The Homa Files

The dismal jobs picture isn’t really very mysterious: CEOs are dismayed by Team Obama’s economic, regulatory and pro-union policies and won’t do any serious hiring while Obama  is in power.

For the record, the Homa Files pitched this case almost 2 years ago in a post titled: “Why private sector jobs won’t be coming back any time soon … Hint: it’s called passive aggressive resistance” … the punch lines:

Given the Administration’s anti-corporate rhetoric, actions, and proposed game-changing rules, I doubt that many CEOs will be taking on added costs and risks to boost the administration.

More likely, they will let unemployment continue to creep along, and will slow roll the process of rehiring. 

Corporate chieftains will sit back and watch the President squirm and spin his “4 million jobs – saved or created”.  As Rev. Wright would say “the chickens will have come home to roost”.  Passively aggressive  resistance at its very best.

Unfortunately, that means we’ll be seeing high unemployment for some time – at least through the 2012 Presidential elections.

The full original post is worth another read !

* * * * *

Ken’s current take:

Certainly there won’t be any meaningful hiring until the 2012. elections are in the book.

CEO heels are dug in.  I’ve heard cocktail party chatter like “Each job added is a vote for Obama … Fool me once, shame on you … fool me twice, shame on me”

CEOs started to relent a bit when the Congress tilted GOP and Obama extended the Bush tax cuts.  (Whatever happened to Immelt’s job creation task force?)

But, recent moves – e.g. stopping Boeing’s move to South Carolina, stumping again for higher taxes, especially on off-shore profits – have more than offset any momentum.

We’ll be stuck with unemployment in the 9s until 2012 … or until there’s a substantial policy roll-back – e.g. repealing ObamaCare.

And, the latter just ain’t gonna happen …

Punch line: The jobs numbers (job growth and unemployment rate) that create so much anticipation from the business press  …. do not give a clear picture of the labor market’s health.

A better understanding requires an examination of hires and separations, or what the Bureau of Labor Statistics calls Job Openings and Labor Turnover Survey (JOLTS) data.

* * * * *

Excerpted from WSJ: Why the Job Market Feels So Dismal, May 16, 2011

At any point in the business cycle, even during a recession, American firms still hire a huge number of workers.

That’s because most of the action in the labor market reflects “churn,” the continual process of replacing workers, not net expansion or contraction of employment.

The lowest number hired in any month of the current recession was 3.6 million workers. Even during the dismal year of 2009 there were more than 45 million hires.

Bear in mind that the U.S. labor force has more than 150 million workers or job seekers.

In a typical year, about one-third or more of the work force turns over, leaving their old jobs to take new ones.

When the labor market creates 200,000 jobs, it is because five million are hired and 4.8 million are separated, not because there were 200,000 hires and no job losses.

When we’re talking about numbers as large as five million, the net of 200,000 is small and may reflect minor, month-to-month variations in the number of hires or separations.

* * * * *

Total Non-Farm Hires

According to  USA TODAY

The share of the population that is working fell to its lowest level in three decades. 

Only 45.4% of Americans had jobs in 2010, the lowest rate since 1983 and down from a peak of 49.3% in 2000.

The bad economy, an aging population and a plateau in women working are contributing to changes that pose serious challenges for financing the nation’s social programs.

Job troubles appear to have slowed a trend of people working later in life, putting more pressure on Social Security.

“No matter how wealthy you are, you have a problem if half the population is not working and depending on those who are.”

Punch line: Men are disappearing from the workplace in ways that don’t always register on the official unemployment rate 

Excerpted from Business Week, The Hidden Job Crisis for American Men, April 7, 2011

The March jobs report released on Apr. 1 seemed like the best in years. Behind the headlines, though, statistics on jobs are far less encouraging.

Yes, job growth has picked up somewhat. Yet an equally important reason for the lower jobless rate is that many people, men in particular, have simply given up looking for work and are no longer counted among the unemployed.

Some sit at home. Rather than paying taxes on labor income, they are drawing government benefits, or relying on family and friends for support.

There is an ominous trend of disengagement for male workers that stretches back six decades. The share of American men aged 16 to 64 who are employed has fallen, from nearly 85 percent in the early 1950s to less than 65 percent now.

A Bureau of Labor Statistics study found that many older workers who lose jobs never go back to work again. Of those aged 55-64 who were displaced from 2007 through 2009, 21 percent were out of the labor force as of January 2010.

Typically the unemployment rate stays flat or even rises when the economy begins to recover. People reenter the labor force. There is no flood of reentrants this time, at least not yet.

A friend send me an article about the current economic challenges.

The author turned a phrase that caught my attention:

“Capital and technology are mobile, labor isn’t.”

He was making a globalization point, but it holds domestically, too.

Now, as somebody who made 13 job-related moves, I almost glossed over the point.

My parents told me that – in the real old days – folks moved from the coal mining area of Pennsylvania to Detroit  (autos) and Pittsburgh-Cleveland (steel) because that’s where the jobs were. I guess labor was mobile then.

So, I always wondered why folks in Detroit didn’t pack up and head for Texas when the car companies started to crater.

I guess the usual answer is friends & family and an odd geographic comfort factor.

These days, lots of folks – even if they want to move — are tied down geographically since they can’t sell their houses.

So, labor is even more  immobile, and we don’t just need jobs, we need jobs in places like Detroit.

Might happen ..

Punch line: Corporate profits are up. Stock prices are up. But, companies aren’t hiring.

Here’s one theory of the case… they are — but not in the U.S.

Excerpted from AP, Where are the jobs? For many companies, overseas, Dec 29, 2010

Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?

Actually, many American companies are — they’re hiring overseas, where sales are surging. Sales in international markets are growing at least twice as fast as domestically. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

The trend helps explain why unemployment remains high in the United States, even though companies are performing well and the stock market is booming.

But the jobs are going elsewhere. American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S.

In recent years, though, those jobs have become more sophisticated — think semiconductors and software, not toys and clothes.

“Companies will go where there are fast-growing markets and big profits.”

With the future looking brighter overseas, companies are building there, too.

• Caterpillar, maker of the signature yellow bulldozers and tractors, has invested in three new plants in China in just the last two months to design and manufacture equipment.
• DuPont — known as one of the most innovative American companies of the 20th century –now sells less than a third of its products in the U.S.
• Coca-Cola — of Coke’s 93,000 global employees, less than 13 percent were in the U.S. in 2009, down from 19 percent five years ago.

Harvard Business School Dean Nitin Nohria worries that the trend could be dangerous. He says that if U.S. businesses keep prospering while Americans are struggling, business leaders will lose legitimacy in society. He exhorted business leaders to find a way to link growth with job creation at home.

Other economists, like Columbia University’s Sachs, say multinational corporations have no choice, especially now that the quality of the global work force has improved. Sachs points out that the U.S. is falling in most global rankings for higher education while others are rising.

Full article:
http://www.google.com/hostednews/ap/article/ALeqM5iFY0R9agrMVljqtaB6ccsILSKd3Q?docId=771fbe245e624cbd95ab5a49122dd701

Thanks to SMH for feeding the lead

A recent Fortune article — quoting Jason Levin, an MSB MBA alum — cites employment bright spots for college grads and and gray haired folks …

Punch line: The November unemployment rate for people 55 and older is lower than for any younger age group, welcome news for a group that often worries about being shut out of jobs by age bias.

Scratch the surface of November’s disappointing unemployment statistics, and you find yet more evidence that, while joblessness plagues almost every stratum of society, not everyone is affected in quite the same way.

With unemployment hovering around 5% for people with college degrees, about half the rate for the population as a whole, education is clearly a big factor.

Age is another.

Consider: The November unemployment rate for people 55 and older, at 7.3%, is lower than for any younger age group.

That’s all welcome news for a group that often worries about being shut out of jobs by age bias, or by what some call “the O word” (for “overqualified”).

Still, Russell points out, not all the numbers are cause for celebration. The average job hunter over 55, for instance, is still out of work for about 45 weeks, or three white-knuckle months longer than the average for those under 55.

Older people may take longer to find work for a variety of reasons, says Jason Levin, a senior account executive at career site Vault.com. “Bear in mind that these tend to be more experienced and more sophisticated candidates” than their wet-behind-the-ears counterparts, he notes, so “negotiations over salary and benefits may take longer. They may also have more savings to rely on while they look for exactly the right opportunity.”

Levin, for one, isn’t surprised that overall employment is rising for this group. “Companies that cut way back all through the recession are starting to realize that they need highly qualified people to get the work done,” he observes. “Older managers understand nuance and hierarchies. They have accumulated a lot of wisdom, and they know how to run projects.” He adds: “Experience matters. It will always matter.”

One subtle advantage that more mature job seekers have, adds Levin: “They know how to craft a well-thought-out handwritten note. At this time of year, that means holiday cards with actual stamps on them. If you want to make an impression, that’s worth 100 emails. The personal touch never gets old.”

Fortune, Over 55 and unemployed? Finally a bit of good news, December 8, 2010
http://management.fortune.cnn.com/2010/12/08/over-55-and-unemployed-finally-a-bit-of-good-news/

The chart below is worth a thousand words … so, I’ll just add a couple:

• The optimistic bars a couple of months ago were all of the Census Dept jobs
• The recent negative bars were, in fact, Obama’s “Recovery Summer”
• Maybe a trillion dollars in tax cuts will reverse the trend … oh my. 

Answer: the Federal government bureaucracy.

Here are some facts that will make you cringe.

Between December 2007, when the Great Recession began, and last July …

• The private sector lost 7,837,000 jobs (down 6.8 percent).
• Local-government employment dropped 128,000 positions (minus 0.9 percent).
• State governments shed 6,000 positions (less 0.1 percent).
• Federal employment zoomed by 198,100 slots as Uncle Sam’s workforce expanded by 10 percent.

And don’t forget …

In 2009:

• The average private-sector employee earned compensation of $61,051 ($50,462 in wages and $10,589 in benefits).
• State and local-government workers hauled in $69,913 ($53,056 in wages and $16,857 in benefits).
• Federal-civilian employees took away $123,049 ($81,258 in wages and $41,791 in benefits).

But, those Federal employees (that you’re paying — now and when they draw their fat pensions) are here to help.

Source:  NRO, Charts that Will Infuriate Taxpayers, October 21, 2010
http://www.nationalreview.com/articles/250485/three-charts-will-infuriate-taxpayers-deroy-murdock?page=2

I haven’t seen these 2 pieces of information tied together any where else …

In June, German Chancellor Merkel announced a massive austerity program.

President Obama tried to jawbone her out of it and have her follow his lead and spend, spend, spend.

The German government unveiled the largest package of austerity measures in the country’s history, with deep cuts in social welfare programs and the public sector.

German Chancellor Angela Merkel announced an unprecedented austerity package involving initial spending cuts of 11.2 billion euros . The government hopes to save 80 billion euros by 2014.

Deutsch Welle, German government unveils unprecedented austerity plan, 07.06.2010
http://www.dw-world.de/dw/article/0,,5658604,00.html

Germany’s unemployment rate has been dropping … and is now a full 2 points lower than the U.S.’s

The German unemployment rate was stable in August at 7.6 percent of the workforce,  as the number of people seeking work edged slightly lower to 3.188 million people. Europe’s biggest economy continues to power out of its worst post-war recession.

It was the 14th monthly decline in a row and left the unemployment rate at close to a two-year low point.

“The clear rebound of the German economy continues to translate positively onto the jobs market.”

AFP: German official unemployment rate stable at 7.6%, Aug. 31, 2010

So, what are you going to believe – our government models that say that the Stimulus is working – or Germany’s real life experience with an austerity plan.

>> Latest Posts

No “new news” per se … but adds some ‘color’ to the discussion …

According to John Stossel …

“Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they’ve yet to amp up hiring or make major investments.”

Today, businesses replace equipment and inventory, but they are reluctant to hire new workers.

Investment that does occur aims at replacing the use of labor by adopting advanced technology. In a growing economy, that’s a sign of progress. Freed-up workers are then available for new projects. But lately, those new projects aren’t being launched.

When new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama’s vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.

“As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company’s vulnerability to government.”

“(A)ll of these unsettling possibilities and others of substantial significance must give pause to anyone considering a long-term investment, because any one of them has the potential to turn what seems to be a profitable investment into a big loser.”

Excerpted from RCP: Where Are the New Jobs?, August 25, 2010
http://www.realclearpolitics.com/articles/2010/08/25/where_are_the_new_jobs_106876.html

From the WSJ …

The unemployment numbers are even worse than reported.

Last year the Labor Department admitted it over-counted the number of jobs by 1.4 million.

Why?

Because they used a computer program that tries to extrapolate how many new companies are being created during each month and then estimates the number of jobs these firms should be creating.

They were wrong!

Since April, the Labor Department has counted 550,000 nonexistent jobs under this so-called birth/death series.

Without these phantom jobs, the economy this year created virtually no jobs — certainly not the 600,000 the administration has been touting.

WSJ, The End of American Optimism, August 16, 2010
http://online.wsj.com/article/SB10001424052748703960004575427332237529948.html

From the WSJ …

The unemployment numbers are even worse than reported.

Last year the Labor Department admitted it over-counted the number of jobs by 1.4 million.

Why?

Because they used a computer program that tries to extrapolate how many new companies are being created during each month and then estimates the number of jobs these firms should be creating.

They were wrong!

Since April, the Labor Department has counted 550,000 nonexistent jobs under this so-called birth/death series.

Without these phantom jobs, the economy this year created virtually no jobs — certainly not the 600,000 the administration has been touting.

WSJ, The End of American Optimism, August 16, 2010
http://online.wsj.com/article/SB10001424052748703960004575427332237529948.html

We’ve been hammering the corporate resistance to hiring for over a year.

Reich raises a couple of good points, but his ideology blinds him to the Administration’s anti-business policies and their impact on employment. 

* * * * *

Excerpted from Robert Reich’s blog: The Great Decoupling of Corporate Profits from Jobs, July 26, 2010

Corporate profits are up. And big American companies are sitting on a gigantic pile of money.

So with all this money and profit, they’ll start hiring again, right? Wrong – for three reasons.

First, lots of their profits are coming from their overseas operations. So that’s where they’re investing and expanding production.

GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States – down from 468,000 in 1970.

Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls.

But due to labor-saving technologies, Ford now has half as many employees as it did a decade ago.

Wall Street analysts are happy with Ford’s “commitment to keeping capacity in check.”

“Keeping capacity in check” is the Street’s way of saying “no new hiring.” In fact, the Street is advising investors to sell the stocks of companies that talk openly of expanding capacity.

Third, corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock – thereby pushing up share prices.

Last Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan. It’s GE’s first dividend increase since the company cut its dividend in early 2009. As a result, GE shares are up more than 5% in the past few days.

Bottom line: Higher corporate profits no longer lead to higher employment.  We’re witnessing a great decoupling of company profits from jobs. 

The reality is this: Big American companies may never rehire large numbers of workers.

Full article:
http://robertreich.org/post/863304269/the-great-decoupling-of-corporate-profits-from-jobs

While many Americans are feeling the pain of expired unemployment benefits, some have gotten a good chunk more than they were legally eligible for.

Preliminary estimates released by the Department of Labor find that, in 2009, states paid $76.8 billion in unemployment benefits … more than $7.1 billion (over 9%) were overpayments in unemployment insurance

Fraud accounted for $1.55 billion in estimated overpayments last year, while errors by state agencies were blamed for $2.27 billion, according to the Labor Department.

Assistant Secretary for Employment and Training Jane Oates testified before Congress in May that the top cause for overpayments was people returning to work and continuing to claim benefits.

Other overpayments are often the result of the unemployed errantly claiming that they were laid off instead of fired for cause — the latter of which typically disqualifies a person for benefits.

Excerpted from ABC NEWS: Labor Dept. Estimates $7.1 Billion in Overpayments to Unemployed, July 9, 2010 
http://abcnews.go.com/Business/underemployed-overpaid-states-shell-unemployment/story?id=11118137

Last week, the Feds reported that 441,000 jobs were added to the economy.  That’s good news.

If fact, it’s “the best news” President Obama has heard in awhile.

How do we know ?  Because he said so.

But, 411,000 of the 441,000 were temporary census workers – hired to chase down folks who didn’t return their paper survey forms. That’s bad news.

It means that private employers added less than 1,000 jobs per state.

The WSJ coined the situation “Employers on Strike” (see article hi-lites below)

As usual, the Homa Files were a couple of months ahead of the biz press.

In early February we called it passive aggressive behavior:

Real business guys tell me that they are, in fact, holding off hiring until “things settle down” in the economy.

Further, they fear draconian reprisals from Team O if they show any resistance to the anti-business initiatives or rhetoric.

They might be the next industry to be tax-jacked, punitively regulated, or publicly scorned as eco-dangerous, socially-negligent, wealth hoarding profiteers.

So how can businesses fight back against Team O?

Easy.  Just ‘recast’ each potential new hire as a vote for Obama’s policies … and refuse to pull the lever.

It’s called passive aggressive behavior.

Why unemployment will stay high … at least until after the 2010 elections.
https://kenhoma.wordpress.com/2010/02/01/why-unemployment-will-stay-high-at-least-until-after-the-2010-elections/

Now, we can make two sure-shot predictions:

(1) Businesses — large and small – will contain hiring until after the Nov. elections when the legislative “spill” is contained.

(2) The Census will run into unexpected procedural issues (i.e. “systemic failures”) that will require even more Census workers kept on the gov’t payroll even longer.

* * * * *
Excerpted from WSJ: Employers on Strike, June 5, 2010

Congress keeps giving business reasons not to hire. Almost everything Congress has done in recent months has made private businesses less inclined to hire new workers.

• ObamaCare imposes new taxes and mandates on private employers.
• Congress raised the minimum wage to $7.25, pricing more workers out of jobs.
  Note: The teen unemployment rate rose to 26.4% in May, and for those between the ages of 25 and 34 it rose to 10.5%. These should be some of the first to be hired in an expansion because they are relatively cheap and have the potential for large productivity gains as they add skills.
• The “jobs” bill that the House passed last week expands jobless insurance to 99 weeks.
  Note: Empirical evidence suggests that lengthening unemployment insurance prolongs unemployment
• The “jobs” bill raised taxes by $80 billion on small employers and U.S-based corporations.
• On January 1, Congress is set to let taxes rise on capital gains, dividends and small businesses.

None of the above are incentives to hire more Americans.

If the administration wants this to be more than a jobless recovery, it should drop its government-creates-wealth illusions and start asking why so many private employers remain on strike.

Full article:
http://online.wsj.com/article/SB10001424052748704764404575286831965692578.html?mod=djemEditorialPage_h

Last Friday’s jobs report was interesting. 

Reportedly, the  economy added almost 300,000 jobs — which is certainly better than losing jobs — but not enough to to keep pace with the number of people entering (or re-entering) the labor force. 

So, the unemployment rate went from 9.7% to 9.9%, the number of unemployed people increased to 15.3 million, and the underemployment rate — which includes people whose hours have been cut as well as those working part time because they cannot find full-time jobs — rose .2 to 17.1

President Obama’s take on April’s job report: “particularly heartening … showing that the “difficult and at times unpopular steps we’ve taken over the past year are making a difference.”  
http://www.cbsnews.com/8301-503544_162-20004423-503544.html

The media’s spin is that folks who were frustrated and stopped looking for work have turned optimistic, jumped off their couches, and took to the streets to look for jobs. 

Or, it could simply be that their 99 weeks of unemployment compensation ran out and they had no choice but to start looking again.

I’m betting the latter, but we won’t be seeing much of that in the mass media … 

* * * * *

Math Note

Some of the bump in the unemployment rate was simply rounding. 

The reported rate was 9.9% — up .2 from 9.7.

Unrounded, the unemployment rate rose to 9.863% from 9.749% in March.

That calcs to ‘only’ 0.114 percentage point.

* * * * *

Punchline: This economy makes job satisfaction a thing of the past … and in the future, will people be happy forking over their earnings to the government or will they find real satisfaction when holding their hands out to the government?

* * * * *
Excerpted from RCP: Under Obama, Reducing Choices for the Future, April 5, 2010

As Americans, we get such satisfaction when we believe the work we are doing — in workplaces and in community activities and voluntary associations — is serving interests broader than our own.

We’re making use of our talents, whatever they may be, to make a contribution to society.

It’s hard to get that kind of satisfaction in this kind of economy.

People say, “At least I’ve got a job.”

Not a satisfying job, not one that it makes full use of their talents and interests, not one that provides a sense of earned success.

Just a job, a source of income.

The kind of job in which you keep looking at the clock, counting the time before you can leave, counting the hours until the weekend comes.

The economy we enjoyed between 1983, when the Ronald Reagan tax cuts kicked in, and 2007, when the housing market collapsed, provided many more jobs in which people could gain such satisfaction.

You could make a living as a master carpenter, as an actor or sewing quilts because steady economic growth and low inflation meant expanded markets for custom goods.

You could do work you really wanted to do. You didn’t have to settle for a data-entry or bolt-attaching job.

The economy we have now doesn’t do that.

Full article:
http://www.realclearpolitics.com/articles/2010/04/05/under_obama_reducing_choices_for_the_future.html

Punchline: Many outsourced jobs will never return, and median income will likely continue to fall. But, the jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education.

* * * * *

Excerpted from WSJ: The Jobs Picture Still Looks Bleak, April 12, 2010

The U.S. economy added 162,000 jobs in March. That sounds impressive until you look more closely.

• At least a third of them were temporary government hires to take the census—better than no job but hardly worth writing home about.
• The 112,000 real new jobs were fewer than the 150,000 needed to keep up with the growth of the U.S. population.

It’s far better than it was—we’re not hemorrhaging jobs as we did in 2008 and 2009—but the bleeding hasn’t stopped.

• The economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind.
• The number is worse if you include everyone working part-time who’d rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they’re in.

This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

* * * * * 

Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long.

And even households whose incomes have returned are likely to be residing in houses whose values haven’t—which means they can’t turn their homes into cash machines as they did before the recession.

Consumers have been shedding their debts like mad—often simply by defaulting on loans — but, their remaining burdens are still heavy. Debt averages $43,874 per American, or about 122% of annual disposable income.

Most Americans’ biggest asset is their homes. The “wealth effect” of the rising stock market is felt mainly by the richest 10%, whose net worth is largely stocks and bonds.

* * * * *

What’s likely to slow the jobs recovery most, however, is the indubitable reality that many of the jobs that have been lost will never return.

The Recession has accelerated a structural shift in the economy that had been slowly building for years.

Companies have used the downturn to aggressively trim payrolls, making cuts they’ve been reluctant to make before.

• Outsourcing abroad has increased dramatically.
• Companies have also cut costs by substituting more computerized equipment for labor.

These cost-cutting moves have allowed many companies to show profits notwithstanding relatively poor sales.

Those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well.

This shift also helps explain why …

• The unemployment rate for Americans with college degrees is now only 5%
• It is 10.5% for those with only a high-school degree, and …
• 15.6% for Americans with less than a high-school diploma.

The jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education.

Full article:
http://online.wsj.com/article/SB10001424052702304222504575173780671015468.html

It’s a mystery that has puzzled even U.S. Federal Reserve Chairman Ben Bernanke: if the U.S. economy is growing rapidly, why isn’t it creating jobs?

The Fed and private economists are trying to answer the bigger question of why the labor market shed 8.4 million jobs during this recession. Although the downturn was the deepest since the Great Depression, the job losses were even more severe than most forecasters had predicted based on models that compare economic growth and employment.

The U.S. unemployment rate is at 9.7 percent, and the consensus view is that it will hold there. Why?

Bernanke offers two possible explanations: Either the recession was deeper than originally thought … or “productivity gains were greater than we thought they would be when firms were able to cut their work forces and still maintain output.”

Reuters, The Jobs Puzzle Bernanke Can’t Solve,
28 Mar 2010
 http://www.cnbc.com/id/36031173

Well, I’ve got the answer for you Ben.

In fact, HomaFiles laid it out for you in July, 2009 (link to original post is below)

Here’s the encore presentation …

* * * * *

Why private sector jobs won’t be coming back any time soon
(Hint: it’s called passive aggressive resistance)

Team Obama thinks that it has corporate America right where it wants it –- under its thumb.

CEOs and Boards serve at the pleasure of the President, executive compensation is overseen by a Federal czar, product lines are green-dictated by Federal czars and Task Forces, contract law is suspended at will,  bankruptcy laws are changed on the fly — relegating secured creditors behind politically-favored unsecured ones, ineffective government agencies dictate to stumbling companies, unions are given jolts of legislated adrenalin.

The Administration has empowered itself to sort out good guys from bad guys, to pick marketplace winners and  losers, and to destine survivors and failures, Companies (and individuals) that question government policy are ridiculed, harassed, and punished; those that oppose the policies are squashed faster than decades-old GM or Chrysler dealers.

Corporate CEOs are quaking in there boots … or are they ?

Team Obama –- which consistently demonstrates uncanny business naiveté — may be underestimating a staple of organizational behavior: the power of passive aggressive resistance.  Rather than being openly insubordinate when confronted with undesirable tasks — and getting nailed by vindictive superiors –  employees and organizational units will often just procrastinate and work work inefficiently, in effect, pocket vetoing the unpopular orders from above.   In corporate jargon, it’scalled “slow rolling”.

Sure, corporate chieftains will tell President Obama what he wants to hear, and may even stand next to him on a stage in a faux show of support.  Why risk the rath of a Presidential punishment, especially when there are other ways to skin a cat?

Specifically, with respect to continuing job cuts and rising unemployment, here’s a theory of the case.

First, you can’t  let a good crisis go to waste, right?  Businesses always use tough economic times to clean house.   Fat builds in all organizations over time.  In “normal” times, it’s difficult to get rid of dead wood.  Employment laws –  perhaps well-intended originally –- serve to protect slackers by making it cumbersome and difficult to fire anybody.  When the economic tide rolls out, companies have the air cover they need to resize and purge under-performers en masse. The tendency is to cut deep.  If some muscle gets pared too, so be it.  It can be rehabilitated later.

In typical business cycles, employment is a so-called lagging indicator of an economic rebound.  That is, when the economy starts to recover, jobs are usually added back very slowly.  Why?  Because businesses have a renewed zeal for productivity, they recommit to keeping the fat from building up again, and they want to be sure that the signs of better economic times aren’t false positives.

Eventually, open positions are filled and capacity — human and physical –  is added to meet increasing demand.  It may take awhile, but the system eventually gets back in balance.

If the economy is bottoming out now -– as many experts assert –  employment would be expected to start rebounding in 2010.  But, it won’t. Why?

Because the rules of engagement have changed.  It has become far more costly and risky for companies to restore or enlarge their payrolls.

For openers, the minimum wage is scheduled to increase by over 10%, making entry level staffing more costly.  Then, there is the risk that “employer mandate” will force companies to expand health insurance coverage or pay fines – again, making labor most costly.  Then, there is the threat of “card check” legislation turbo-boosting  the mass inionization of U.S. businesses .  And now, there’s the evident risk that government will change rules and regulations on political whims, creating an unprecedented level of uncertainty.

The bottom line: businesses will resist government policies passive aggressively.  Fewer jobs will get added back than history would suggest, and those that get added back will materialize later than past patterns.  Businesses will add jobs as a last resort rather than trying to build capacity ahead of the economic growth curve.  Why should companies  increase their costs and  risks any more than is absolutely necessary ? Companies will continue to off-shore jobs, but will be more clever and clandestine about it, e.g. by vertically disintegrating and simply buying goods and services from 3rd parties.

Given the Administration’s anti-corporate rhetoric, actions, and proposed game-changing rules, I doubt that many CEOs will be taking on added costs and risks to boost the administration. More likely, they will let unemployment continue to creep up, and will slow roll the process of rehiring.  Corporate chieftains will sit back and watch the President squirm and spin his “4 million jobs – saved or created”.  As Rev. Wright would say “the chickens will have come home to roost”.  Passively aggressive  resistance at its very best.

Unfortunately, that means we’ll be seeing double digit unemployment for some time – at least through the 2010 Congressional elections.

https://kenhoma.wordpress.com/2009/07/21/why-private-sector-jobs-wont-be-coming-back-any-time-soon/

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OK Krugman didn’t actually say those words, but he did deliver the message.

Great ‘catch’ by WSJ writer James Taranto who hoists economist Paul Krugman  by his own pitards …

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Excerpted from WSJ: Mirror, Mirror, By JAMES TARANTO, March 5, 2010

Former Enron adviser Paul Krugman takes note in his New York Times column of what the calls “the incredible gap that has opened up between the parties”:

Today, Democrats and Republicans live in different universes, both intellectually and morally.
“What Democrats believe,” he says “is what textbook economics says”

But that’s not how Republicans see it.

GOPers say unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

Krugman scoffs: “To me, that’s a bizarre point of view — but then, I don’t live in their universe.”

What does textbook economics have to say about this question? Here is a passage from a textbook called “Macroeconomics”:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

So it turns out that what Krugman calls Republicans “bizarre point of view” is, in fact, textbook economics.

By the way, the authors of that textbook are Paul Krugman and Robin Wells. Miss Wells is also known as Mrs. Paul Krugman.

It seems Krugman himself lives in two different universes — the universe of the academic economist and the universe of the bitter partisan columnist.

You read that right.  Even the NY Times has noticed that the administration’s high emphasis on jobs & unemployment had the the lifespan of a tsetse fly.  One calendar week, to be exact — then back to spend, spend, spend — and, oh yeah, health care.

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Excerpted from NY Times:So Much for Jobs, Jobs, Jobs,  March 5, 2010

The job market may be hitting bottom, but it seems likely to remain mired there.

And despite the insistence that their top three priorities are jobs, jobs, jobs, Congress and the Obama administration aren’t doing enough to create them.

With the latest monthly tally, 8.4 million jobs have been lost since the recession began in December 2007. Another 2.7 million jobs needed to absorb new workers were never created, leaving the economy bereft of 11.1 million jobs. [Ken’s note:  not counting another 10 million or so who are underemployed.]

To keep up with a growing work force, filling the hole would require more than 400,000 new jobs a month for three years — wildly in excess of even the most optimistic projections.

Employers are unlikely to make new hires until they restore current workers to full time. In the private sector, just restoring hours cut during the recession will be like adding 2.8 million jobs, without a single hire.

Over the next several months, the economy will get a temporary job boost from the census, which will hire some one million temporary workers.

The danger is that with stopgap measures boosting the headline job numbers, Congress and the administration will avoid the heavy lifting that is required to clear away the wreckage of the recession.

Layoffs, while waning in the private sector, will shift to the public sector. [Ken’s translation:  bloated government bureaucracies will finally be pared back.]

And as the states tighten, the private sector would be squeezed anew because lower state spending and higher state taxes would mean less consumer spending.

Full article:
http://www.nytimes.com/2010/03/06/opinion/06sat3.html?ref=todayspaper