In a speech to the joint session of Congress that was widely recognized as "presidential," US President
Trump said twice that there are 94 mln Americans out of the labor market.
It is not a lie or fake news or even an alternative fact, but it is so
misleading that it is incredulous.
Here is the relevant context. The US total population is about
325 mln people. Of that universe,
there are roughly 205 mln working age people (16-65). Of the working age
people, 152 mln have jobs, and more than seven mln are looking for
work. These 159 mln people are considered
in the labor market. That leaves 46 mln
(205-159) working age people not working and not looking for work. They
are not in the labor market.
Who are these 46 mln people? They are not only discouraged people who have given up looking for a job. They also are
disabled people, students going to school, those who have home responsibilities
(taking care of children or elderly or disabled) and those that have retired
early (i.e. before 65).
Still, this leaves us far from Trump's 94 mln figure. Who else are included? Most of the remaining 49
mln people are retired Americans over the age of 65. There are 48 mln
Americans older than 65, of which almost seven
mln are working. That leaves 41 mln
Americans who are not in the labor market and are part of the 94 mln that Trump touted.
Between working age people not working or looking for a job and retired
people not working, we can account for 87 mln
of Trump's 94 mln figure. Who are the other seven million people? Rick Newman, a journalist at Yahoo Finance, suggests the seven million are incarcerated or otherwise
institutionalized. The rate of incarceration in the US continues to
rise. It stood at 2.25 mln in 2014, for example. And after
servicing time, employment opportunities are still difficult to
secure.
The 94 mln people out of work figure that Trump cited includes every
American who is not employed. That means those in school and jail,
those that are disabled, and those that are retired. It is such an
inclusive measure that it is nearly meaningless.
The US President has emphasized the desire for more manufacturing jobs.
He suggests that the US trade policy and unfair practices by other countries
are significant factors. Such rhetoric, however, does not stand up to
rigorous scrutiny. There are two numbers that capture what has happened
the may be overlooked. Since 1979,
US manufacturing employment has fallen from 19.4 mln to about 12.3 mln at the end of last year. In this
period, US manufacturing output has doubled. In 1979, manufacturing
output per employee was about $41.6k in 2009 dollars. In 2015, it reached
about $155.2k.
This development is explored at
length in my new book, Political
Economy of Tomorrow. Up through WWI, to produce more goods, more
inputs (labor, capital, and raw materials) were needed. Sometime around then, a transition was made. Output increased as inputs
fell. This is what productivity
means.
It is a familiar development. The incredible increases in
agricultural productivity as science was applied to the production of food,
freed people up to work in factories. Science has been applied to the production
of goods. Factories no longer need as many people. Most countries,
even those that are accused of stealing
US manufacturing jobs are themselves losing manufacturing jobs, including
China, for example. The Center for Business and Economic Research at Ball State
estimates that 85% of the loss of manufacturing jobs is due to technological
advances and automation not trade.
The new industries that have risen are not as labor intensive the old
smokestack industries. Total employment in the computer and
electronics sectors, for example, employed 1.87 mln
Americans in 2007 and by last August the figure has fallen to a little more
than a million. The five largest US companies in that space (Apple,
Alphabet, Microsoft, Facebook, and
Oracle) have a market cap of almost $2 trillion, which is something on the
magnitude of 80% higher than the five largest in 2000, but they have fifth fewer employees.
Consider two examples covered in the popular press. Instagram
was bought by Facebook in 2012 for $1 bln. It had 13 employees.
WhatsApp was bought by Facebook in 2012 for $19 bln. It had 55
employees. The point is that the new industries and sectors are not
nearly as labor intensive as the older industries. The new technological
advances are both labor saving and capital saving.
This is not to argue that unfair
trade practices do not hurt the US. They do. There is a
conflict resolution mechanism integrated into most trade agreements, including
the World Trade Organization. These mechanisms are important as there
seems to always be some friction even between countries like the US and Canada
which have so much in common. Resolving conflicts helps contain
disagreements and prevents a ruinous escalation that could carry into other
areas. If the US carries through with its threats not to heed WTO
rulings, it will encourage other countries to defect from the international
free-trade regime and increase the risks of beggar-thy-neighbor
policies.
The US labor market continues to gradually
improve. The weekly jobless claims are at new cyclical lows,
and due to qualification changes, the figures are not directly comparable to
the earlier cycles, but the direction is clearly constructive. Continued
improvement is likely, and it will be more likely as wages
increase.
We often explain that given the size of the US workforce, why hours
worked is a key metric that the popular media tends to largely ignore. However, in the current environment,
we suggest that average hourly earnings (and other measures of wage pressure) are an important metric that investors will
want to track closely. The median forecast in the Bloomberg survey is for average hourly earnings to rise by
0.3% in February to 2.8% year-over-year. If there is a surprise, we
suspect it to be on the upside. The comparison
to last February is favorable as hourly earnings were flat in tow months in
2016, February and November. The median forecast on the headline
non-farm payrolls is expected to be around 190k. In 2016, non-farm
payrolls rose by an average of 187k.
A Few Thoughts about the US Labor Market
Reviewed by Marc Chandler
on
March 07, 2017
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