“Why aren’t more businesses hiring?”
“Why isn’t unemployment dropping?”
“Why is the market going up? (until recently) but the rest of the economy is so anemic?”
“Why isn’t the Congress and the President doing more?”
“When will this ever end?”
“Is this how is how it is going to be forever”
“What do we do?”
To understand how to solve a problem, we must first understand what the problem is. There is ample evidence that everyone thinks they do. There have been many efforts to explain the struggles to escape the ditch we’re in, worthy ones at that by economists, pundits, authors, and others much smarter than I, but it feels like we are circling the problem but that a complete understanding of it eludes us.
I’m not an economist but maybe we can use numbers to get a better handle on what really ails us.
According the the Bureau of Labor there are 153.6 million Americans that are employed.
And 14 million unemployed who are still actively seeking employment.
Full employment is defined by many different parties many different ways. Let’s use the OECD calculation which defines “full employment” as “structural unemployment” (meaning unemployment that results from demand inefficiencies inside the labor market with a margin for error included in). For the United States, the OECD estimates “full employment” to be between 4 and 6.4%.
For purposes of ease of math, lets split the difference at 5%.
This means that 6.3 million Americans want but cannot find a job. Every person in America wants those people to find a job, so why can’t they?
There was a study done by Asha Bangalore at Northern Trust back in 2005. This study estimates that between 2001 and 2005 36% of ALL private sector jobs were directly tied to the real estate bubble. That is 836,000 of the 2.3 million jobs created. This study was updated in 2008 to average out to 25%.
What this means is that between 750,000 and 920,000 jobs created that were specifically tied to the hot real estate market are now gone.
Unlike jobs in a typical economic cycle of expansion and contraction, many of these jobs vaporized, never to return.
During this same period, the University of California Berkeley and Goldman Sachs estimate that 3 million professional service jobs and manufacturing jobs were sent overseas.
Using these estimates, we find 4 million jobs lost to the housing bubble and outsourcing. This has exposed the smoking crater in the middle of our tax base, decimating state and local government coffers. This has resulted in 600,0o0 public employees being laid off since 2009, creating another drag on the economy.
S&P 500 sized companies now find that 45% of their earnings now come from overseas. Standard & Poor’s 500 companies are expected to earn a record $95.98 per share in 2011, based on Thomson Reuters data. That would exceed the 2006 per-share record of $88.12.
Matthew Slaughter, a Bush administration economist from Dartmouth estimates that US multi-nationals created 3.6 million jobs overseas 1991-2005. They created 3.8 million here. Our tax code since 1961 has essentially PAID US companies to relocate overseas by allowing them to defer any tax on profits earned overseas as long as it is not brought back into the US. By one estimate, Pfizer has $80 billion in un-taxed offshore profits. This is a powerful incentive to move jobs overseas.
This seems to indicate that the health of GE may no longer necessarily mean health for the US economy or jobs for its citizens.
What all of this date very un-scientifically seems to suggest is that while some Americans may indeed be able to find a job as economic conditions improve, many more may find no job to be had.
Is 7% unemployment now the new normal? Will the creeping normalcy of having hordes of unemployed infect our public policy making? I suspect it already has.
Americans themselves seem to have conflicting demands of our representatives: Create the economic conditions that foster job growth while cutting spending and deficits. Can this even happen?
In my opinion, all of this boils down to an unpleasant truth. Americans will need to re-knit their economy from the bottom up to fill the massive jobs hole that Wall Street, private borrowing, the collapse of the housing market, and outsourcing has created. This will be a painfully slow and laborious process that will occur from the ground-up, not top-down. Our political actors may not be up to the task.
There are a myriad of solutions that are trotted out daily: More stimulus, lower taxes, higher taxes, raise wages, lower wages, WPA, infrastructure banks, SBA loans, less government regulation, free trade, tariffs, etc etc etc etc. One of the best set of suggestions came from our own AdLib not that long ago: http://planetpov.com/2011/08/08/the-end-of-jobs-in-america/
This has the national effect of all our citizens saying: “Do Something!!!!” to our elected officials that seem to be currently unequal to the task.
I have my own opinion about what will work and not work in the future, I may share those one day. Until then I have only one suggestion: Pick the one thing you think will make a big difference and run with it. Call you Congressman, your state rep, your mayor, your city councilpersons, your neighbors, your family and tell them what you want to see happen. Enough Americans do this, and change will begin to take place.