The Wrongologist

What’s Wrong Today

In his book, George W. Bush recalls asking his Chinese counterpart, Hu Jintao what kept him awake at night and Hu quickly replied that his biggest concern was “creating 25 million jobs a year”.

So What’s Wrong?

We lost 8.75 million payroll jobs during the so-called Great Recession. Since hitting bottom, we have regained 1.9 million non-government jobs. Even adjusting our job growth for the relative populations of the US and China, every day we fall behind China. And our elected whores representatives are spending more time playing political intramurals than staying awake at night worrying about it.

For sustained job growth, Businesses, People & Governments have to buy more stuff. This demand needs to be for goods and services produced in America. Of course, we can export goods and services, that also creates jobs. It must be stated that courier jobs have been booming across the developed world in recent times. This is especially true for the transit of goods and people, if you count the rise of Uber. Spending and investment by individuals, businesses and governments equals Gross Domestic Product (GDP). If there is no growth in GDP, there is no growth in jobs. It is a chicken/egg thing: demand creates jobs, jobs create demand.

Some say government doesn’t create jobs, they are wrong. Government has lots of employees working on completing its daily mission. Taken together, governments at all levels are responsible for about 13.6% of GDP, while their share of employment is 18.2%. Some government jobs may be temporary such working for the Census. Others are more permanent jobs: the military, post office, cops, teachers, John Boehner and Charlie Rangel come to mind.

Our current lack of GDP growth is based in large part on our shortage of jobs for those Americans who want/need them:

• There are slightly more than 300 million Americans. About 120 million are employed, 14 million are unemployed, and another 5-15 million are significantly underemployed.

That’s about 30 million Americans who are fighting for a job, and know they are in a tough struggle to find one.

I recently read “The Coming Jobs War” by Jim Clifton, Chairman of Gallup, your friendly polling firm. His thesis is that there is a massive global shortage of jobs today that will be the primary economic battleground between nations for the balance of our lifetimes and probably, for those of our children and grandchildren. Clifton makes a distinction between formal jobs – those with a paycheck, steady work that averages 30+ hours per week, and informal jobs, those without a paycheck or steady work. Here are his findings:

• Of the 7 Billion people on earth, 5 Billion are aged 15 and older
• Of that 5 billion, 3 billion have told Gallup they work or want to work
• Today, there are only 1.2 billion full-time, formal jobs in the world
• This is an 1.8 billion job shortfall compared with the 1.2 billion who are working

Of the 3 billion who work or want to work, 50% are currently seeking a formal job, while another 10% are looking for part-time work. With this being said, there are many open positions available. It is up to the individual to take their time to find them. If someone aims to land their dream job or at least a part time job, they will be looking for vacancies daily.
So, the United States is 10% of total global employment and 1.6% of the unemployed/underemployed problem.

Here at home, the war has already started, since our companies continue to move jobs offshore. From 2000-2009, US Multinationals cut 2.9 million jobs here while creating 2.4 million offshore.

Since we are in an environment where the global demand for labor is significantly lower than the global supply of labor, that imbalance will create a huge challenge just keeping wages at current levels in the developed countries. Even as labor costs are rising in the Third World, albeit from a very low base.

Another good way to look at how we are doing in the jobs war is the ratio of US private sector employment to population. Jobs/employment has fallen off a cliff since 2008:

(Left axis is percent of US population that is employed; Blue line is ratio of employment/population; Shaded areas are periods of recession)

How do we win the War for Jobs?

Let’s start with a national conversation that resolves the issue: “We need to create 30 million additional jobs in the next 5 years.” Sounds impossible? Remember, China is trying to do about 80% of that number every year. And their GDP is about $5.75 Trillion/year. Ours is about $14.6 Trillion/year. That’s 2.5 times the size of China’s GDP. Enough said.

We need to agree that sustained growth in GDP is necessary to have the society we want. After all, we are used to a historical annual GDP growth rate of about 4%. That growth has fueled our prosperity, our social safety net and our global pre-eminence. Note, we are currently growing at an annual rate of about 1.3%.

Second, we need to agree that sustained growth in GDP is our top priority. Not the accumulated deficit, not inflation, not healthcare costs, not terrorism, not climate change. It’s GDP. Without sustained growth in GDP, there will be no sustained job growth, no new tax revenues and most American cities over time, will begin to look like Detroit.

We can address these other priorities along the way, but first things first.

If we can’t agree that GDP growth is our top priority for the next 5 years, then what else should be our top priority? You don’t get to say “I have these 3 or 4”. Do you believe any politician can solve simultaneous equations?