Since the focus is jobs this week this story by CNNMoney about the quality of jobs being created is an important one to focus on. It is corroborated by an interview earlier this week on CNBC which I clipped below, and touches on one of the underlying trends which has me sour on the long term prospects of America's (former) middle class. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] With a pool of a few hundred million new middle class - especially in Asia - the competition level is higher, and wages will be arbitraged across countries. (Obviously this is not the case for every job, i.e. a barber is hard to outsource to Bangladesh) [Sep 4, 2009: Job Seekers Across America Willing to Take Substantial Pay Cuts]
While Wall Street only fusses about the number of jobs, WHAT those jobs are - and how much they pay - is just as important, else the federal government will be responsible for an increasing amount of support so that the middle class can pretend important structural changes eroding their lifestyle are not occurring. [Nov 5, 2010: USA Today: Anti-Poverty Programs Surpass Cost of Medicare in US] [May 25, 2010: 1 in 5.5 Dollars of American Income Now Via Government; All time High] The data during this 'recovery' is not inspiring especially considering much of the job growth is in healthcare which is financed largely by taxpayers via Medicare and Medicaid. - hence wages in that sector are inflated over what they would be in a 'free market'. Therefore, the overall data below (already depressing) would be even worse if not for the federal ponzi scheme of massive deficit spending.
We discussed the topic of the complexion of the job market back in September [Sep 2, 2010: NYT- New Jobs Mean Lower Wages for Many]. With many of the new full time jobs leading to lower pay combined with many Americans being pushed into temporary work - the job market is increasingly transitory, and there is a lot of pressure on many American families. From September
$15 an hour is roughly $30K....
Let's see what the latest data is showing as our 'recovery' (of corporate profits) rolls on.
- There are two problems with the jobs recovery to date. Employers haven't added enough jobs. And those they have added aren't particularly good ones. The former has gotten a lot of attention. But the low-wage jobs that have been added are also a cause for concern.
- Growth has been concentrated in mid-wage and lower-wage industries. By contrast, higher-wage industries showed weak growth and even net losses, said Annette Bernhardt, policy co-director for the National Employment Law Project. She said that growth has been far more unbalanced than during previous job recoveries.
- Bernhardt's analysis of the first seven months of 2010 found that 76% of jobs created were in low- to mid-wage industries -- those earning between $8.92 to $15 an hour, well below the national average hourly wage of $22.60.
Let's stop there, as it is an important point. 3/4 of the jobs Wall Street has been celebrating to indicate recovery during 2010 are between $9 and $15 an hour. Translated: $19,000 to $31.000. That leaves a quarter of the new jobs at what most would consider a level to build a middle class lifestyle on. (>$31,000)
- High-wage sectors -- made up of jobs that pay between $17.43 and $31 an hour -- accounted for nearly half the jobs lost during the recession, but have produced only 5% of the new jobs since hiring resumed, Bernhardt's study showed.
Even the gains in high wage sectors have been impacted by the change in our workforce of late to a temporary nation - something rarely discussed anywhere today, but I think will be in the major newspapers 2-3 years from now. I started flagging it a year ago [Feb 16, 2010: Use of Temp Jobs May No Longer Signal Permanent Hiring], but we are always early here at FMMF. See evidence below:
- Even in some of the higher-wage industries that are hiring, it's lower-wage occupations within the sector where the jobs are being added, according to William Rodgers, chief economist for the Heldrich Center for Workforce Development at Rutgers University.
- Case in point: Professional and business services sectors gained a healthy 366,000 jobs in 2010. Workers in that sector earned $27.23 an hour, on average, in 2010. But almost all of the new jobs -- 308,000 -- came in temporary help services, where the average hourly wage was only $15 an hour.
- And those temporary jobs accounted for nearly one in four jobs created by all types of businesses last year. This recovery is being driven very much by temp employers, said Rodgers.
Why such an emphasis on temp? In past recoveries industries usually hired temp workers and then 6 months down the road moved dramatically into full time workers. Not so this time around and it has caught economists in the mainstream off guard. Well over a year ago they were crowing on the CNBC TeeVee about how the spike in temporary employment would lead to a surge of full time hires very soon - that was spring 2010, then summer 2010 (Summer of Recovery peeps!), then fall 2010, then winter 2010-2011... and they will say it again tomorrow. One of these days they are going to be right - just keep repeating it and the broken clock theory will kick in eventually. I believe the explanation for the temp work era is relatively simple - easy on, easy off. We are increasingly treating employees like physical inventory. When demand shifts up, increase inventory (and hiring), but when demand shifts down we want to quickly shift down (in inventory and hiring). Layoffs of the traditional kind - laid off, then brought back a few quarters later - are mostly a thing of another era; now it's the just in time economy. The effects of America's employment 'slash and burn' policy on greater society in terms of loss of skills, long term unemployment, financial hardships and the like are another piece altogether - but indeed one cannot argue these policies don't promote corporate profits. And under the ethos of trickle down economics, maximizing corporate profits at any and all costs, drives all of a society's prosperity.
So what does the future hold in terms of types of jobs that will show the most growth in the coming years? If you believe the BLS (insert joke here), the prospects are not that exciting. But it is all part and parcel of transforming large parts of our economy to the new age 'service economy' where (ex government) nail salons, tattoo parlors, bars, Walmart, and health care clinics are the job drivers.
- The BLS's most recent job growth forecast, published back in November 2009 and projecting the job market from 2008 through 2018, identified 30 different occupations expected to experience the best growth.
- ....the six occupations with the largest gains are all classified as either low wage or very low wage. Among those jobs are home health aides, retail sales people and food preparation -- including fast food workers.
This is a chart from 18 months or so ago, but shows how the job creation engine (excluding taxpayer supported work) the past decade has died - the entire (net) job growth machine is based on 3 sectors extremely reliant on taxpayer support: Two I call pseudo government work (healthcare + education), and one that is pure government work. Hence the conundrum - any real fixes to the federal deficit will hamper the only sectors remaining in the U.S. 'service economy' which create mass amounts of decent paying jobs. Rock. Hard Spot.
Here is a video with Annette Bernhardt on CNBC earlier this week - only 3 minutes long because after all, who cares about labor trends ;)
Does any of this matter for the stock market who has little in the way of granular outlook and moves trillions of market value within milliseconds, based on a figure tomorrow at 8:30 AM? Nope - only job numbers matter, not job quality. But if you are interested in what is happening in the real economy, and the stresses building under the flood of paper printing prosperity The Bernank is creating, the evidence is hard to refute. If you wish to detach yourself from the Matrix of course.