Tuesday, November 4, 2014

Words Have Meanings Episode XXII - "Job Creation"

Odd. Didn't we see that same sign back about
a hundred miles?
Both sides of the ideological spectrum have seized on the concept of 'job creation' ever since the collapse of the US economy in 2008. Now it has become a phrase that is tossed off to mean the same thing as 'lowering the unemployment rate'. But is that what it actually means? Is the primary solution to unemployment the creation of new, heretofore nonexistent jobs? And what forces and dynamics can be brought to bear to accomplish such a task?

It's true that the American workforce is expanding due to population growth. The economy must add about 90,000 jobs overall every month to keep pace with this growth in available workers. So what causes job growth? Well, if we assume that existing companies are fairly careful to keep their workforces in line with their ongoing production requirements, then it is going to largely be new companies, new divisions, new technologies, new kinds of production and transactions that produce new jobs. And that's where it can get dicey. One of the technology-driven growth success stories we're seeing now is in the realm of 3D printing. And certainly, companies are ramping up their 3D printing design, production and marketing teams. But the people who are buying that kind of technology - along with the vast explosion of various CNC manufacturing equipment vendors - are using it to replace workers with automated production solutions. Just as in the last twenty years a number of companies have enjoyed explosive growth building industrial automation robots, their customers are using those products to reduce workforce headcount.

And therein lies the fundamental problem that nobody ever seems to want to discuss. The high unemployment rate is the result of lost jobs.  The way to reduce the unemployment rate would be for demand to return to previous levels and those people who lost their jobs to simply return to work. There is no possibility that the creation of new jobs can ever have a significant impact on the unemployment rate. And sure enough, unemployment has stayed stubbornly high because the US consumer economic demand simply hasn't returned to pre-recession levels. So you have a condition where jobs were eliminated when the economy collapsed, and due to rising worker productivity and workplace automation, have never needed to be re-filled. What you see instead is a steady decrease in workforce participation rates, as every month a few more workers come to the wistful realization that they will never hold another job.

Demand cannot increase until there is more disposable income in people's pockets. And with the top 10% hoovering up all the wage and income gains, consumers don't have the money to spend that would fuel demand growth. It's really very simple - every time a poor or middle class person spends a dollar, some portion of it is redirected to the wealthy, where it goes into investments or bank accounts rather than back into the economy.

So the net outcome is jobs are NOT being created in any significant numbers. A few hundred thousand jobs are FILLED every month, while a few tens of thousands of workers drop out of the workforce. There's no upward pressure on wages, no upward pressure on inflation, and no new technology poised to drive a new spurt of economic growth. All while coroporate profits and valuations are at all time highs. There's nothing that can improve America's economy, and any decent sized global demand shock will trash it again.


  1. Dean Baker addresses the subject quite often. The issue isn't that we can't do it. It's that our ruling elites don't want to.

    Getting Back to Full Employment: A Better Bargain for Working People

  2. Well, the elites are responsible for much, but we can't pretend we can EVER get back to where we were. Things are changing at the most fundamental level, with secular stagnation and workforce automation and now add 3D printing into the mix. The economy simply doesn't need as many people for a given unit of GDP as it used to.

    Also, too, bear in mind that the last time we were at 'full employment' consumer debt was over 100% of GDP and we were in the midst of an unprecedented housing bubble. There's just not going to be that much consumer demand ever again - and if there is it would be a very bad thing...

  3. Here's an idea. Increase the amount of leisure in our world. A thirty hour work week (with a living wage), more vacation, and spreading the jobs that exist around.

    Nah, that's crazy talk.