These Jobs May Not Come Back
(Bloomberg) — All last week I was frantic waiting for my invitation to the White House Jobs Summit to arrive. I thought about crashing, but recent events persuaded me that was neither prudent nor proper. Besides, my red kimono was at the dry cleaners.
Something tells me my views wouldn't have been well received. I would have told President Barack Obama he faces significant obstacles in his effort to create jobs before the voters go to the polls in November 2010.
I'm not talking about the legality of "mobilizing" unused funds from the Treasury's Troubled Asset Relief Program, as Obama put it in a speech yesterday at Washington's Brookings Institution; or the inherent contradiction in "government job creation," as if government can create jobs without commanding resources the private sector could have used to provide something the public wants.
The real question facing the nation, and one that Obama's summits and speeches aren't addressing, is this: What if the job losses this time around aren't temporary, the "ebb" part of the ebb and flow of the business cycle? What if employers are hacking away at their permanent workforce?
There is support in the data for the idea that many of the lost jobs aren't coming back. In November, a record 55.1 percent of job losses were categorized as permanent, according to the Bureau of Labor Statistics. The average duration of unemployment reached a post-World War II high of 28.5 weeks. And 38.3 percent of the unemployed have been out of work for 27 weeks or more, also a record.
Retooling RequiredWhile the labor market may be witnessing the beginning of a cyclical improvement, "the structural outlook is daunting," said Neal Soss, chief economist at Credit Suisse.
The economy shed 11,000 jobs last month, the smallest decline since the recession began in December 2007. The net revision to previous months was positive, a sign that labor market conditions are improving. (The direction of the revisions, based on additional survey data, is generally suggestive of the trend.)
The extent of the improvement may be similar to the jobless recoveries following the 1990-1991 and 2001 recessions. In the second case, it took three years after the end of the recession for the level of employment to exceed its previous business cycle peak.
Before that—the recessions of 1971-1973 and 1982, for example—a rapid pace of temporary layoffs was followed by an equally rapid pace of rehiring early in the recovery.
Today's labor market may have become less flexible, Soss said. Employee skills aren't readily transferable. An assembly line auto worker may not have the skill set suited to software programming or sales.
Ma Bell Meets iPhoneThat doesn't mean the U.S. economy won't create new jobs in unimagined new industries some day. When Alexander Graham Bell invented the telephone in 1876, none of his contemporaries could have envisioned wireless technology allowing mobile-phone users instant access to the sounds and quotes of Beavis and Butthead.
In another version of his we-inherited-this-mess speech, Obama laid out some pre-existing ideas for job creation—infrastructure spending, small-business tax credits for hiring and enough green investment to make the average unemployed person red in the face—and some new ones. For example, the elimination of the capital gains tax on small business and new credit lines will facilitate access to credit and make investment more lucrative.
Legacy of DebtThe president paid lip service to "fiscal responsibility," reiterating his pledge to halve the deficit by the end of his first term. How his grand vision for health-care expansion, billed as reform, will achieve that is anybody's guess.
The deficit isn't as benign as some economists claim. Debt, the cumulative result of deficits, is closely allied with job growth.
In their book, "This Time is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Ken Rogoff document the protracted aftermath of financial crises in terms of their depth, duration and diffusion across the economy and industries.
"The true legacy of financial crises is more government debt," Reinhart said in a presentation at the Federal Reserve Bank of Philadelphia's Policy Forum on Dec. 4.
High government debt is associated with slower growth, she said. So "if we are concerned about growth, we should be concerned about debt."
The same could be said about jobs. Economic growth is the best source of job growth. If growth is curtailed by soaring government debt, job creation will be sub-par as well.
The government can't keep shoveling out money to "create jobs," concoct some fictitious number of jobs that were created or saved and expect the public to buy it. Like the $787 billion stimulus, spending money to save money is not a winning strategy.
(Caroline Baum, author of Just What I Said, is a Bloomberg News columnist. The opinions expressed are her own.)
To contact the writer of this column: Caroline Baum in New York at email@example.com.