US employment is topical after two months of poor jobs figures. Employers added 113,000 new jobs, against an expected 185,000, last month and a low 75,000 in December. Rather than focus on monthly data, let’s take a long-term view.
The number of full-time employed as a percentage of total population [red line below] fell dramatically during the GFC, with about 1 in 10 employees losing their jobs. Since then, roughly 1 out of 4 full-time jobs lost has been restored, while the other 3 are still missing (population growth fell from 1.0% to around 0.7% post-GFC, limiting the distortion).
Comparing employment levels to the 1980s is little consolation because this is skewed by the rising participation rate of women in the work-force. The pink line below shows how the number of women employed grew from under 14% of total population in the late 1960s to more than 22% prior to the GFC. The effect on total employment [green line] was dramatic, while employment of men [blue line] oscillated between 24% and 26%.
Part-time employment — the difference between total employment [green] and full-time employed [red] below — has leveled off since 2000 at roughly 6% of the total population. So loss of full-time positions has not been compensated by a rise in casual work. Both have been affected.
The “good news” is that a soft labor market will lead to low wages growth for a considerable period, boosting corporate profits.
The bad news is that low employment levels will depress sales growth [green line]….
And discourage new investment…..
Which would harm future growth.
When corporate growth is boosted by low wages and unemployment, there is no good news, for anyone. What kind of community do we have when business thrives on poverty?
I added inverted commas to emphasize the irony. Rising profits and falling investment are not good news for anyone.
The problem is that we can’t expect corporations to fix this on their own. They react to rising or falling aggregate demand, they do not create it. The solution under consideration for Australia is to spend big on infrastructure, selling off state assets to generate funds and minimize the increase in public debt. The danger is that state investment may not generate a market-related return (e.g. bridges to nowhere and other white elephants) rendering them unsaleable to generate future funds for investment.
Suggestion: Don’t ASSUME that all of your readers know all of the insider abbreviations that you use. The first time such an abbreviation is used in a given edition,, please define it. Example: GFC = Great Financial Calamity?
Thanks for the reminder. I try to keep jargon to a minimum but this slipped through.
Colin, – I agree that rising profits accompanied by high unemployment levels are not a good combination, at least not for the long term, as economies need in employment for them to be able to spend. In the short term, however, I think that it is a good thing for profits to take off in a context of lower wages resulting from fewer job opportunities, as this is probably needed really to “spur” the economy along, and also – hopefully even for the longer term – to make sure that people get paid financially appropriate wages: high wages are an enemy in developed economies, although Germany – exceptionally – has shown it is possible to have high wages in a very productive economy. As to infrastructure: while we certainly need improved as well as additional infrastructure in Australia, I feel that not only state assets should be sold off and placed in the hands of private enterprise, but that private enterprise should also become the major provider of infrastructure. Governments use it too often for such things as “bridges to nowhere” (your words), in order to keep people employed at taxpayers’ expense, which could become as wasteful as pumping money into unprofitable car manufacturing. I find it amazing that it should be difficult to find suitable infrastructure investments for retirees like myself, and see with concern that Canadians, for example, appear to be far more interested in this subject – including infrastructure in Australia – than Australians do. I do not wish to be dragooned by governments into spending on infrastructure, but should be happy to invest in well-designed private enterprise projects.
Thanks Joost,
My point is that rising profits, without new investment, will not last. I agree that private enterprise should be involved in infrastructure projects — to ensure that appropriate market-related returns are set as a benchmark for new investment. Government may, however, be required to share some of the risks (especially regarding minimum usage levels), to make the investment attractive to investors.
Again…excellent data analysis. Thanks.
Government spending, per se, will not fill the hole in employment in the US or elsewhere, nor does government “create” jobs in the private sector – at best it can stimulate domestic employment by judicious incentives and, yes, by controls that limit the worst excesses and corruption in a laissez faire business environment. Business is entitled to seek and generate a reasonable profit, pay reasonable wages and provide essential benefits such as healthcare and pensions. What is NOT reasonable is a ratio of 400 to 1 between the median compensation of top executives and the median pay of their employees. Nor is it reasonable to restrict the portability of healthcare benefits across boundaries (ancient state lines in the US) that limit the ability of workers to move to wherever the jobs are. These are political issues akin to the third rail that no elected politician dare touch if he/she expects to have the next election financed by business and garner a sufficient plurality of the locals to be reelected.
So, it all comes down to political reforms that are long overdue.
There is a vast difference between government spending and infrastructure investment at market-related returns. Spending has no long-lasting effect, while fixed investment creates jobs and long-term value……unless the money is wasted on “bridges to nowhere”.
Good piece thanks!
Businesses make re-investment decisions based on the best alternative options available, in a sustainable long-term scenario.
If they decide not to -re-invest in infra-structure, it has to be accepted that they, the better decision-maker in the situation, deem this the best option.
If the market has decided the best course is not to re-invest at rates of the past – can it be accepted that this is the ideal, therefore ?
What appears an optimal solution for a specific corporation may not be the optimal solution when viewed collectively, on a macro basis.