The extremely slow U.S. economic recovery

The Dow Jones average is back to where it was before.   The American job market still has a long way to go.

There is less to these charts than meets the eye.  Stock prices and jobs are rebounding, but investors are not doing all that well, and job-seekers are doing worse.

The Dow Jones average for the past six years has not kept up with inflation, even though the rate of inflation is extremely low.   And the bottom chart shows just how slow the rebound in jobs has been compared to previous economic recoveries.  Just as the stock market ought to keep up with inflation, the job market ought to keep up with population growth.  In other words, even when the number of jobs gets back to what it was in 2007, we’ll still be behind.

The official unemployment rate for April was 7.5 percent.  Economist David F. Ruccio pointed out that this means there are 11.6 million Americans still looking for work, four years after the supposed beginning of the economic recovery.

The Bureau of Labor Statistics reports its U-6 rate of unemployment, which includes jobless people who’ve given up looking for work, and part-time workers who want to work full-time, is 13.9 percent.   This is 21.9 million Americans, roughly one in seven eligible workers.

Click on Why Good People Can’t Find Jobs — What You’re Up Against for a good report on why it’s tough to find a job.

Click on occasional links and commentary for David F. Ruccio’s web log, which is crammed with good information.

One in four US workers are “guard labor”

One fourth of the American work force is employed in “guard labor”, not producing anything themselves, but keeping the actual workers in line, according to a studies by economists Samuel Bowles of the Santa Fe Institute and Arjun Jayadev of the University of Massachusetts.    Comparing nations, they reported that the greater the amount of inequality in a society, the higher the percentage employed in guard labor.

The following is from an interview with Samuel Bowles in the Santa Fe Reporter.

Inequality leads to an excess of what Bowles calls “guard labor.”  In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws, like the officers in the Santa Fe Police Department paddy wagon parked outside of Walmart.

The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy.  All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses or helping to reduce the US trade deficit with China.

via Santa Fe Reporter.

The category of “guard labor” includes police, prison guards, court workers, military and civilian employees of the Department of Defense and private guards, as well as monitors and supervisors with the power to reward and punish.   They do not count employees of companies that make burglar alarms, video surveillance cameras and other security equipment.

They do count the unemployed and prisoners, which may seem like a stretch.  Bowles and Jayadev argue that if nobody was out of work and nobody was in jail, there wouldn’t be any way to keep the rest of the population in line.  This is in line with Karl Marx’s idea that employers need a “reserve army” of the unemployed to keep wages low.   But even excluding the unemployed, Bowles and Jayadev said that “guard labor” is about a fifth of the American work force.

The chart below shows the growth of guard labor in the United States.   By their count, the percentage of U.S. workers in guard labor nearly quadrupled in the 20th century, and increased more than 10 times if you don’t count the unemployed.

This is old information, but I don’t think the trend has reversed.  I see armed security guards and video monitors everywhere I go and, while I’m retired, my friends tell me that work conditions are getting more and more restrictive.

In the best of societies, there will be a need for a certain number of supervisors, monitors, police, courts, prison guards and military forces, and there will be a certain number of prison inmates and job-seekers.   But Bowles and Jayadev found that the percentage is much greater in nations with a high degree of economic inequality, such as the USA, which has more than double the percentage of guard labor of Sweden or Denmark.   Where there are no extremes of rich and poor, it is not necessary to devote so much effort to keeping people in line.

Click on Guard Labor PDF to read the 2006 paper by Samuel Bowels and Arjun Jayadev.

Click on Garrison America PDF to read the 2007 paper by Samuel Bowles and Arjun Jayadev.

Click on Crime and Punishment: Some Costs of Inequality for a report by Nancy Folbre in the New York Times.

Click on Born Poor?  Santa Fe Economist Samuel Bowles Says You’d Better Get Used to It for the full interview in the Santa Fe Reporter.

Click on Vested interests in mass incarceration for an earlier post of mine on a related subject.

Hat tip to Nina Paley for the Mimi and Eunice cartoon.

Why don’t politicians care about working people?

Mark Thoma

Mark Thoma, professor of economics at the University of Oregon and host of the Economist’s View web page, wonders why politicians in general and Democrats in particular are so little concerned about the plight of American working people.

Consider… four facts from a recent speech by Federal Reserve Governor Sarah Raskin.

• First, around two-thirds of the jobs lost during the recession were in moderate-wage occupations, but more than one-half of subsequent job gains have been in low wage jobs.  As she says, recent job gains have been largely concentrated in lower-wage occupations.
• Second, since 2010 the average wage for new hires has actually declined.
• Third, about one-quarter of all workers are “low wage” (just over $23,005 per year in 2011 dollars).
• Finally, involuntary part-time work is increasing, and more than a quarter of the net employment gains since the end of the recession involve part-time work.

[snip]

I don’t blame Republicans for their efforts.  I wish the working class was more important to Republicans, and I cannot understand their indifference to the struggles of so many people.  But that’s not who Republicans are.  Fundamentally, it’s the party of the rich and this is a chance to lower government spending and reduce the pressure for tax increases on high-income households.

I do, however, blame Democrats for allowing them to be successful.  Even though unemployment is extraordinarily high and job opportunities, when they exist at all, are mostly at reduced wages, and even though the future for the working class looks increasingly bleak, too many Democrats have aided and abetted Republicans in this diversion of attention from jobs to the national debt.

Click on Why Don’t Politicians Care about the Working Class? for Thoma’s entire article.

Click on Focusing on Low- and Moderate-Income Working Americans for Sarah Raskin’s speech.

Hat tip to occasional links & commentary

What Washington should be concerned about

While I’ve been writing about Social Security and minimum wage, employment and unemployment are much more important questions.  These charts are from a web site called Jobenomics by a blogger named Chuck Vollmer.  I think his information is reliable, with the caveat that his “can work – not working” category includes a lot of us retirees who are well past our prime working years (and many of whom do unpaid volunteer work).

Obama and the economic recovery

The October jobs report shows the U.S. economy continues to recovery, but, as this chart from the Calculated Risk web log shows, at a much slower rate than previous post-war economic recoveries.

Since the 1970s, each economic recovery has been weaker than the previous one, with slower growth in jobs and hourly wages at a lower rate than in the previous recovery.   But in my opinion, the reason the 2007 recession is so much worse is the 2008 Wall Street crash, signaling the unsustainability of an economy based on debt and speculation rather than borrowing.

Here are some more charts, also from Calculated Risk, which show the state of the U.S. economy in the light of the latest job report.

The lower chart, which shows the proportion of the population in the labor force and the proportion with jobs is probably a better measure of the employment situation than the unemployment rate, which is the percentage of the population looking for jobs who can’t find jobs.   You should notice that the bottom line on the chart is not zero, which means that the variation at first glance seems greater than it really is.

The job losses in the recession were mainly well-paying, middle-class jobs, and the job gains are mainly low-paying, less desirable jobs.   And while any increase in jobs is good news, the rate of job growth is barely enough to keep up with growth in the population.

I think President Obama deserves some credit for the fact that things are not even worse than they are.  I think his stimulus program helped, and, while I disagree with the way the bank bailout was handled, I think the recession would have been far worse if the administration had stood idly by and let nature take its course.   Here is another Calculated Risk chart, which compares the current U.S. recovery with the Great Depression of the 1930s in the United States and with other nations which have gone through financial crises in the past few decades.

What this chart shows is that the financial crisis in the United States could easily have been much worse than it was.

Unfortunately, the Obama administration failed to take action to prevent a future financial crash.  It declined to prosecute for financial fraud nor to restructure failed financial institutions, as was done in the aftermath of the savings-and-loan crisis.  Obama’s administration worked pro-actively to prevent legislation that would break up the too-big-to-fail banks or to take meaningful action to limit speculation with federally-insured bank deposits.  As a result, the Wall Street financiers who were responsible for the financial crash, except for the executives of Lehman Brothers, wound up better off than they way before.

The predictable result of this will be another financial crash, a bigger and worse one than the 2008 crash.  I am not smart enough, or foolish enough, to say when this will be, but when it happens, it will be a political disaster for whatever political party happens to be in power at the time.

The broader problem is that the United States has slower economic growth than in the 1950s and 1960s, and an increasing share of the benefits of that growth are going to a tiny minority of the population.  I think both trends are the result of the globalization of the national economy.   To some extent, slower economic growth and wage stagnation are the result of the leveling of the playing field between American workers and workers in Latin American and eastern Asia.  I don’t complain about this.  It would be shameful to try to maintain my high material standard of living by trying to keep people in other nations poor.

The other aspect of globalization is that the world’s economic elite have the means to escape regulation and taxation, and that international economic institutions—the World Trade Organization, the International Monetary Fund, the European central bank—operate to protect the interests of financial institutions and the economic elite from national governments.  I can imagine an alternate globalization in which international institutions work to raise labor and environmental standards, but at present workers and scientists are not in charge.

I wouldn’t expect Barack Obama to be able to change the situation all by himself, although I think a President is in a good position to raise awareness of the problem.  Nor do I think that Mitt Romney offers a better alternative.   His Bain Capital is part of the problem.  Change, if it comes, will have to come from an aroused public opinion.

Click on Calculated Risk: October Employment Report for a more complete analysis of the latest Bureau of Labor Statistics report.

Click on Modest Jobs Growth in Latest Economic Report for a more readable and less technical analysis by the New York Times.

Why you should believe the BLS jobs figures

General Electric’s ex-CEO Jack Welch can’t believe that the U.S. unemployment rate actually fell to 7.8 percent in September.  He thinks the Bureau of Labor Statistics is manipulating the data.  It is understandable that he should think that way.  GE was fined by the Securities and Exchange Commission for manipulating its earnings data during Welch’s watch.

When I reported on business for the Rochester Democrat and Chronicle some 20 and 30 years ago, I had dealings with statisticians and analysts for the New York Labor Department and the U.S. Bureau of Labor Statistics.  They were thorough professionals.  They were like scientists and engineers.  They didn’t care what I wrote so long as I understood the figures and wrote about them correctly.

The monthly jobs figures are come from two sources, a household survey and an employer survey.  The household survey is based on asking a cross-section of the population whether they are employed and, if not, whether they have looked for work during the previous month.  These two figures are used to generate the monthly unemployment rate.

The employer survey is based on interviewing a cross-section of employers as to whether they have hired or laid off employees during the previous month.  Based on these results, the BLS adds to or subtracts from a benchmark figure of the number of jobs.

The benchmark figure is based on an actual count of the number of people paying workers’ compensation taxes.  It is the most accurate and meaningful figure, but it is always at least six months out of date because it takes time to add up all these figures.

The unemployment rate number probably is an undercount.  It does not include “discouraged workers” who’ve stopped looking for jobs, or part-time workers who’d like to work full-time.  The jobs number also is often an undercount.  It does not include the number of jobs created by formation of new businesses.  The BLS only catches up with those jobs when it does a new benchmark, which is what happened in September.

Both figures over time are accurate indicators of the trend.  If you always conduct a survey in the same way, then, even if it is flawed, it will always be flawed in the same way.   It’s not unlikely that the unemployment rate is exactly 7.8 percent, but it is certain that it is lower than it was at the beginning of the year when it was reported at 9 percent.

Reports of earnings by corporations such as General Electric, in contrast, allow a lot of discretion in how things are reported. By timing transactions on which a company takes a profit or a loss, the earnings can be made to appear much more stable than they otherwise would be.  This is not uncommon and, in and of itself, it is not necessarily dishonest.  It has to do with the timing of what is reported, not the content.   A company that is really unprofitable could not smooth its earnings that way.  But in Welch’s case, GE did overstep the bounds and had to pay a fine to the SEC.

As to the significance of the figures, it is still true that the current economic recovery is weaker than any U.S. recovery since the Great Depression.   I don’t think this is President Obama’s fault.   It is the result of decades of a hollowing out of the U.S. economy and the substitution of debt for income.  I think the Obama stimulus did as much as can reasonably be expected, and the Republican leadership was and is opposed to the President doing anything more.  My criticism of Barack Obama is on other grounds—that he is anti-labor, pro-Wall Street and indifferent to the plight of foreclosure victims, and that he opposes the necessary steps to prevent another financial bubble and crash.

Benchmarking the U.S. employment recovery

Double click to enlarge.

Double click to enlarge.

I’ve posted a number of charts like the one at top showing how much worse the current employment recovery is than the recoveries following previous recessions since World War Two.   But the second chart provides another and maybe more meaningful comparison—the U.S. recovery versus employment recoveries in foreign nations following financial crises.  The current U.S. recovery is not out of line with the experience of foreign nations.

The most significant comparison, though, is with the current U.S. recovery, shown by the thick red line, with the aftermath of the 1929 stock market crash, shown by the dotted black line.  What it indicates to me was that the United States was on a slide toward another Great Depression, like that of the 1930s, but that the slide was prevented by the bank bailouts and the Obama stimulus plan.

I’ve criticized the Obama administration for failing—really, not seriously attempting—to put anything in place that would prevent a repetition of the recent financial crash.  The Obama administration has blocked prosecution of financial fraud and meaningful legislation to regulate or break up the “too big to fail” banks, while the Federal Reserve Board, through its Qualitative Easing programs, has given money to the big Wall Street banks at near-zero interest rates without any requirement that the money be lent in the real American economy.  I think the United States is on track for a bigger crash and a bigger bailout, if indeed a bailout is possible the next time around.

But give credit where credit is due.  The swift action of the Bush administration, the teamwork of the Bush and Obama administrations during the transition, and Obama administration’s follow-through prevented a collapse of the financial system, and the Obama stimulus plan also helped shore up the economy.   I can’t prove this.  There is no way to turn back the calendar and see what would have happened with no bailout and no stimulus, but I think the Hoover administration’s experience after 1929 provides a good indication of what would have happened.   But now that the collapse has been averted, the U.S. government and banking system is busy recreating the circumstances that led to the collapse in the first place.

Click on Does this graph prove the recovery has been impressive, after all? for the thoughts of Ezra Klein on the Washington Post’s Wonkblog.

Click on Checking In on Financial Crisis Recoveries for the source of the chart in a report by Josh Lehner of the Oregon Office of Economic Analysis.

Recession over? Not for working people

The Economic Policy Institute, a non-profit research organization which studies trends in wages and employment, has just issued its latest State of Working America.  Its facts and figures show that conditions were not good for wage-earners even before the Great Recession, and that, even though the recession is officially over, the United States has a long way to go before working people recover lost ground.

The Great Recession was by far the worst in the United States since the end of World War Two.

Double click to enlarge.

And while there has been recovery in economic output, and in the financial markets, the United States is a long way from getting back to a full employment economy.

Click to enlarge.

There has been some improvement in jobs, perhaps partly because of President Obama’s stimulus program, maybe partly because of the natural turn of the economic cycle, but not to pre-recession levels.

I believe that the reason the Great Recession was so bad and the recovery is so weak is that it is more than a routine downturn in the economic cycle.  I believe the United States has reached the limits of creating spending power by substituting credit for income, and we Americans need to somehow recreate an economy based on production rather than finance.

I think President Obama’s economic stimulus program kept things from being worse than they otherwise would have been.  I don’t think Mitt Romney’s and Paul Ryan’s economic philosophy, which is essentially make rich people richer and poor people poorer, would help.  But I do criticize Obama for giving free rein to the too-big-to-fail banks whose fraud and follies were the immediate cause of the crash, and thereby setting the stage for a new and bigger crash.

Click on Economic Policy Institute for the EPI home page.  Click on The State of Working America to read the digital edition of the EPI report.  A print edition is scheduled for publication in November.

Click on Did the stimulus work? for summaries of 15 economic studies by Dylan Matthews of the Washington Post’s Wonkblog.  Matthews’ scorecard is that 12 studies said the stimulus was beneficial, two said it was useless and one said the effect is uncertain.

Click on Obama, Romney and the Low-Wage Future of America for an article by Dan Froomkin for Huffington Post Nieman Reports on the lack of a plan from either candidate for a full-employment, high-wage economy.

America’s low-wage recovery

When and if employment in the United States gets back to what it was before the recession, American working people will still be worse off than before, because on average they’ll be working in lower-paying jobs.

The National Employment Law Project, a liberal think tank, reported that about three out of five of the new jobs gained during the current economic recovery were in low-wage occupations, with median pay less than $13.52 an hour, or $28,122 for someone working full-time, year-round.   But about four out of five of the jobs lost during the recession were in occupations with median wages above that level.

There is good growth in occupations such as retail clerk, kitchen worker, laborer, freight handler, waiter and waitress, home health aide, office clerk and customer service representative.  The low-wage occupations would provide $15,621 to $28,121 a year to someone working full-time year-round.

The moderate-wage jobs would pay $28,142 to $42,973 a year.  They’re mostly in construction, information industries and banking, insurance and real estate.

Median wages in the high-wage jobs would be $42,994 to $110,906 a year.  A relatively small number of these jobs were lost during the recession, but the loss hasn’t been made up.

The NELP researchers said the shift reflects a hollowing out of the middle level of the U.S. economy which has been going on for a long time, plus layoffs of government workers during the recession.

Back in April, the Economic Policy Institute, a labor-oriented think tank, issued a report predicting that 28 percent of American workers will be in low-paid jobs in 2020, about the same as in 2010.  The EPI defined a low-paid job as one insufficient to keep a family of four above the poverty line.  In 2011, that was $23,005, or $11.06 an hour for someone working full-time year-round.  In yet another report, NELP researchers estimated that one in four American workers currently has a job that pays less than $10 an hour.

What all this shows is that economic stimulus is not enough to bring about prosperity.  Unless we Americans are resigned to growing steadily poorer, we have to figure out not just how to restart, but how to rebuild, our economy.

Click on The Low-Wage Recovery and Growing Inequality PDF for the NELP report.

Click on Majority of New Jobs Pay Low Wages, Study Finds for a summary of the NELP report in the New York Times.

Click on The Future of Work: Trends and Challenges for Low-Wage Workers PDF for the EPI report.

Click on Welcome to Your Low-Wage, Temp Work Future for a summary of the EPI report in Forbes.

Click on Obama, Romney and the Low-Wage Future of America for an article by Dan Froomkin of Huffington Post on the failure of either President Obama or Governor Romney to address this issue.

Hat tip to Think Progress.

For the sake of clarity

Actually (since I’m an old retired guy) all I want is for all Americans to have the same opportunities I’ve had.

Hat tip to Echidne of the Snakes.