The Trouble with Jobs

After a difficult first quarter, the Dow Jones continues to stagger upward – mollified regularly by soothing reports from the Federal Reserve that the QE taper will be gentle.

What staggers but does not grow apace are employment numbers. William Galston wrote in the Wall Street Journal: “Today, 75 months after the Great Recession begain, 57 months after it ended ,and 32 months after real gross domestic product surpassed its previous high, fewer Americans have jobs than in December 2007.

Before the recession, the average duration of unemployment was about 16 weeks. It then surged to more than 40 weeks in 2011 and still stands at 37 weeks today. The long-term unemployed (27 weeks or more) constitute 37% of the total, and research by Princeton's Alan Krueger, Judd Cramer and David Cho suggests that the odds of these Americans ever regaining permanent full-time jobs are dismal.

During the recession, 60% of job losses occurred in middle-wage occupations paying between $13.83 and $21.13 per hour, while 21% of losses involved jobs paying less than $13.83 hourly. During the recovery, however, only 22% of new jobs paid middle wages while fully 58% were at the lower-wage end of the scale. In other words, millions of re-employed workers have experienced downward mobility.

Stanford economist Edward P. Lazear, who was chair of the Council of Economic Advisors under President George W. Bush, wrote in a different Wall Street Journal op-ed that “the key statistic for understanding the labor market is the length of the average workweek. Small changes in the average workweek imply large changes in total hours worked. The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.

Job creation rose from an initial 113,000 in January (later revised to 129,000) to 175,000 in February. The January number frightened many, while the February number was cheered—even though it was below the prior 12-month average of 189,000.

The labor market's strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.

He went on to note that the falling work week numbers translate into bad news: “The decline of 1/10th of an hour in the average workweek—say, to 34.2 from 34.3, as occurred between January and February—is like losing about 340,000 private nonfarm jobs, which is approximately 80% greater than the average monthly job gain during the past year.”

It is perhaps no wonder that consumers have been slow to spend. Those who have jobs don’t have sufficient disposable income. Too often, it is American workers who have themselves seemed disposable.