More Jobs Frustration

This is probably the way it will remain for a while: the jobs market is clearly stuck and shows very little sign of improvement no matter how much huffing and puffing the Wall Street boosters and financial media try to parse the numbers.

Last week initial claims for unemployment insurance rose by 31,000 to 473,000, while the four week moving average fell very slightly – by 1,500 – to 467,500. Basically this means that any gains we saw at the turn of the year are gone and we are in a fluctuating sideways movement of sorts. Which is not good. And before anyone gets too worked up over the drop in long term or repeat claims, which fell to 4.59 million the lowest in a year, we should all realize that the main reason for the decline is that people are giving up the search for work.

By any modern, post-war, standards the employment market is awful and looks as if it will stay that way. There are six workers looking for a job for each vacancy, and 41% of the unemployed report that they have been looking for more than six months. This makes the average period of unemployment the longest on record, and the long term unemployment figures set new records almost weekly. How can I say ‘awful’ in a new and imaginative way?

To put this bleak situation in perspective: we need to start adding jobs at around 125,000 a month to keep up with population growth; and we will need to generate around 425,000 jobs a month additionally to clear out the backlog of unemployed within two years. That means we need 550,000 new jobs a month sustained over twenty four months just to pull the unemployment rate back to ‘normal’.

Not going to happen.

We haven’t seen that kind of vibrancy for decades – even the go-go 1990’s managed only around 400,000 a month, on a sustained basis, at its peak.

So we have dug a formidable hole, from which we will emerge only very slowly.

We got there through our own foolishness: stupid allocation of capital to housing which was subsequently wiped out; an anti-social banking system that syphoned off capital away from innovation and productive – i.e. job creating – activities; and antiquated and unresponsive political structures incapable of dealing with the crisis. It is important that we all absorb the enormity and inter-connectedness of the issues. The failure is not isolated to one part of society it is a complete systemic failure. Nor is it a new phenomenon: the entire last decade has been a disaster for economic policy, the financial system’s implosion merely exposed how terrible the extent of the rot was.

The ‘fix’ won’t be cheap or easy. Getting the economy healthy is a long term project that will entail cutting back the banks, investing in infrastructure, encouraging innovation, and re-educating loads of workers. Along the way we will need to get the budget under control which will cramp consumption. To offset that we will need to pump up investment and explore new industries.

The gridlock in Washington, which is now our biggest single problem, is stopping us from making headway in many of these key areas. We need government leadership in some of these projects because at their inception the risk/return trade-off is too poor to attract private capital. The internet is a good example of the kind of research and project management that we need to replicate. It was all sponsored by the US government in its early stages, with the World Wide Web being invented in Europe by scientists at CERN, together these two activities then allowed private capital to move in and exploit the opportunities that have made the internet so profitable and commonplace. But now we cannot get anything like that started because the political situation prevents government spending on research at the level we need. Not just this, but we haven’t even managed to get agreement around things like the environmental problems facing us – meanwhile other countries are taking the lead in alternative energy, waste management, and environmental protection industries, all of which are likely to generate flood of jobs in the future.

My favorite example in this context is solar energy: the world’s largest manufacturer of solar panels is an American firm based in Michigan – a state in sore need of jobs. The business relied on government research and other assistance to maintain its leadership as it developed its product line. In the early 2000’s the Bush administration eliminated that support in the name of government spending cutting. The firm promptly moved its operations to Germany, where support was forthcoming, and now has eliminated its production in Michigan. Germany is now the world’s leader in solar panel technology and the US is trying to catch up.

All of this is by way of explaining how difficult it will be to get the job market back to health. We cannot spend months or even years in a self-indulgent political process that produces absolutely nothing. Global competition won’t wait for our dysfunctional system to work its way through issues at it 1700’s focused pace.

In the face of an enormous jobs crisis we cannot even get a jobs bill passed through the senate. Just how bad does it have to be before we reform ourselves?

No wonder some folks think the country is going down the drain. The way things are it looks as if that’s what we all want.