The Housing Chronicles Blog: A leaner (meaner) economy

Saturday, March 1, 2008

A leaner (meaner) economy

As the U.S. economy continues to compete more in a worldwide economy, it seems that the old rules for finding and keeping a job no longer necessarily apply. College education? Nope. Master's degree? Depends what it's in -- and even then it may not help. At the same time that the country continues to reel from the worst housing bust since the Great Depression, many companies are simply refusing to hire new bodies -- and those which do have become increasingly picky. From a New York Times article:

Across the nation, the labor market has been deteriorating. Many companies, long reluctant to add workers, are hunkered down and waiting for improved prospects, engaged in what Ed McKelvey, a senior economist at Goldman Sachs, calls “a hiring strike.” Americans with jobs are taking cuts to their work hours; those without jobs are staying out of work longer, or accepting positions that pay far less than they earned previously.

Teenagers are struggling to land minimum-wage jobs at fast-food restaurants, because those positions are increasingly being filled by adults. And those with poor credit are finding that this can disqualify them from getting a job....

Indeed, the increasingly anemic job market comes on the heels of six years of economic expansion that delivered robust corporate profits but scant job growth. The last recession, in 2001, was followed by a so-called jobless recovery. As the economy resumed growing, payrolls continued to shrink.

Even as job growth accelerated in 2005 and 2006 before slowing last year, it was not enough to return the country to its previous level. Some 62.8 percent of all Americans age 16 and older were employed at the end of last year, down from the peak of 64.6 percent in early 2000, according to the Labor Department.

“The economy never got its groove back after the tech bubble burst,” says Mark Zandi, chief economist at Moody’s “We’re still feeling fallout from the collapse of the tech economy and the accounting scandals. There are still psychological scars for the managers affected. Managers are less interested in taking risks.”...

Government data show that the labor market has weakened in recent years for nearly every demographic group. Women as well as men; whites, blacks, Hispanics and Asian-Americans; teenagers and the middle-aged; high school graduates and those with college degrees. In terms of employment as a percentage of population, all remain below the level reached before the last recession.

The source of this weakening and what it says about the overall, long-term health of the economy are the subject of fractious debate.

Some economists argue that the labor market has merely settled back to earth after years of ridiculously aggressive investment in technology, which created far more jobs in the 1990s than could be sustained.

“This is a return to normal,” says Robert E. Hall, an economist and senior fellow at the Hoover Institution, a conservative research group at Stanford.

But others conclude that the sluggish job market reflects long-term, systemic forces reshaping the American economy. It represents, they say, the underbelly of the so-called new moderation that has made recessions less frequent and less severe.

Traditionally, the American economy has often expanded in extreme cycles. In periods of growth, companies hire aggressively. When they sense a slowdown, they cut back, laying off workers and curtailing investments, amplifying the ripples of retrenchment. Now, however, companies aim to keep their work forces lean all the time....

In 1994, 30 million people were hired into new and existing private-sector jobs, according to the Labor Department. By 2000, the number of hires had expanded to 34 million. A year later, in the midst of the recession, hiring slackened to 31.6 million, while layoffs winnowed the work force.

In 2003, with the economy again growing, layoffs slowed, but the private sector hired only 29.8 million — a figure that has nudged up only a little in the years since.

Rather than hire and risk having to fire in another downturn, companies added hours for those already on the payroll and relied more on temporary workers, said Mr. McKelvey, the Goldman Sachs economist. Manufacturing companies continued to automate, to squeeze more production out of the same number of workers, while shifting jobs to lower-cost countries like China and Mexico. For lower-skilled workers, that intensifies the competition for the jobs that remain.

“Now, you’re not only competing against the guy next door,” Mr. McKelvey says. “You’re competing against the guy across the water.”

Some economists say the weakness of hiring in recent years may protect those with jobs against the usual impact of a recession: Many companies are so lean that the unemployment rate may not increase much...

Before 1990, it took an average of 21 months for the economy to add back the jobs shed during a recession, according to an analysis by the Economic Policy Institute and the National Employment Law Project, a worker advocacy group. Yet in the last two recessions, in 1990 and 2001, it took 31 months and 46 months, respectively, for employment levels to recover fully.

In the recessions of the early 1980s and the early 1990s, the ranks of the so-called long-term unemployed — those out of work for 27 weeks or more — jumped to well above 20 percent of all unemployed people. But in both cases, that share eventually settled back to close to 10 percent of the unemployed.

After the 2001 recession, however, the long-term share stayed above 20 percent from the fall of 2002 until the spring of 2005. In the months since, it has never dipped below 16 percent. In January, 18 percent of those unemployed had been without work for at least 27 weeks, according to the Labor Department.

P.S. Despite attempts by Democrats by extend unemployment benefits to those still looking for work in the much-publicized stimulus bill passed in February, Republicans voted that part down, suggesting that unemployment only serves to keep the unemployed idle. Perhaps they should try reading the papers? Just a thought.

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