Baseless optimism vs. sure-thing Timesizing®
[Commentary] ©1999-2000 Philip Hyde, Timesizing Assocs, Box 622, Cambridge MA 02140 USA (617)623-8080

The "great" American jobs machine

Here's some background from the USA-adoring conservative London magazine, The Economist. Only their deeply partitioned brain and their ignorance of the 1920s allows them to derive any cheer from this -

1/15/2000  The great American jobs machine - With job growth booming, unemployment at record lows and inflation still tame, America's labour market is a spectacular puzzle, The Economist, 25.
Of all the striking characteristics of the 1990s boom, the labour market is perhaps the most remarkable. Almost 22m new jobs have been created...
[Sure, 22m low-wage "McJobs" split between no-benefits part time jobs and 60-hour-a-week jobs on a 40-hour salary.]
...(the equivalent of one new job for every six people).
[Except that they admit 2 paragraphs later that "it is hard to measure illegal immigration."]
Unemployment is now at 4.1%, the lowest rate for 30 years....
[What a coincidence! Wages have been flat for 30 years. And during World War II when the economy was really humming, any unemployment rate over 2% was regarded as alarming. My, how our standards have sunk.]
A broader gauge - favoured by Alan Greenspan... - of the pool of available workers has also fallen to its lowest level in this expansion.
[Does it include the 39% of women who have still not entered the workforce (but we know they're there). Does it include the 100,000s of visas for pretrained low-wage workers that spoiled American CEOs want to bring in from India and Bangladesh (or even Canada when there's a big layoff up there)?]
Yet, in stark contrast to other modern expansions, there are scant signs of serious wage or price pressure. Average wages rose 3.6% in 1999, more slowly than the average rise of 4.2% in 1998.
[And even to get that much increase, how many astronomically paid executives were included in the data? And where are the comparison figures from the 1940s and 50s? What do we have to compare this to?]
What is going on?
The honest answer is that nobody knows.
[That's not an honest answer. That's an unscientific projection of the author's own ignorance onto everyone on the planet.]
America's job market is puzzling labour economists just as much as the recent productivity productivity acceleration is puzzling productivity experts.
[Whose brains, by and large, are back in the 17th century before any serious technological amplification of human output. And any recent discussion of productivity starts and ends with admissions that "we really don't know how to measure productivity very well in the service sector" which is the "booming" part of the "new" economy (ignoring always the previous run-through of this same scenario in the 1920s). And the fact that economists are paid by management, not labor (employers, not employees), means they always have a vested interest in downplaying productivity gains to any audience that might include their own underpaid rank&file, especially when they're fielding a productivity-linked theory of wages. (Pardon us while we have a laughing spell.)]
Nonetheless, a few trends are clear. [And here's the part that you really have to paint on the big clown smile in order to feel cheered by -]

  1. The first is that labour supply has proved more expandable than anyone expected.
    [This is totally irrelevant to the point they are trying to make. If they had said "employment supply has proved more expandable than anyone expected" we could talk. But wait, maybe in the next sentence they hint that that's what they fuzzily meant to say.]
    Attracted by the abundance of jobs (or forced by economic necessity), ever more Americans are working.
    [But note that they immediately contradict the notion that there's some kind of natural effusion of jobs. There could just be more people than expected who are "forced by economic necessity" to find jobs. How comforting. More people than expected who are desperate for jobs. Without realizing it, they have just answered the question they said nobody knew the answer to. How come there's what they sloppily want to regard as "full employment" with no inflation ("scant signs of serious wage or price pressure")? Because most people are so desperate, that's why. Contemporary CEOs have perfected the discipline of the workforce by job insecurity, fear of downsizing, and economic anxiety. This is not rocket science but it's an appalling conclusion that these chumps don't want to admit, so they're going to go "all around Robin Hood's barn" to avoid doing so. Now instead of answering the question of where the "jobs" are coming from, they continue explaining where all the desperate, low-wage-accepting jobseekers are coming from.]
  2. The long-term trend toward earlier retirement has stalled.
    [So has the long-term trend toward longer vacation in America and Britain, and the long-term trend toward a shorter workweek. This is progress??]
  3. The proportion of women in the labour force, which shot up in the 1970s and 1980s, has continued to rise. It is now 61%, compared with 57% a decade ago.
    [This is supposed to be comforting? Q: Who's looking after the kids? A: Strangers, or older siblings. Now there's a prescription for a quality society in the future! It gets "better."]
  4. Welfare reform has played a role. Two-thirds of unmarried mothers with a child under three are now in the labour force, compared with just over half in 1995.
    [This sounds more like a ticket to social suicide.]
  5. Though it is hard to measure, illegal immigration has also boosted America's workforce. Official estimates from the Census Bureau suggest there are around 5m illegal immigrants in the United States, but many economists reckon the real figure is likely to be higher. These "improvements" in labour supply [ed: our quotes - you have to be really trying hard to call illegal immigration an improvement in anything] - in addition to the natural expansion that comes from population growth - are one reason this job-laden boom has been able to continue.
    [Again, the confusion of increased desperate job-seekers with good old-style jobs. They look at jobs in terms of regular American manufacturing jobs in the 1950s (full-time, high-wage, high-benefits) even as they hint that jobseekers have third-world level desperation (willing to accept low pay and either long hours with benefits or part-time without benefits).]
    Less obvious, however, is how long they can go on.
    [Meaning, supposedly, how long "these improvements" can go on. But then, with "improvements" like these, who needs them to go on?!]
  6. The second, and more puzzling, trend is the apparent shift in the relationship between unemployment and inflation.
    [As we pointed out, they've already unwittingly answered that, but now we have to sit here and listen to them talk all around the subject without seeing the obvious.]
    In recent decades, there was a clear link. Once unemployment fell below a certain threshold (known, inelegantly, as the non-accelerating inflation rate of unemployment, or NAIRU, and traditionally estimated to be between about 5.5% and 6%) inflation began to accelerate. No longer. In recent years, most forecasting models based on traditional estimates of the NAIRU have consistently over-predicted inflation, leading some people to dismiss the whole concept of the NAIRU and the inflation/unemployment [seesaw] on which it is based.... That is a mistake.... Unless the laws of supply and demand have been repealed, it is hard to believe that there is no point at which ever-lower unemployment rates produce wage pressure. The change has been in the dynamics of when, and perhaps how, this takes place....
    [Quick review of the Timesizing position on the whole inflation/unemployment seesaw, which led people for decades to regard inflation and unemployment as opposites: Far from regarding them as opposites, we Timesizers regard unemployment as the first and biggest and most solution-accessible component of inflation. The seesaw exists only in what we call, to borrow a linguistics term from Chomsky, the surface structure of the economy. The surface structure is where managers and employers are still wasting time violating Deming's central Point for Management - "Banish fear from the workplace." The only reason wage pressures go down (and so does "inflation") when there's high unemployment is fear of job loss. Labor is surplus and employment is scarce, so by supply and demand labor price (wage) goes down. But conventional economists have never explored the vital role played by this terrible thing, "inflation," in any real and sustainable booms, the kind of booms that have accompanied wars and plagues throughout history, for example. Whenever we've killed off a substantial minority of the workforce (a majority is a different story), the resulting labor shortage and employment surplus has driven up labor price (wage) by natural supply and demand, and there has been a positive general rise in prices. The significant thing that is going on is not the price rises but the centrifugation of wealth out of the top income and wealth brackets. So you're getting a 180-degree shift from the "diminishing efficiency of capital at the margin" to the increasing efficiency of capital at the center, the center being the pockets of the middle class and the poor who, rather than hoarding it, go out and buy food and wine and clothing and furniture. In their stupidity and cupidity, managers and employers usually run the economy on a shortage of jobs and business opportunities, and a surplus of labor. Wars and plagues reverse that until population growth catches up again. It's sort of an employment-based Malthusianism. Malthus originally stated that population always outstrips food supply. He later began, with Sismondi, to make the more significant and actionable statement that labor always outstrips employment. Sismondi had the first big piece of the solution however - he recommended a ceiling and floor on worktime (whether worklife or workday per person) - and this was back in 1819! Anyhoo, so much for our 'quick review.' Our Timesizing way of controlling inflation is not by fear of any kind, but simply by pitting deflationary incentive against inflationary. We draw a line on the workweek, starting at 40 hrs, and say, "you can work above this line only if you like your job enough to 'change gears' and reinvest overtime earnings in training and hiring.' And we put an end to unpaid overtime. No more charity for employers simply because they call it a 'salary' instead of a wage. We enforce the existing FLSA legislation that states that any salary is a maximum 40-hour-a-week salary, and if a company resists paying prorated overtime (we don't bother with time-and-a-half - it sent too mixed a message), we do shadow time-accounting to determine the actual workweek, say 60 hrs, redefine the salary as a 60-hour salary, and require reinvestment of the real overtime fraction of that 60-hour salary, i.e., 25%. In short, no more corporate blank checks on employees' lives, and no more self-unresolving overtime. The nation's greatest vanishing resource, in an age of onrushing computerization and robotization, is natural market-demanded employment for humans, and as such it must be shared if the population is not to fragment, develop an ever larger, dependent underclass, and go unstable in the sense of developing active or passive genocide against the underclass. "America the Beautiful" already has record homelessness and incarceration. The homeless, like many of our lower-skilled full-time and most of our part-time jobs, have no health insurance. The incarcerated, though supposedly health-insured, are constantly exposed to humiliation and violence. And there are now over two million of them, most in for the victimless 'crime' of drug possession where marijuana and cocaine are supposedly "drugs" while nicotine and alcohol aren't. God, we are a pack of taxpaying fools, paying $25,000 per inmate per year to support all our armies of wasted, incarcerated fellow citizens, most "in" because of our arbitrary wordgames. And it gets worse -]
    The other likely explanation is that the level of the NAIRU has actually fallen...if only because of demographics. Older people have lower unemployment rates than younger ones.... In the 1990s, as the workforce has aged, [the NAIRU] has fallen. Other...explanations have also been put forward.... Rising incarceration rates may have reduced the NAIRU by 0.1-0.2 percentage points. The equivalent of 2% of the male labour force is in prison. Since these men are more likely to be unemployed that the typical worker, they reduce the structural unemployment rate by being in prison and out of the workforce....

For more details, see our laypersons' guide Timesizing, Not Downsizing, which is available online from * and at bookstores in Harvard and Porter Squares, Cambridge, Mass.

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