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?