Productivity growth is the engine of an economy's wealth generation, and the bane of the poorly educated/skilled worker.
[The following commentary on the October 2012 jobs report is also the latest installment of the RR series on employment and the economy. These are viewed from an existential perspective that is avoided by our politicians of all stripes. Most recent contributions to this series were ‘edX meets the workforce’ and ‘The real jobs problem – shhh!’ (and its tech appendix) respectively.]
This is really a letter to the future, few today are interested or capable of following these arguments. Things in America are going from bad to worse, and the promised fundamental transformation (i.e. massive social crisis) of the country is not far off. The delay from here til then will depend on next Tuesday’s (6 November 2012) election. The purpose of this post is to tell some future reader that the coming change was not a surprise to all of us living in these exciting times. Credence to these and succeeding words is supported by the predictions for these last four years as presented herein in 2008.
Today the Left is attempting to squeeze the most out of the latest bad report on our staggering economy. The big message for the country’s light thinkers is that in October ‘the economy added more jobs than expected.’ And that’s all you can say about it in the attempt to mislead people into thinking that things are improving.
But as soon as you peek behind the curtain a bit, the whole thing falls apart. Who are those people who “expected” a lower job figure for October? Why, they are the usual gang of economists and analysts who have yet to get anything right in their prognostications – they are constantly surprised one way or the other, for they are the Gang That Can’t Shoot Straight. But the closely guarded wonderment of our times is that these dufuses (q.v.) are still tolerated in the public square – nay, they occupy honored positions and their words are ever the gold standard for private and public sector decisions, until followed by their inevitable “surprise” when the actual data is published. But let’s get back to the real employment picture.
Today’s salient data includes: US population of about 310M; workforce size is 155M of whom 131M are actually working somewhere; the official unemployment rate is 7.9%, and would be 10.9% if our workforce today were the size it was in early 2009. A more comprehensive measure of unemployment is above 14% with about 24M workers out of work. The mysterious workforce participation rate sits somewhere near 63%, but nobody knows how that number ties to the ones quoted by the Dept of Commerce and the Federal Reserve. The above figure shows how our nonfarm employees have grown since the eve of WW2.
who understood the cited precursors to this report, and are able
to extrapolate (red dashed line) the above ‘All Employees’ graph from the year 2000 (with
130.78M employed) onward will realize that had the ‘Dotcom Recession’
and the ‘Great Recession’ not occurred, then today our total employed
would be above 170M if we use the average growth rate of 2.2%/yr
experienced in the 1946 – 2000 interval. But let’s not be piggy about
it, and use the most recently experienced 1.5% annual growth rate for
this extrapolation to get 156.4M employed today, which ties with the
assessment that there are about 24M unemployed today (131 + 24 = 155,
close enough). (I hope that at least all you younger readers are
following this, because your butt is riding on these numbers.)
Now let’s really strap on our good feelies for the future, and believe that our 2012 workforce of 155M will grow only at 1% annually as currently projected by the feds. Then what will things look like in ten years (2022)? Well, our work force will then number over 171M. And just for the hell of it, let’s declare total victory and say that we’ve then achieved an unemployment (core) rate of 5%, or only approximately 8.5M unemployed. That means that the number of employed (remember the current 24M already unemployed) had grown by 171 – 155 + 24 – 8.5 = 31.5M workers.
For this to occur gradually over the coming decade, the existing number of employed (131M) will grow to 131 + 31.5 = 162.5M workers, or again at the annual rate just shy of 2.2%. With this number in our hot little hands, we can calculate the rate of GDP growth required to absorb this rate of worker influx over the next ten years. And given that unhampered technology development is pushing worker productivity levels up at 3.75% annually (see ‘The real jobs problem – shhh!’), here’s the punchline. The envelope please – to achieve this little feat of bringing unemployment down to 5% requires a GDP growth of 6% per year after year after year after … .
Maintaining that kind of sustained growth rate is even beyond the wet dreams of any US politician with a three digit IQ. Given the education and skill deficits of our workforce, the regulatory burdens in place and increasing, and the tax environment that will discourage new risk taking in spades – we can all bet the ranch that such growth will not happen. Then what?
Well, before we abandon this tale of woe, let’s see what we can do if we throw a few eager workers under the bus (aka put them on permanent govt dole). Let’s condemn the 24M now unemployed, and say that we are willing to accept a new systemic unemployment rate of 6% - all together now ‘6% is the new 5%!’. This means that in ten years we will have 0.06*171 + 24 = 34.3M unemployed. And our workforce will consist of 171 – 34.3 = 136.7M employees. This means that in ten years we will have to add only 5.7M new jobs. Hell, even Obama shouldn’t be able to screw things up to stop that jobs growth rate which comes to only 0.43% annually. Today that will require the addition of 47,000 jobs a month, which we seem able to do.
But here’s the bad news even with that sickly prospect of job growth and adding over ten million to the unemployed rolls over the next decade – we will still have to grow the economy at over 4.2% per year to reduce today’s 7.9% unemployment to 6% in ten years, and keep it there thereafter. When was the last time we enjoyed this level of GDP growth year after year? Not in my lifetime.
So let’s come back to the bullcrap that spews out of the President’s campaign regarding the latest wonderful news of creating 171,000 new jobs in October, and some 5M jobs during his presidency. The sheeple who vote next Tuesday have no idea that 250,000 new jobs were required in October, and that since the end of the Great Recession (clearly a joke), a total of about 10M should have been created during a normal recovery, the kind of recoveries that we have had over the last half century. It was Obama’s policies which kept this from happening, and promise us a dismal four more years should he win next Tuesday.
Yesterday’s job report, properly understood, should have prompted the country to don sackcloths and sprinkle ashes on their heads. Today, we instead have over 150M idiots celebrating ‘slow but steady progress’ when there is nothing of the kind happening and we continue to fall further behind in unemployment numbers.
So is there another solution? You bet there is – stop productivity growth. From the arguments presented above, we can get to a 5 to 6% unemployment rate in ten years if we put the kabosh on productivity growth. I bet it would not take too much imagination for the fuzz balls at the EPA, FDA, DHS, FCC, FAA, and Dept of Commerce to pass enough productivity killing regulations that would bring the productivity growth rate to zero. Then all we have to do is grow the economy at a measly rate of around 2%. Even though nobody is sure about how to do that – Ayn Rand gave some hints – but the answer is clear, from stage left (where else?), ‘CUE THE LUDDITES!’
[5nov12 update] To put the above arguments into a more graphical format, we consider two levels of productivity growth, and their effect on systemic unemployment over the next ten years, given a range of GDP growth rates that reach upwards beyond hope. In both cases we accept the low 1% annual workforce growth rate promoted by the Census Bureau and the Bureau of Labor Statistics. (If actual workforce growth exceeds this, then things get very bad very fast.)
Let's first look at how unemployment behaves when the productivity growth rate is kept at its current 3.75% per year (figure below). The top red line shows the growth of the workforce, i.e. the number of workers who would like to work. From the current 24M unemployed, the lower lines fan out showing how unemployement behaves under various levels of GDP growth. Note that only above an unsustainable growth of 5% per year do we see the number of unemployed decrease. Even at a robust GDP growth of 3% a year we will see the number of unemployed double to 50M over the next decade.
Now consider the scenario in which government Luddites actively stymie productivity growth to 1% per year through regulatory and taxing policies. In such an environment it is beyond reason to expect our economy to even achieve 3% annual growth. Nevertheless, the figure below again includes GDP growth rates up to 6% to illustrate the impact of such never-neverland rates on unemployment.
Again, workforce growth is not affected by these arguments. New workers just keep increasing at 1% per year. But now in a 1% productivity growth environment we see unemployment begin decreasing when GDP growth gets somewhere above the 2.5% region. Growth of 4% and above will drive unemployment to zero (actually, to a very low 'core level'). But the sad reality is that in such an aggressively stifled economy, sustained growth rates above 2% will range between implausible and impossible. Nevertheless, such a 'Luddite Solution' will look very attractive to collectivists (aka Democrats) and their union allies. The problem here is that it will also be very difficult to fine tune and control the sustained growth of GDP at these low levels without the high likelihood of plunging the country into a dismal and tranformative depression.
So take your pick, massive systemic unemployment or massive nationwide poverty or both. Again the only plausible, but politically impossible, way out is to implement 1) massive tax reform, AND 2) massive regulatory rollbacks, AND 3) fundamental revamping of public education.