Wednesday, August 12, 2009

About US Job Growth

My partner emailed me a New York Times piece by Floyd Norris which appeared in the paper last Friday. The essential points Norris made can be summed up in these passages from his article,

"For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring.

For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.

Until the current downturn, the long-term annual growth rate for private sector jobs had not dipped below 1 percent since the early 1960s. Most often, the rate was well above that.

Health care jobs continued to grow, particularly jobs that involve caring for the elderly. Home health care employment rose at an annual rate of 5 percent, a rate that indicates a total gain of more than 60 percent. On an annual basis, that was twice the overall rate for health care of 2.4 percent a year.

There were also job gains in education and in a host of service industries, including lawyers (0.7 percent a year), accountants (0.9 percent) and computer systems designers (2.4 percent). The field of management and technical consulting leaped at an annual rate of 5 percent.

The total picture is of an economy that has changed in substantial ways over the decade. After the recession ends, job growth is likely to resume. But there is no indication that the secular trend toward a more service-oriented economy will reverse. "

As you would expect, an accompanying chart displays the -6% job losses in the automotive sector, and job loss rates in the -4% range for other manufacturing-oriented US economic sectors. Due to productivity gains and the increasingly-complex nature of high value-added US manufacturing, job losses in the sector continue while the value of output has remained relatively constant at 22% of US GDP.

Retailers have also lost jobs, which may surprise some. However, as Norris' last paragraph notes, the nature of our economy has changed substantially, and garden-variety retail has been hit hard over the past decade. Between eBay, online shopping and the continued revolving door of various brands of apparel, general merchandise stores have been punished.

Overall, however, my colleague expressed shock at Norris' topline statement that a decade of US economic activity has yielded no significant private job growth.

I'm not really surprised. Twenty-eight years ago today, IBM unveiled it's first personal computer, with Microsoft's MS/DOS operating system. In some thirty years' time, IT, including massive doses of PC-based applications, have raised US productivity to new heights. Newer businesses have been designed with totally different processes that just don't require much dumb, manual labor. Value-added chains of new businesses can look radically different than the average US business of one or two decades ago.

When you combine dying, low barriers-to-entry sectors like autos and other metal-bending sectors, with high growth in services and knowledge-oriented businesses, it should come as no surprise that employment growth might have been lighter up until two years ago than in prior decade-long periods.

Toss in the current recession's 12+ months of hundreds of thousands of lost jobs, and you can easily get Norris' results. After all, his analysis ends in a trough, whereas 1999 was still a booming growth year.

Thus, Norris' implication is probably incorrect. By avoiding a peak-to-peak or trough-to-trough comparison, he's overemphasized a gloomy jobs growth picture in the US.

But he does identify an important, continuing, decades-long trend, i.e., the decisive move of US business value creation out of older, simpler manufacturing, assembling or extraction sectors. Even if numbers of jobs lost there were offset in services, the latter jobs require higher education.

Rather than worry about 'saving' these old, lost jobs with their relatively less skill and knowledge requirements, shouldn't the US government and industries be focusing on creating more high-value, highly-skilled and -knowledge-oriented jobs which may stick around longer?

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