The Labor Market's Worse than We Think

Mortimer Zuckerman, chairman and editor in chief of U.S. News & World Report, comments on the prospects for an economic recovery in this WSJ op-ed piece, listing ten reasons why the labor market is worse than it appears.

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

The notion that employment is a lagging economic indicator is being put to the test during this recession and, as Zuckerman indicates, that doesn't factor in the many nuances in the labor market, some of which have never been seen before to their current extent.

Probably the most striking of these many nuances is reason number four discussed directly below - "underemployment" - and those affected by the sharp increase in underemployment would likely disagree with this being characterized as a "nuance".

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

There are a few more items in the list and an assessment of just how difficult the road ahead will be given all the headwinds now faced by the no longer indefatigable consumer sector.

It's hard to imagine how any sort of a sustainable recovery can be mounted this time around if it's supposed to look anything like recoveries from the last few recessions.

Comments

[atlasman:]

I got an email this morning from a friend of mine that is starting a tech business in Missouri. The message was simple:

"We have now set the BC so payroll will be capped at $250K".

I have not spoken with him but am gussing that everything will be outsourced or 1099s. I am guessing he is not the only one in the world that will go down this path if Congress gets their way.

-AM

Jul 15 07:14 PM

[Al-USA:]

Yes, the worsening labor markets will sooner, rather than later, bring into question the legitimacy of the governing elites, in the eyes of the masses.

Ambrose Evans-Pritchard wrote about this in the article below:
"The unemployment timebomb is quietly ticking"

www.telegraph.co.uk/fi...

For those who think the masses of the working/middle class will just take the jobless recovery "laying down", they have history working against them. The financial crisis cause by the wealthy elite precipitated the economic crisis which is leading to deep cuts in the standard of living for many workers. Workers can only take so much and it's only a matter of time, short time at that, before we witness their massive mobilization, along with general nation-wide strikes, becoming common-place, in my opinion.

The workers will likely begin massive mobilization when their disillusionment with President Obama, the man who was supposed to usher in a new era of “change,” but who is now increasingly being seen as “more of the same.”, becomes complete.

At that point, even President Obama’s continuing elegant platitudes about the “irresponsibility” of corporate America will prove insufficient for those still willing to give him the benefit of the doubt.

Jul 15 08:11 PM

[Ryu Mei Co:]

Just got the news that CIT got booted out by the Government. Yikes!

More pain for the small businesses and more job losses to come? I would like to buy into this market right now because everything is so darn cheap, but for goodness sake, when r we going to get the right bull signal without those BS news?

Jul 15 08:13 PM

[ain't no fo...:]

And yet Wall Street rallies as companies beat incredibly lowballed estimates that should be an embarrassment to the people who conjured up those numbers... but how else are you gonna feed the Wall Street sales machine other than with big "beats" every day on the high profile companies.

We will end up the year with 10+ percent U-3 unemployment (and probably 18% U-6 and 22% Shadow Stats) and $50-55 earnings on the S&P, which even at a very generous 13 - 14X earnings signals a 700 S&P target and the second derivatives guys just run those buy programs in like everything is jake again.

Today we had a "huge" up day and were barely above the very weak volume levels that have characterized this entire last two months of the rally... and perhaps as much as one half of that volume was high frequency algo trading... funny money scalping half pennies literally... ha ha.

Somethings gonna give.

(ain't no fortunate son, formerly wpdragon)

Jul 15 08:51 PM

[TeresaE:]

Thanks Tim for another piece backing what many of us refuse to see.

Government statistics are utter BS and not worth the paper they are printed on.

This is what I know, in less than 5 years we went from small to mid sized businesses employing 70% of the non-government workers.

That magically (and with NO explanation) changed to less than 50% by the middle of 2008 (reporting on '07).

And NO ONE even noticed.

Part of the problems with June/July unemployment numbers (as well as Nov/Dec/Jan) is that the government assumes certain things.

Things like the annual shut down at the Big 3 in July.

Problem is they continue to use stats from 5+ years ago, not taking into account the Big 3 slashed over 200,000 of their workers BEFORE begging for handouts. So that probably accounts for the 185k missing in action.

I used to think the destruction in small business was a comedy of errors.

It now looks intentional. Especially when you consider that Washington KNOWS banks are bankrupting small businesses even when they are making their payments.

They want us broke, without jobs and our American Dream and greatness smashed.

Broke, indebted sheep don't question the power & wealth grabs.

Jul 16 09:01 AM

[John Bowman:]

When the unemployment checks run out for lots and lots of former workers, I can't even imagine the backlash that's coming in the very near future.

Jul 16 09:08 AM

[Fairness:]

TeresaE, while I agree with most of your observations, I beg to differ on the final conclusion.
In my opinion only the desperate ones, the ones who have nothing or very little to loose (which you call "Broke, indebted sheep") are the only ones capable of revolting against the "power & wealth grabs."
I agree, the government and (if we are to believe the circulating conspiracy theories) whatever elite is behind it, are pushing the limits; it’s just that someone, somewhere, may be grossly miscalculating something…

Jul 16 09:31 AM

[acedebase:]

The consumer is totally tapped out as they were in the late 20s. Nothign to borrow against and wages have been stagnant for more than a decade, partly due to globalization. Banks make profit by extending ever more credit until the system is swamped and we all start over again. Welcome to the Big Reset.

Jul 16 09:45 AM

[Buckoux:]

Government data, of any kind, is always wrong and always lagging. You people thought that there was some kind of defense made up of missiles, fighters, or something that would detect and shoot down something like the 9/11 airliners. You also thought that the FAA and the Immigration service was on the ball to protect you from the hijackers. Sorry. When you put your faith in government you get what you deserve. Unpleasant surprise. Just like the Madoff investors.

Jul 16 09:58 AM

[yellowhoard:]

Nearly half of all small business owners are not paying themselves to keep the businesses alive.

These people should be included in the stats as well.

Jul 16 10:11 AM

[Chris Uhlir:]

Awhile back there was an article on here titled No Long Term Deleveraging. Yeah right!

Every portion of our economy is shrinking as it should upon reversal of a credit bubble. People need to look at local solutions. Canning tomatoes is a worthwhile endeavor. Fixing bicycles is worthwhile. Trading with your neighbor for his eggs is valuable again. Go to your local farmers market. Start inventing our way out of this. Creative destruction is necessary. If its smart for big money to diversify out of dollars its also smart for our local banks to do the same. And our local economies will follow. That is sustainability. Getting government off our backs by just going around them. Stop depending on big finance (CIT and CITI). Maybe a local banker will see the wisdom in accepting barter bucks as depositable. There is where you will find a local economy that will thrive after the government inflates us all out of the price of a loaf of bread.

Jul 16 12:02 PM

[Supersuperman:]

good factual insight. And Buffett says that unemployment will probably hit 11%:

www.wealthalchemist.co.../

Jul 16 12:08 PM

[Stone Fox C...:]

This isn't really new news. Did everybody expect a good jobs markets after the Great Recession?

Jul 16 12:12 PM

[Jimbo:]

Sadly, both parties have been co-opted and bought out. The ordinary citizens need to retake control of the government. We desperately need tough term limits in Congress and a law making it a felony for any former government official to lobby. The SEC is a prime example of the ole' buddy corruption. It has been reported that people working for the SEC moved into jobs with the businesses they were supposed to be overseeing. And people working for big money center banks then went to work with the SEC. Incest to the max!! If we can't get ride of this rot, we are doomed to repeat this debacle.

Jul 16 12:47 PM

[WS1835:]

Excellent point yellowhoard.

That fact fits well with the recent IRS tax revenue report that showed a huge drop in personal tax receipts but only a minor drop in payroll tax receipts. The small business guys are trimming their salaries while at the same time small office professionals (doctors, lawyers, accountants, etc) are seeing their business volume shrink. Those trends greatly affect income, but have only marginal impact on employment.


On Jul 16 10:11 AM yellowhoard wrote:

> Nearly half of all small business owners are not paying themselves
> to keep the businesses alive.
>
> These people should be included in the stats as well.

Jul 16 01:25 PM

[User 445384:]

That is probably 2 days more than is needed. What do state workers actually produce ? Expenses to taxpayers !


On Jul 15 06:03 PM Bull Run wrote:

> Don't forget job furlow, California is now asing it's employees to
> only work 4 days/week. I guess this is apart of underemployed, similar
> to the many selfemployed in America, that may be working 3-4 days
> a week,eg. construction. These are still considered employed.

Jul 16 02:32 PM

[W.E. Heasley:]

Excellent article.

The 33 hour average work week and 65% capacity utlization likely means that any increased demand for goods and services would result (on the average) in the average work week increasing for the employed labor force rather than new hires.

If one assumes a 40 hour work week is full employment of one unit of Human Capital, then a 33 hour average work week means Human Capital is only at 82.5% of capacity. Demand for goods and services would need to substantially increase to reach the 40 hour threshold.

Hence a sustained and robust increase in demand would, on the average, merely increase the average work week rather than solve the plight of the currently unemployed.

Believe an article was published recently that indicated you would need 20 straight quarters of 4% GDP growth in order to reduce the publisghed unemeployment rate from 9.5% to 6%.

Jul 16 04:31 PM

[bigmike:]

No one mentions the many more people that are self employed (1099). I am a consultant and know of 29 more 1099 people laid off from one company last week. Since they do not pay unemployment insurance they do not qualify for unemployment benefits and do not count toward the unemployment numbers. I would guess that there are double the number of 1099 workers than 10 years ago.

Jul 16 05:35 PM

[lorddarley:]

After a real whacking, it's in our nature to want a quick rebound. Don't be fooled.

Tim is 100% correct that the real economy is spiraling downwards. We have over 100 trillion in unfunded promises in the US. We will meet them all in the next twenty years, by depreciating the savings of the middle class by 50-80%.

To preserve the value of your life's work, it may be necessary to leave the US.

Jul 16 08:31 PM

[Fred Linn:]

We are currently sending 70% of all the money we use to buy petroleum overseas. Often to governments and people who are hostile to us. To buy a resource that we are only going to burn. Why not just put the money in a big pile and burn it instead?

We can convert to using biofuels very rapidly. Biofuels, of all the technologies available, is the only one that is here now, completely intergrates with current infrastructure, will reverse the flow of wealth back into the economy instead of sending it elsewhere, and can be implented quickly and in gradual stages.

Producing ethanol and biodiesel here in the US can create thousands of jobs for workers who live and spend ther wages here.
Those jobs can be the seeds of economic recovery.

It seems to me that the one thing we can do to encourage economic recovery faster than anything else is to make and use biofuels right here instead of continueing to depend on foreign oil.

If we want to have a capitalist society, we need to keep capital here in the US, not squander it overseas. Take your choice---continue to import oil until all of our capital wealth is gone. Or invest our capital in biofuels and continue to have a capitalist economy.

It seems like a very simple choice to me.

Jul 16 10:10 PM