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Last Friday's soft employment report showed a net (seasonally adjusted) increase of 120,000 jobs. This report is an early confirmation of the idea that an unusually warm winter had distorted the upbeat employment reports we saw in January and February. The more unusual aspect of this month's report was that although the increase in nonfarm jobs greatly undershot the estimates of employment growth, the unemployment rate managed to fall 8.1% from 8.2%.

So what can explain this apparent contradiction in the numbers? The size of the labor market, represented by the labor participation rate, fell by 342,000 people from March to April. In other words, an average of 11,400 people left the labor force every day by deciding to either retire, go back to school, or just give up.

Is the current labor participation rate a reflection of an aged society that needs to be supported by a smaller base of working people? Or rather, does the statistic reflect a complacent society that makes little effort to retool its skills or settle for lesser jobs?

According to the OECD, the effective retirement age in the US is 65. It is projected that in the neighborhood of 10,000 baby boomers turn 65 every day. However, given the state of savings and investments in this country in addition to the likelihood of future entitlement austerity, it wouldn't seem prudent for all those boomers to retire.

My intuition tells me that many baby boomers are being forced into early retirement by companies that are more eager to hire college grads with better technical skills at less cost. That by no means indicates that younger Americans have an easy pass to a job. According to Gallop, nearly 30% of Americans aged 18-29 are "underemployed".

I don't believe that Americans have become complacent -- we are generally known working more hours for less pay. Rather, I believe that Americans have not had any other choice but to accept less in terms of their careers and are tired of waiting for things to turn around.

But there IS another option: higher education. And for those people inadequate to attend a normal college, there are the for-profit schools which aggressively recruit anyone who can spell their name and apply for federally secured student debt. In fact, the latter option has become so popular lately that it has helped push student debt levels to all-time highs.

Another interesting all-time high to point to is corporate profits, and corporations have achieved this new level of profitability by becoming global. Not only are they now selling to Asia, but they are also hiring there. After all, would you hire an American undergraduate engineering grad for $100,000 when you could hire a Chinese PHD engineering grad for $50,000?

After reading last week's report, Bill Gross said that "jobs are being structurally destroyed by the Chinese and robotics and sometimes Chinese robotics." This implies that a solution is both rooted in trade policy as well as education.

It has been roughly 5 years since the global financial crisis started. Shouldn't we accept that the state of the labor market is not transitory, but in fact a reflection of the structural shifts that are taking place in the global economic order?

But what do you guys think? Have we become complacent? Uncompetitive? How do we fix this mess? Are there any common sense policies that need to be put into place?

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Comments (30)

  • Neighbor's picture

    Probably half of that decline in jobs was from people on WSO quitting there IBD gigs

    I didn't say it was your fault, I said I was blaming you.

  • Ryan M's picture

    Read an article last fall about the structural unemployment in the states. The general idea was that in normal recoveries the housing market leads where as this time it is languishing. This has left many people sitting on negative equity and when they could normally move to where jobs are being created instead they are stuck due to their real estate value. I tend to agree with this view as there are major industries such as healthcare in need of more people but unfortunately the American population is having a hard time moving. At the end of the day you cant really bitch about jobs disappearing if you cant get to them here or over seas because you leveraged your ass to the hilt to buy a mansion at the top. Good post OP!

  • UFOinsider's picture

    anaxi:
    Bill Gross said that "jobs are being structurally destroyed by the Chinese and robotics and sometimes Chinese robotics."

    No. The people who decide to fire someone here and then hire someone over there are destroying the jobs, let's be big kids and accept responsibility for one's actions. The Chinese are creating attractive investment conditions, and the U.S. should be doing the same.

    Get busy living

  • Boothorbust's picture

    anaxi:

    After reading last week's report, Bill Gross said that "jobs are being structurally destroyed by the Chinese and robotics and sometimes Chinese robotics." This implies that a solution is both rooted in trade policy as well as education.


    Such loaded language by Bill Gross (and lot's of other populists/anti-free trade zealots.) You could just as accurately say "Labor resources are being structurally freed up to engage in other productive activities by the Chines and robotics . . . "

    I understand structural economic change is difficult and often painful, but saying that technology "destroys" jobs is inherently biased and a very pessimistic way of looking at the world.

  • rls's picture

    No offense, but if you are just now coming to the realization that we have structural unemployment, that recent technological development and the maturation of the international supply change has permanently displaced some jobs in the developed world, then you are very late to the party. But, on the upside, you are still ahead of the Federal Reserve. They still think that a few basis points of unemployment is permanent as oppose to hundreds.

    Oh, and if you adjusted the labor participation rate near the 10-year average level (~66%), as opposed to simply dropping people out after a predetermined amount of time like the BLS does, then unemployment is around 11%.

    Bene qui latuit, bene vixit- Ovid

  • TNA's picture

    Housing is in the gutter. Housing employed countless unskilled or semi skilled workers. These people can't find jobs paying more than 8 bucks an hour. Look at the amount of people not collecting disability.

    I would imagine a significant chunk of people are working under the table now and collecting a check.

    Until housing rebounds you are going to see large amounts of people check out. Something like 30% of Americans have a college education (4% unemployment rate with a 4 year degree).
    http://en.wikipedia.org/wiki/Educational_attainmen...

    So this is the problem we face. We need to have a ton of new jobs, mainly for unskilled or uneducated workers, paying ~15 bucks an hour with benefits. This will reduce unemployment and increase labor participation. How can we do this?

    I personally would work to reduce costs and burdens on manufacturers. Costs are going up in China and there are plenty of manufacturers over there who can and would come back. We can loosen bankruptcy rules, allowing people to shed debt and move to areas with jobs (oil & gas areas). Or we can just increase taxes and pay people to sit on their ass.

    End of the day it really comes down to we have large amounts of unneeded people. Maybe genetically, maybe environment, maybe they are lazy, but they do not have the skills needed nor do they seek to acquire them. So now we are stuck with them and their vote.

  • In reply to UFOinsider
    SANCHEZ's picture

    UFOinsider:
    anaxi:
    Bill Gross said that "jobs are being structurally destroyed by the Chinese and robotics and sometimes Chinese robotics." This implies that a solution is both rooted in trade policy as well as education.

    No. The people who decide to fire someone here and then hire someone over there are destroying the jobs, let's be big kids and accept responsibility for one's actions. The Chinese are creating attractive investment conditions, and the U.S. should be doing the same....there's your solution.

    I generally agree with you, but the Chinese have much more to invest in as well starting from basic infrastructure. Yes, there are basic things that need to be invested in the US as well, but the volume of investment required is much smaller.

    What China does well is set goals (in the 5 year plans) and then benchmarks itself in meeting those goals. The US has no goals and has created too much uncertainty with its political squabbles.

    WSO Writer | View my blog

  • In reply to SANCHEZ
    UFOinsider's picture

    anaxi:
    The US has no goals and has created too much uncertainty with its political squabbles.

    I think this statement overreaches a bit, and has been a standard stump line of China regarding western culture for several hundred years. One could say that China has no goals, only the CCP does, but that obsures a rather more complicated reality, yes? The U.S. can solve these problems by making the decision to give a shit about it's middle class again....that's where the recession ultimately originated (housing), ultimately affected (unemployment), and where the solution will come from.

    Not everyone can be a billionaire, but pretty much anyone should be able to work their way into the middle class.

    Get busy living

  • In reply to rls
    SANCHEZ's picture

    rls:
    No offense, but if you are just now coming to the realization that we have structural unemployment, that recent technological development and the maturation of the international supply change has permanently displaced some jobs in the developed world, then you are very late to the party. But, on the upside, you are still ahead of the Federal Reserve. They still think that a few basis points of unemployment is permanent as oppose to hundreds.

    Oh, and if you adjusted the labor participation rate near the 10-year average level (~66%), as opposed to simply dropping people out after a predetermined amount of time like the BLS does, then unemployment is around 11%.

    There are actually two trends. The longer term trend which pushed up participation until about 10 years ago was women joining the workforce. The current trend is the migration of unskilled labor and even the outsourcing of skill labor (think R&D in India). We are currently at 1981 levels of participation, but the differences is that at that time there were much less women in the workforce.

    It's not a new trend at all, but it is surprising how much momentum has continued to drive it lower and how much the trend is in fact distorting the headline employment figures. It makes me wonder when the trend will bottom out and if participation will sustainable remain this low.

    WSO Writer | View my blog

  • In reply to UFOinsider
    SANCHEZ's picture

    UFOinsider:
    anaxi:
    The US has no goals and has created too much uncertainty with its political squabbles.

    I think this statement overreaches a bit, and has been a standard stump line of China regarding western culture for several hundred years. One could say that China has no goals, only the CCP does, but that obsures a rather more complicated reality, yes? The U.S. can solve these problems by making the decision to give a shit about it's middle class again....that's where the recession ultimately originated (housing), ultimately affected (unemployment), and where the solution will come from.

    Not everyone can be a billionaire, but pretty much anyone should be able to work their way into the middle class.

    I agree your prescription, but feel that the political class of the United States is proving to be completely useless until a crisis forces them to work together. A 5 year plan for housing, taxes, or fiscal budgeting that attempts to address fundamental issues may not be such a bad idea.

    WSO Writer | View my blog

  • In reply to SANCHEZ
    rls's picture

    anaxi:
    rls:
    No offense, but if you are just now coming to the realization that we have structural unemployment, that recent technological development and the maturation of the international supply change has permanently displaced some jobs in the developed world, then you are very late to the party. But, on the upside, you are still ahead of the Federal Reserve. They still think that a few basis points of unemployment is permanent as oppose to hundreds.

    Oh, and if you adjusted the labor participation rate near the 10-year average level (~66%), as opposed to simply dropping people out after a predetermined amount of time like the BLS does, then unemployment is around 11%.

    There are actually two trends. The longer term trend which pushed up participation until about 10 years ago was women joining the workforce. The current trend is the migration of unskilled labor and even the outsourcing of skill labor (think R&D in India). We are currently at 1981 levels of participation, but the differences is that at that time there were much less women in the workforce.

    It's not a new trend at all, but it is surprising how much momentum has continued to drive it lower and how much the trend is in fact distorting the headline employment figures. It makes me wonder when the trend will bottom out and if participation will sustainable remain this low.

    Your note, while true, doesn't directly address the point I'm trying to make. Yes, the labor rate participation rate went up when women began joining the labor force en masse. However, I am discussing the decline. I am out-and-out calling the BS on the Bureau of Labor Statistics. The labor participation rate is not dropping this fast due to natural labor rate participation attrition (i.e. retirement). It is not as if women are no longer working or that some other group has dropped out of the labor market permanently. The so-called 'discouraged workers' are simply no longer being counted so the unemployment rate can remain lower. According the natural labor growth, the U.S. needs to create ~125,000 jobs per month- just so the unemployment stays flat. When the numbers come in lower than 125,000 AND the unemployment rate drops, something is awry.

    Bene qui latuit, bene vixit- Ovid

  • In reply to SANCHEZ
    UFOinsider's picture

    anaxi:
    I ... feel that the political class of the United States is proving to be completely useless until a crisis forces them to work together.

    That's part of the way America was structured and it's intentional. The thinking is that the average person ultimately is better off managing most of their own affairs, and that "leaders" eventually turn into "rulers" is central to the U.S. There's literally a world of difference between the two countries.

    IMHO, China needs to place more faith in humanity, and less in tradition.

    Get busy living

  • In reply to SANCHEZ
    UFOinsider's picture

    EDIT: IMHO, China needs to place more faith in humanity, and less in tradition....especially with respect to government.

    Get busy living

  • In reply to rls
    SANCHEZ's picture

    rls:
    anaxi:
    rls:
    No offense, but if you are just now coming to the realization that we have structural unemployment, that recent technological development and the maturation of the international supply change has permanently displaced some jobs in the developed world, then you are very late to the party. But, on the upside, you are still ahead of the Federal Reserve. They still think that a few basis points of unemployment is permanent as oppose to hundreds.

    Oh, and if you adjusted the labor participation rate near the 10-year average level (~66%), as opposed to simply dropping people out after a predetermined amount of time like the BLS does, then unemployment is around 11%.

    There are actually two trends. The longer term trend which pushed up participation until about 10 years ago was women joining the workforce. The current trend is the migration of unskilled labor and even the outsourcing of skill labor (think R&D in India). We are currently at 1981 levels of participation, but the differences is that at that time there were much less women in the workforce.

    It's not a new trend at all, but it is surprising how much momentum has continued to drive it lower and how much the trend is in fact distorting the headline employment figures. It makes me wonder when the trend will bottom out and if participation will sustainable remain this low.

    Your note, while true, doesn't directly address the point I'm trying to make. Yes, the labor rate participation rate went up when women began joining the labor force en masse. However, I am discussing the decline. I am out-and-out calling the BS on the Bureau of Labor Statistics. The labor participation rate is not dropping this fast due to natural labor rate participation attrition (i.e. retirement). It is not as if women are no longer working or that some other group has dropped out of the labor market permanently. The so-called 'discouraged workers' are simply no longer being counted so the unemployment rate can remain lower. According the natural labor growth, the U.S. needs to create ~125,000 jobs per month- just so the unemployment stays flat. When the numbers come in lower than 125,000 AND the unemployment rate drops, something is awry.

    Thank you for bringing up the employment growth hurdle number, I should have mentioned it in the original post. I agree with you that there is something strange going on and looking at the underemployment rate partly explains the issue, but no fully. On one hand I believe that people are retiring early but are still looking for places to earn a portion of their needs and on the other hand the average age in which people are entering the work force is rapidly rising. I recently saw a statistic that the average age a Harvard UG enters the workforce is now 27.5. Post-graduate degrees are being more of a standard in some industries (just look at the emerging popularity of the MSF) and it represents yet another structural change that is impacting the employoment statistics.

    WSO Writer | View my blog

  • Short Bus All-Star's picture

    I wouldn't look for unemployment to be at 2000's lows anytime in the next decade, nor the subsequent decade. For the past 20 years, our economy has been geared largely towards sectors that don't create wealth, chief among them:

    * A bloated financial sector
    * Education
    * Law
    * Housing
    * Healthcare
    * Government

    This was exacerbated by low savings rates, new economy fairy tales, oblivious financial regulators, and an increasing sense of entitlement among baby-boomers. In 2009, this era came to an end. Since then - and likely for the foreseeable future - we will be undergoing a huge macroeconomic bowel movement, in which uncompetitive industries "are passed" -- i.e, displaced all together or automated down to a fraction of their current size. Splash. Sploosh.

    The long lasting damage from this is that you have two generations - Generation X and to a lesser degree, Millennials - who are completely ill-equipped both in attitude and skill-set for an automated, cut-throat global economy. Another generation, Baby-Boomers, serves as little more than a demographic boat anchor.

    If it weren't for two facts --other countries are even worse off and Moore's Law will likely deliver us--I would be worried.

  • In reply to TNA
    cplpayne's picture

    TNA:

    End of the day it really comes down to we have large amounts of unneeded people.

    "One should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it." - Charlie Munger

  • WSOusername's picture

    It boggles my mind that ppl actually still give a shit about government issued reports. I'm not necessarily saying they're outright lying, I'm just saying they game the numbers so that it reflects however they want it to (want ppl to think the economy is improving -> show lowered unemployment). I was reading some article the other idea about what goes into calculating these numbers, and lemme just tell you they are completely worthless.

    GBS

  • In reply to cplpayne
    UFOinsider's picture

    cplpayne:
    TNA:

    End of the day it really comes down to we have large amounts of unneeded people.


    The Chinese thought so too when they were instituting their family structure policies.

    Get busy living

  • In reply to UFOinsider
    TNA's picture

    UFOinsider:
    cplpayne:
    TNA:

    End of the day it really comes down to we have large amounts of unneeded people.


    The Chinese thought so too when they were instituting their family structure policies.

    And the Chinese are correct. I am a supporter of the one child policy and would love to see it implemented in other developing nations. The USA already has a negative birth rate when you exclude immigration.

    We have a world population of 6.8 Billion. If that dropped to 5 Billion it would be a wonderful thing.

  • In reply to TNA
    UFOinsider's picture

    TNA:
    And the Chinese are correct. I am a supporter of the one child policy and would love to see it implemented in other developing nations. The USA already has a negative birth rate when you exclude immigration.

    We don't need it here...developed economies eventually experience a period of negative population growth until (1) they open the gates to immigrants or (2) they reach a natural equilibrium. Option 2 is less common. Compare this to a hugely unstable population demographic and corpses of discarded infant females in the street (I've seen pictures of it, it's horrifying), and I'll cast my lot with our system.

    Get busy living

  • Cola Coca's picture

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  • In reply to Cola Coca
    UFOinsider's picture

    Get busy living