What The … Where are the Jobs?

Quick question: when does a series of “special circumstances” become the norm?

The reason I ask is that today we heard bad news on the unemployment front. And, frankly, I am tired of being told that the recent string of reversals in the labor market are all just a sequence of disconnected oddities that mean nothing.

Here’s what happened: new claims for unemployment assistance jumped 43,000 to 474,000. That is ridiculous. We are back where we were last summer. All the steady improvement has been surrendered. There is something rotten beneath the surface that needs attention. Now, not sometime soon.

For a few weeks now the claims figures have been backtracking from the improving trend that set in late last year. For a short while, back then, we appeared to be heading in the right direction with claims even falling below the magic 400,000 level many people think represents the line between a bad economy and a decent one. We haven’t regressed back to ‘well and truly rotten’ territory, but we obviously are stuck somewhere in the middle. We are not making progress.

The string of weak reports has engendered something akin to a yawn amongst the high and mighty of the media and policy making. They are all obsessed with the newer and more interesting – in their minds – issues of inflation and debt levels. Jobs are just not high on the agenda at the moment. My guess is that they will be come the next election, when voters will be able to express their dissatisfaction with being left on the outside yet again.

This week’s special excuse is that we just had spring break in New York State where teachers and other state workers all sign on for unemployment for a single week, plus temporary lay-offs in the auto industry. This, they say, explains the latest jump.

Let me see. In February we had eked out sufficient gains to get the weekly claims number down to 375,000. We have given up 100,000 since then. All of it due to quirks? I think not. And why can a spring break figure distort the seasonally adjusted figures? I thought that the entire purpose of making seasonal adjustments was to eliminate the oddities that come along every year. Last I looked we have a spring each year, so why isn’t the spike in New York being smoothed away?

Something seems wrong.

The four week average, which should provide us some immunization against quirky weeks, has now risen by 22,250, back to 431,250, and is the highest since November.

Things are clearly going the wrong way.

Meanwhile, today’s report from ADP, the big payroll processing company, show that the private sector added 179,000 jobs last month. That’s down from March’s 207,000. In rough terms the economy needs to add about 125,000 new jobs each month to keep up with population growth, so April’s figure is very slightly on the good side of that bare minimum. But there is no way to characterize the current labor market as particularly healthy. Far from it.

We will get a better read on things tomorrow when the national employment figures are released, but at this point I doubt we will be very happy with what we hear.

So why is this ongoing malaise not worthy of headlines?

Politics and attention deficit disorder.

Our messed up politics prevents us from keeping our eye squarely on the employment problem. The half-hearted efforts back in 2009 were all we could manage. They cost us dearly, not in dollar terms so much as in emotional terms. The administration believes its own narrative that it fought hard for what it thought it could get. The stimulus we ended up with was insufficient, but just about enough to stop a full blown depression setting in. After that everyone shifted their attention to health care reform and fixing the banks. The energy expended on core economic policy moved from a fiscal approach towards a monetary approach. So all the efforts last year came from the Fed. Its famous QE2 being the centerpiece of stimulus throughout 2010. The public’s disgruntlement then spilled over into an election that pushed a right wing ant-stimulus agenda to the fore. The Republicans successfully used the deficit to frighten voters into viewing austerity as sensible policy. The temporary payroll tax agreement,viewed by supporters of the administration as a victory, is the only stimulative effort in 2011, and as of now there is no credible thinking going on to increase support to the economy. On the contrary, everyone now seems to think we are in strong enough shape that we can apply the brakes to slow down inflation and rein in debt.

I am not one of those people.

The economy is too weak for us to be considering anything other than continued stimulus.

We are not even talking about the most important subjects: jobs and inequality. Instead we are being given silly arguments about how demand is not the problem. We have, we are told, not a magneto problem to use Keynes word, but a structural problem. The magneto is fine. It’s just in the wrong car. What we need to do, apparently, is to get better workers. The ones we have are useless. They don’t match the jobs we have. What we have is a bunch of out-of-date blue collar workers who want good wages. What we need is a bunch of service industry types willing to work for next to nothing.

The long boom in high end incomes during the last thirty years was accompanied by an equally long stagnation for the bottom ninety percent. The bifurcation was remarkable. I happen to think that this separation accounts for much of our trouble. The redistribution of wealth upwards has left the mass of households unable to crank up spending. The traditional policy tools are thus blunted. The marginal kick delivered by stimulative efforts was too low, not just because the total was laughably small with respect to the gap in demand, but was muted additionally by the fact that most households have no second gear to shift into. They are firmly stuck in first gear – survival from pay check to pay check. Adding a few dollars via a tax cut does nothing to make a substantive or meaningful change to that week to week, or month to month, lifestyle. To the extent we have a structural problem in our economy the causation isn’t flowing outwards from a skills mismatch, it is flowing out of our unequal distribution of wealth. Fix that, and the engine starts to run more smoothly and is more responsive to policy.

Besides, if there is a structural skills issue, who is to blame?

Oonce upon a time firms used to spend heavily on training. Those programs fell victim to the national obsession with quarterly profits and stock prices. The modern management focus on shareholder value recast the cost of worker training from being an addition to an asset – worker skills being a form of capital – to pure cost. It could then be cut as part of the drive for profit. Short term this is fine. Long term it is a disaster. Slowly the pool of appropriate workers dries up and skill shortages emerge. Making this worse is that the private sector, by getting out of the worker education business, assumed that the public sector would provide the supply of needed skills education. It didn’t. Why? Because the same ideology that drove the shareholder value revolution in management theory, also drove an anti-government spending program in the public sector. Spending on worker skill development shriveled across the board. Everyone imagined that everyone else was training the worker of the future. So everyone imagined they could free ride on top of everyone else’s spending. This is a version of the classic tragedy of the commons. The free market fails. The public sector by trying to accommodate itself to a free market ideology, also fails.

So when people like Richard Florida prattle on about how we don’t have an aggregate demand problem, but that we have a structural skills problem, I get really vexed. Where he sees workers with old skills and unfit for modern work, I see workers abandoned by business and government alike and left to fend for themselves if they need to acquire new skills.

To the extent we have structural unemployment – and I am very far from being convinced we do – I see it as the natural convergence of predictable market failure derived from faulty corporate theory and a right wing shift away from a social focus in government policy. In other words the neglect was at the top, not at the worker level.

Which is why it has been so easy for our elite to move on to other topics. They see unemployment as a deep and intractable issue that will take years to solve. They see global workforce shifts and throw their hands up in despair. They say we are faced with a long slow adjustment where all rich economies, not just ours, will have to reorient themselves to tough new competitive conditions in the labor markets. If workers want to make those high wages they will have to shift to new, less globally exposed, lines of work. Meanwhile, the story goes … tough. We should toughen up and take our medicine. All you unemployed are simply victims of a shift in the world’s economy. Thus there’s not much anyone can do to help.

If they point out historic examples of similar shifts I will scream.

You see, their argument is vapor. It is a mask drawn over inequality.

Let me give you some history.

Great Britain, when it was leading the world into the industrial era suffered from skill shortages and was, simultaneously, a high wage economy. Those high wages, in the face of what was fast becoming a more interconnected economy, could have slowed growth down. They didn’t. Why? Partly because those high wages were in the context of rapidly rising productivity. High wages drove employers to substitute capital for labor. Yet unemployment stayed low because as workers were replaced by machines they were absorbed by the expansion in the economy caused by rising demand. The source of that demand being all those higher wages. This was a classic virtuous cycle. Wages were high yet did no harm. On the contrary, they fed demand and hence drove the need for more workers.

Why are we not seeing that here?

Our wages are high relative to China and other emerging economies, and our productivity, along with a weak currency, should help offset that. Indeed just today we learned that productivity rose 1.6% in the first quarter. But we also learned that real wages fell. The implication is that business is channeling the gains from productivity into shareholder profit and not into wages. Thus we have no virtuous cycle. Wages are left to stagnate. That limits the extent to which demand can rise. That, in turn, pushes the point at which business is forced to hire off into the future. All that productivity gain is coming from extended work weeks, not from capital substitution. This despite business having piles of spare cash to invest in capital if it wanted to. It doesn’t because its expectation is for weak sales.

We are stuck in a negative feedback loop, instead of the positive one I described that worked in Britain during the industrial revolution.

And, in my opinion, to jump from a negative to a positive loop we need to redistribute wealth so that the mass of households can shift gears.

That’s the discussion we should be having.

But we’re not. So our jobs market languishes.