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We have some great news for those Americans who are still in the labor force (so that excludes about 92 million working age US citizens) and still have a (full-time) job: you are now working longer than ever! In fact, as JPM’s Michael Cembalest observes using Conference Board data, the average manufacturing workweek is now just shy of 42 hours – the longest in over 60 years. And there are those who say Americans are lazy…
Of course, with labor productivity stuck in limbo this is to be expected: corporations, desperate to extract every last ounce of efficiency from their workers, are making them work hard, not smart, in order to boost bottom lines, and activist investors’ P&Ls.
One tangent: even as companies are putting more people into the same amount of office space, reducing square footage per worker, the point at which more space will have to be added, or where the lack of slack becomes unbearable, is a long way away: as the chart below shows, while there was over 330 square feet per worker in 2011 when the average workweek was a little over 40 hours, it is currently roughly 20 square feet higher over 350. So yes: the slack if being absorbed. Very… Very… Slowly. In fact at this rate, courtesy of the tens of millions of Americans who no longer have any chance of reentering the work force, all those betting on wage inflation as a result of slack absorption may have to wait another 5, 10 maybe 15 years before the existing labor capacity is hit and office space and new workers have to be added.
Until then, Americans have much longer workweeks to look forward to and not to mention, flat or declining wages to go along with it: after all in the New Normal, corporations – especially those who directly and indirectly control the Fed – have all the leverage.
Having spent weeks talking amongst themselves about the chronic and dangerous rise of youth unemployment in Europe (as we warned here), the Center of planning and Economic Research in Greece has proposed a controversial measure. As GreekReporter reports, the measure includes unpaid work for the young and unemployed up to 24 years old, so that companies would have a strong motive to hire young employees. “Unpaid” work sounds a lot like slavery to us… but it gets better; the report also suggested “exporting young unemployed persons.” No comment…
Europe’s youth unemployment problem is epic – 24.4% of Europe’s under-25 population is unemployed…
Centre of planning and Economic Research in Greece has proposed a controversial measure in order to deal with the problem of increasing unemployment in the country.
The measure includes unpaid work for the young and unemployed up to 24 years old, so that companies would have a strong motive to hire young employees. Practically, what is proposed is the abolition of the basic salary for a year. At the same time the “export” of young unemployed persons was also proposed to other countries abroad, as Greek businesses do not appear able to hire new personnel.
According to the National Confederation of Hellenic Commerce, unemployment especially hits the ages between 15-24. The unemployment rate in Greece stands at 24.6% while 57.2% of young people are without a job. The majority of the unemployed (71%) have had no work for 12 months or more, while 23.3 % of the total have never worked. There were 3,635,905 people employed and 1,345,387 unemployed.
Whether it’s Europe in the 1930’s or the US during the same period (conflicts between strikers, the National Guard and armed militias), unemployment can create a powerful cocktail of unrest.
But turning your nation’s young into slaves does not seem like a good solution to us…
A man begs on the street as people walk past him in Pamplona, northern Spain on Friday, Jan. 3, 2014. Quarterly unemployment surveys, seen as more accurate by economists, show that Spain’s unemployment rate was 26 percent in the third quarter, with 6 million people jobless. The rate is the second highest in the 28-country European Union after Greece. (AP Photo/Alvaro Barrientos)
GENEVA— The United Nations’ labor agency says the number of unemployed people around the world rose above 200 million last year as job opportunities failed to grow at the same pace as the global workforce.
The International Labor Organization said Monday that an estimated 201.8 million people were unemployed in 2013. That’s 4.9 million more than the previous year.
An annual ILO report points to an uneven global economic recovery and says East and South Asia together accounted for more than 45 percent of last year’s increase.
The agency puts last year’s global unemployment rate at 6 percent, unchanged from 2012. It says it expects little improvement this year, projecting that the jobless rate will edge up to 6.1 percent and the number of unemployed will rise another 4.2 million.
While everyone obsesses over the monthly payrolls report, which on a trailing 12 month basis is once indicating the creation of roughly 2 million jobs each year, or roughly where it was before the crisis (red line chart below), one aspect that is largely ignored is the amount of hiring.
Why is hiring important?
Because that is the actual process by which those without a job end up with a job. And as we just learned today after the latest JOLTS release, which showed that there were over 4 million job openings (4,001 to be precisely) for the first time since 2008, a far more important number is the update on Hires which at 4.5 million barely changed from last month, but more importantly, is barely a fraction of where it should be based on the number of job gains reported by the BLS monthly. The chart below confirms this stunning discrepancy: a surge in jobs with barely half the pre-recession hiring?
How does one explain this discrepancy in which the US economy supposedly is growing at its historic peak pace while hiring is at half the peak pace? Simple: the gains in nonfarm payrolls are due a decline in layoffs and other separations, not an increase in hirings: i.e., normal labor demand driven growth.
Which means that anyone hoping for a brisk increase in wages, i.e. worker leverage, is in for a prolonged shock.
The chart above simply shows that the leverage is and continues to be with the employers – instead of letting people go (or workers quitting at their volition) at anything close to a traditional pace, employers have a huge bargaining chip – a job. Because if a worker does not want to perform a job, tough: there are about 3 people willing to fight for every job opening. It also means that those who lose their job will find it doubly more difficult time to reenter the workforce as there simply is not enough hiring.
Which means that wage deflation, at least among prevailing jobs, will continue leading to declining real disposable income, a declining in personal savings and the continued use of “student loans” (since credit card deleveraging continues) to fund everyday lifestyles, at least until such time as the hiring trend has normalized.
The really bad news: while such a normalization will eventually happen, according to our back of the envelope calculations, it will take place some time in… 2020.
The theme of both the robot-ization of the global workforce and the populist desire for a hike in the minimum wage have been popular and ongoing ones here at Zero Hedge. However, never has it been more clear just where the future lies than this chart from BofAML’s Michael Hartnett… As he says, “we are long robots, and short human beings.”
Of course – from Applebees to Jamba Juice and now fast-food restaurants, the robots are coming and cries of millions of minimum-wage-hike-demanding union workers will do nothing but encourage it… (oh and the Fed’s financial repression)
In a recent speech to the International Monetary Fund economist Larry Summers argued that since near zero interest rates have not stimulated GDP growth sufficiently to reach full employment, we probably need a negative interest rate. By this he means a negative monetary rate set by the Fed to equal the “natural” rate, which he believes is now negative. The natural rate, as Summers uses the term, means the rate that would equalize planned saving with planned investment, and thereby, as Keynes taught us, result in full employment. With near zero monetary rates, current inflation already pushes us to a negative real rate of interest, but that is still insufficiently negative, in Summers’ view, to equalize planned investment with planned saving and thereby stimulate GDP growth sufficient for full employment. A negative interest rate is a stunning proposal, and it takes some effort to work out its implications.
Suppose for a moment that GDP growth, economic growth as we gratuitously call it, entails uneconomic growth by a more comprehensive measure of costs and benefits — that GDP growth has now begun to increase counted plus uncounted costs by more than counted plus uncounted benefits, making us inclusively and collectively poorer, not richer. If that is the case, and there are good reasons to believe that it is, would it not then be reasonable to expect, along with Summers, that the natural rate of interest is negative, and that maybe the monetary rate should be too? This is hard to imagine, but it means that savers would have to pay investors (and banks) to use the funds that they have saved, rather than investors and banks paying savers for the use of their money. To keep the GDP growing sufficiently to avoid unemployment we would need a growing monetary circular flow, which would require more investment, which, in turn, would only be forthcoming if the monetary interest rate were negative (i.e., if you lost less by investing your money than by holding it). A negative interest rate “makes sense” if the goal is to keep on increasing GDP even after it has begun to make us poorer at the margin — that is after growth has already pushed us beyond the optimal scale of the macro-economy relative to the containing ecosphere, and thereby become uneconomic.
A negative monetary interest rate means that citizens will spend rather than save, so savings will not be available to finance the investments that produce the GDP growth needed for full employment. The new money for investment comes from the Fed. Quantitative easing (money printing) is the source of the new money. The faith is that an ever-expanding monetary circulation will pull the real economy along behind it, providing growth in real income and jobs as previously idle resources are employed. But the resulting GDP growth is now uneconomic because in the full world the “idle” resources are not really idle — they are providing vital ecosystem services. Redeploying these resources to GDP growth has environmental and social opportunity costs that are greater than production benefits. Although hyper-Keynesian macroeconomists do not believe this, the micro actors in the real economy experience the constraints of the full world, and consequently find it difficult to follow the unlimited growth recipe.
Summers (along with other mainstream growth economists), does not accept the concept of optimal scale of the macro-economy, nor the possibility of uneconomic growth in the sense that growth in resource throughput could reduce net wealth and wellbeing. Nevertheless, it is at least consistent with his view that the natural rate of interest is negative.
A positive interest rate restricts the total volume of investment but allocates it to the most productive projects. A negative interest rate increases volume, but allows investment in practically anything, increasing the probability that growth will be uneconomic. Shall we become hyper-Keynesians and push GDP growth to maintain full employment, even after growth has become uneconomic? Or shall we back off from growth and seek full employment by job sharing, distributive equity, and reallocation toward leisure and public goods?
Why would we allow growth to carry the macro-economy beyond the optimal scale? Because growth in GDP is considered the summum bonum, and it is heresy not to advocate increasing it. If increasing GDP makes us worse off we will not admit it, but will adapt to the experience of increased scarcity by pushing GDP growth further. Non-growth is viewed as “stagnation,” not as a sensible steady state adaptation to objective limits. Stimulating GDP growth by increasing consumption and investment, while cutting savings, is the only way that hyper-Keynesians can think of to serve the worthy goal of full employment. There really are other ways, and people really do need to save for security and old age, as well as for maintenance and replacement of the existing capital stock. Yet the Fed is being advised to penalize saving with a negative interest rate. The focus is on what the growth model requires, not on what people need.
A negative interest rate seems also to be the latest advice from Paul Krugman, who praises Summers’ insights. It is understandable from their viewpoint because in their vision the economy is not a subsystem, or if it is, it is infinitesimal relative to the total system. The economy can expand forever, either into the void or into a near infinite environment. It does not grow into a finite ecosphere, and therefore has no optimal scale relative to any constraining and sustaining environment. Its aggregate growth incurs no opportunity cost and can never be uneconomic. Unfortunately, this tacit assumption of the growth model is seriously wrong.
Larry Summers and other growth-obsessed economists are calling for negative interest rates.
Welcome to the full-world economy. In the old empty-world economy, assumed in the macro models of Summers and Krugman, growth always remains economic, so they advocate printing more and more dollars to expand the economy to take over ever more of the “unemployed” sources and sinks of the ecosystem. If a temporary liquidity trap or zero lower bound on interest rates keeps the new money from being spent, then low or even negative monetary interest rates will open the spending spigot. The empty world assumption guarantees that the newly expanded production will always be worth more than the natural wealth it displaces. But what may well have been true in yesterday’s empty world is no longer true in today’s full world.
This is an upsetting prospect for growth economists — growth is required for full employment, but growth now makes us collectively poorer. Without growth we would have to cure poverty by redistributing wealth and stabilizing population, two political anathemas, and could only finance investment by reducing present consumption, a third anathema. There remains the microeconomic policy of reallocating the same GDP to a more efficient mix of products by internalizing external costs (getting prices right). While this certainly should be done, it is not macroeconomic growth as pursued by the Fed.
These painful choices could be avoided if only we were richer. So let’s just focus on getting richer. How? By growing the aggregate GDP, of course! What? You repeat that GDP growth is now uneconomic? That cannot possibly be right, they say. OK, that is an empirical question. Let’s separate costs from benefits in the existing GDP accounts, and develop more inclusive measures of each, and then see which grows more as GDP grows. This has been done (ISEW, GPI, Ecological Footprint), and results support the uneconomic growth view. If growth economists think these studies were done badly they should do them better rather than ignore the issue.
The leftover Keynesians are correct in pointing out that there is unemployed labor and capital. But natural resources are fully employed, indeed overexploited, and the limiting factor in the full world is natural resources, not labor or capital as used to be the case in the empty world. Some growth economists think that the world is still empty. Others think there is no limiting factor — that capital is a good substitute for natural resources. This is wrong, as Nicholas Georgescu-Roegen has shown long ago. Capital funds and natural resource flows are complements, not substitutes, and the one in short supply is limiting. Increasing a non-limiting factor doesn’t help. Growth economists should know this.
Although the growthists think quantitative easing will stimulate demand they are disappointed, even in terms of their own model, because the banks, who are supposed to lend the new money, encounter a “lack of bankable projects,” to use World Bank terminology. This of course should be expected in the new era of uneconomic growth. The new money, rather than calling forth new wealth by employing all these hypothetical idle resources from the empty world era, simply bids up existing asset prices in the full world. Most asset prices are not counted in the consumer price index, (not to mention exclusion of food and energy) so economists unconvincingly claim that quantitative easing has not been inflationary, and therefore they can keep doing it. And even if it causes some inflation, that would help make the interest rate negative.
Aside from needed electronic transaction balances, people would not keep money in the bank if the interest rate were negative. To make them do so, the alternative of cash would basically have to be eliminated, and all money would be electronic bank deposits. This intensifies central bank control, and the specter of “bail-ins” (confiscations of deposits) as occurred in Cyprus. Even as distrust of money increases, people will not immediately revert to barter, in spite of negative interest rates. Barter is so inconvenient that money remains more efficient even if it loses value at a rapid rate, as we have seen in several hyperinflations. But transactions balances will be minimized, and speculative and store-of value-balances will be diverted to real estate, gold, works of art, tulip bulbs, Bitcoins, and beanie babies, creating speculative bubbles. But not to worry, say Summers and Krugman, bubbles are a necessary, if regrettable, means to boost spending and growth in the era of newly recognized negative natural interest rates — and still unrecognized uneconomic growth.
A bright silver lining to this cloud of confusion is that the recognition of a negative natural interest rate may be the prelude to recognition of the underlying uneconomic growth as its cause. For sure this has not yet happened because so far the negative natural interest rate is seen as a reason to push growth with a negative monetary interest rate, rather than as a signal that growth has become a losing game. But such a realization is a reasonable hope. Perhaps a step in this direction is Summers’ suggestion that the old Alvin Hansen thesis of secular stagnation might deserve a new look.
The logic that suggests negative interest also suggests negative wages as a further means of increasing investment by lowering costs. To maintain full employment via GDP growth, not only must the interest rate now be negative, but wages should become negative as well. No one yet advocates negative wages because subsistence provides an inconvenient lower positive bound below which workers die. On this “other side of the looking glass” the logic of uneconomic growth pushes us in the direction of a negative “natural” wage, just as with a negative “natural” rate of interest. So we artificially lower the wage costs to “job creators” by subsidizing below-subsistence wages with food stamps, housing subsidies, and unpaid internships. Negative interest rates also subsidize investment in job-replacing capital equipment, further lowering wages. Negative interest rates, and below-subsistence wages, further subsidize the uneconomic growth that gave rise to them in the first place.
The leftover Keynesians tell us, reasonably enough, that paying people to dig holes in the ground and then fill them up, is better than leaving them unemployed with no income. But paying people to deplete and pollute the Creation on which our lives and welfare ultimately depend, in order to expand the macro-economy beyond its optimal or even sustainable scale, is surely worse than just giving them a minimum income, and some leisure time, in exchange for doing no harm.
An artificial monetary rate of interest forced down by quantitative easing to equal a negative natural rate of interest resulting from uneconomic growth is not a solution. It is just baling wire and duct tape. But it is all that even our best and brightest economists can come up with as long as they are imprisoned in the empty world growth model. The way out of this trap is to recognize that the growth era is over, and that instead of forcing growth into uneconomic territory we must seek to maintain a steady-state economy at something approximating the optimal scale. Since we have overshot the optimal scale of the macro-economy, this will require a period of retrenchment to a reduced level, accompanied by much more equal sharing, frugality, and efficiency. Sharing means putting limits on the range of inequality that we permit; it has huge moral and social benefits, even if politically difficult. Frugality means using less resource throughput; it results in less depletion and pollution and more recycling and efficiency. Efficiency means squeezing more life-support and want-satisfaction from a given throughput by technological advance and by improvement in our ethical priorities. Economists need to replace the Keynesian-neoclassical growth synthesis with a new version of the classical stationary state.
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A commonly held opinion is that older workers who stay on the job past the usual retirement dates and baby boomers just hanging on to their jobs are somehow denying young people entry to the workforce. But researchers say that’s not true.
U.S. research economist April Yanyuan Wu says there’s no evidence to support the view that retaining older workers hurts younger ones by reducing the number of jobs, and she co-authored a paper on the subject last year.
Wu, with the Center for Retirement Research at Boston, challenges the co-called “lump labour” theory, which can be traced to Henry Mayhew’s 1851 London Labour and the London Poor collection of research material.
The Victorian-era social researcher and journalist argued that cutting the number of hours employees worked would reduce unemployment.
Taking inspiration from this long-held simple premise that there are a fixed number of jobs available, some policy makers in North America and Europe have used this theory to argue in favour of curbing immigration and validating early retirement programs.
But most economists tend to frown on what they call the labour lump fallacy.
Wu points to what was happening in the 1960s and ’70s when women entered the workforce in greater numbers. There weren’t fewer jobs for men. The economy simply expanded.
Canadian labour force researcher Rosemary Venne says career patterns have changed dramatically since the post-Second World War era and the birth of the baby boom generation.
Venne, who has written papers on demographic effects on the labour force and careers with Canadian economist and demographer David Foot, says young people of today are taking “longer to launch into adulthood,” but it’s not simply a numbers game of pitting one generation against another.
Always higher youth unemployment
“I don’t see it,” she says. “One of the reasons why youth are having trouble getting established — and they always have trouble; there’s always higher youth unemployment — is they’re not as job ready as young people were maybe 20 or 30 years ago, because career patterns have changed, organizational hierarchies have changed, they’ve flattened. There are not as many entry level positions.
- Can’t find a job? Then make one, youth told
- Don Pittis on self-employment, the cash-starved Canadian Dream
- Millennials describe job-market challenges
- Canadian job gains in May 2013 best since 2002
- Canada loses nearly 46,000 jobs in December 2013
“So the fixed career ladder of the 1950s and ’60s has really given way to more varied career patterns where people don’t stay in a workplace.”
Organizations don’t hire the army of entry-level labour they use to and have fewer layers in the corporate hierarchy, says Venne, who teaches at the University of Saskatchewan’s Edwards School of Business. More companies are using technology, direct data entry and robotics.
Period of youth a ‘complex life stage’
“The stage of youth has become a more complex life stage. It used to be a stage that you were job-ready after high school. You jumped into a job and you left home pretty young,” Venne says, but home-leaving ages have really increased over the years.
Here are a couple of Canadian “launch” stats:
- In 2006, 60 per cent of young people from the ages of 20 to 24 were still living at home.
- In 1986, that figure was less than 50 per cent (49.3 per cent).
Clearly, 15- to 24-year-olds in Western society face different challenges than their parents at that age.
In 2010, Venne released her paper titled “Longer to launch: Demographic changes in life-course transitions.” In it, she writes that many stages of life are lengthening, including the period when young people are dependent on parents.
“They’ve got a lot choices in education, and jumping into that is going to delay the launch into a career,” she says. “It’s a reflection of new realities, changing career patterns, longer life expectancy. You just need flexibility.”
She says, in some ways, parents are providing that by supporting adult children still living at home, “and sometimes paying for their education.”
Their children are not only staying in the nest and starting jobs later, but also marrying and having a family of their own later, so it’s a given that they’re relying on their parents a little bit longer.
No Jobs For Americans
Paul Craig Roberts
The alleged recovery took a direct hit from Friday’s payroll jobs report. The Bureau of Labor Statistics reported that the economy created 74,000 net new jobs in December.
Wholesale and retail trade accounted for 70,700 of these jobs or 95.5%. It is likely that the December wholesale and retail hires were temporary for the Christmas shopping season, which doesn’t seem to have been very exuberant, especially in light of Macy’s decision to close five stores and lay off 2,500 employees. It is a good bet that these December hires have already been laid off.
A job gain of 74,000, even if it is real, is about half of what is needed to keep the unemployment rate even with population growth. Yet the Bureau of Labor Statistics reports that the unemployment rate fell from 7.0% to 6.7%. Clearly, this decline in unemployment was not caused by the reported 74,000 jobs gain. The unemployment rate fell, because Americans unable to find jobs ceased looking for employment and, thereby, ceased to be counted as unemployed.
In America the unemployment rate is a deception just like everything else. The rate of American unemployment fell, because people can’t find jobs. The fewer the jobs, the lower the unemployment rate.
I noticed today that the financial media presstitutes were a bit hesitant to hype the drop in the rate of unemployment when there was no jobs growth to account for it. The Wall Street and bank economists did their best to disbelieve the jobs report as did some of the bought-and-paid-for academic economists. Too many interests have a stake in the non-existent recovery declared 4.5 years ago to be able to admit that it is not really there.
I have been examining the monthly jobs reports for a decade or longer. I must say that I am struck by the December report. Normally, a mainstay of jobs gain is the category “education and health services,” with “ambulatory health care services” adding thousands of jobs. In December the net contribution of “education and health services” was zero, with “ambulatory health care services” losing 4,100 jobs and health care losing 6,000 jobs. If memory serves, this is a first. Perhaps it reflects adverse impacts of the ripoff known as Obamacare, possibly the worst piece of domestic legislation passed in decades.
I was also struck by the report that the gain in employment of waitresses and bartenders, normally a large percentage of the job gain, was down to 9,400 jobs, which were offset by declines elsewhere, such as the layoff of local school teachers.
Aren’t Washington’s priorities wonderful? $1,000 billion per year in Quantitative Easing, essentially subsidies for 6 banks “too big to fail,” and nothing for school teachers. It should warm every Republican’s heart.
A tiny bright spot in the payroll jobs report is 9,000 new manufacturing jobs. The US manufacturing workforce has declined so dramatically since jobs offshoring became the policy of American corporations that 9,000 jobs hardly register on the scale. Fabricated metal products, which I think is roofing metal, accounted for 56% of the manufacturing jobs. Roofing metal is not an export. Employment in the production of manufactured products that could be exported, such as “computer and electronic equipment,” and “electronic instruments” declined by 2,400 and 3,500 respectively.
Clearly, this is not a payroll jobs report that provides cover for the looting of the prospects of ordinary Americans by the financial and offshoring elites. One can wonder how the BLS civil servants who produced it can avoid retribution. It will be interesting to see what occurs in the January payroll jobs report.