talk About Roaring
The industrial age has never seen an economy as successful as the U.S. economy. For that matter, human civilization has never seen an economy as grand, as sophisticated, as innovative as the U.S. economy. The matter is beyond debate. Further, most developed nations – including the major states of Europe - can not offer a decade comparable to the 1990s (a very profitable decade) in the United States, let alone the 1920s, when, you will recall, the Dow Jones Industrial Average rose more than four hundred percent in less than ten years. Regarding profits, the United States wins, hands-down.
And it’s been the same case regarding jobs, or what economists like to call “job creation.” If one discounts the old planned economic systems of the former Soviet command economies – whose systems `employed’ adults whether there was work for them or not, the tally sheet regarding job creation has many American accomplishments, and fewer accomplishments for just about every other industrialized economy on the face of the Earth. During the 1890s – at the dawn of the twentieth century – the saying in Europe was, “If you had an idea or a dream, or if you needed a job, you went to America.” That wasn’t the most flattering reflection on our democratic friends in Europe, but it was certainly true for its time. People did not start referring to America as the land of opportunity without substantial, tangible – and personal - evidence for that statement. Starting with the 1890s and proceeding through two major immigration waves, the U.S. economy created more jobs than any other nation since the dawn of the industrial age. Save some larger European nation-states, there have been more jobs created in just one American state, just one American state – California – than in most nations in the world. In short, there has never been a job creation machine like the United States.
Brave New World?
Or, at least, up until recently. Lately, the two tangibles on which the American economic system rests have not been as firm. More specifically, earnings have held up well recently – the S & P 500 just recorded its 16th consecutive quarter of double-digit earnings growth – but job creation has not. The current U.S. economic expansion – now in its fifth year – is creating only about 35% of the jobs the economy would typically create, compared to previous economic expansions of similar length. Put another way, whereas past economic expansions would create 10 jobs, the current expansion is creating 3.5 jobs. As one might guess, that’s an enormous difference in jobs. Other stats are even more telling. From 1993-1997 [5 years] the Clinton Administration’s expansion saw 14 million jobs created. From 2001-2006 [5 years] the Bush Administration’s expansion has created about 5 million jobs. Another: the smallest 12-month period of job growth during the Clinton Administration created more jobs than largest 12-month period in the Bush Administration. By almost every measure of employment conditions, one conclusion is undeniable: the current expansion, while not a jobless recovery, is characterized by very low job creation.
And if the above were not sobering-enough stats, here’s another: from Q3 2001 to Q3 2005 the U.S. economy created 1.2M jobs. The European Union’s economy, despite being weighed-down by higher income taxes and a costlier social welfare state, created 7.9M jobs.
What’s caused the job slump? Economists are still searching for the answer. Some argue globalization – the integration of markets – is the primary cause, due to the shift of U.S. jobs to lower-cost regions of the world, but others argue globalization is only a partial cause. Some economists say the current job dearth is a consequence of investment excesses in the 1990s, and that the U.S. economy is still “working-off” excess capacity in many sectors. Another economist camp argues that the increased productivity of the U.S. economy, itself, is a job restrainer: the U.S. economy now has in place, in many sectors, processes that enable companies to increase productivity without increasing manpower. Still another economist camp says the high cost of employee benefits – particularly health insurance – is the cause: benefits are so costly that companies look for every opportunity to avoid hiring a full-time, U.S.-based employee, which has depressed job growth.
The Job Nexus
Economists will need many more data points before they can come to an informed conclusion regarding the cause(s) of the current economy’s low job growth. Even so, markets do not wait for rigorous longitudinal studies from economists: they make instantaneous judgments about current economic conditions, with an eye to the future. And right now the Dow Jones Industrial Average in Sept. 2006 is saying something about the economy, and perhaps about job growth, as well. The U.S. economy continues to grow, but the Dow has basically remained flat for the last five years, roughly paralleling the low job growth period – perhaps signaling something about the sustainability of the current recovery; perhaps not.
Nevertheless, given its status as a foundation, along with profits, of the U.S. economic system – profits and jobs are the two primary advantages of the U.S. economy – that would suggest that the U.S. economy will have to start creating more of the latter, in the years ahead.
