Today, American companies are perfectly content to operate with less people, relying on temporary workers and part-timers in unprecedented numbers, and for longer periods of time, while continuing to outsource jobs overseas in order to reduce costs and remain competitive so they can pad the bottom line and keep their shareholders happy.
Here's what's happened over the past 10 years:
- The U.S. economy's output of goods and services has expanded 19%.
- Nonfinancial corporate profits have risen 85%.
- The labor force has grown by 10.1 million.
- But the number of private-sector jobs has fallen by nearly two million.
- And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.
What's wrong with the American job engine? As United Technologies Corp. Chief Financial Officer Greg Hayes put it recently: "Sales have come back, but people have not.''
WSJ's Willa Plank reports the nation's CEOs do not see an economic recovery underway and do not plan to hire workers anytime soon. Also, over the past ten years, the American adult work force has dropped to 1983 levels. Photo: REUTERS/Lucy Nicholson
That's largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust.
Then there's the confidence factor. If employers were sure they could sell more, they would hire more. If they were less uncertain about everything from the durability of the recovery to the details of regulation, they would be more inclined to step up their hiring.
Something else is going on, too, a phenomenon that predates the recession and has persisted through it: Changes in the way the job market works and how employers view labor.
Executives call it "structural cost reduction" or "flexibility." Northwestern University economist Robert Gordon calls it the rise of "the disposable worker," shorthand for a push by businesses to cut labor costs wherever they can, to an almost unprecedented degree.
Looking back at the percentage of Americans with jobs in the 1990s (rising) and the 2000s (falling), Princeton University economist Alan Krueger estimates that 70% of today's job shortage is simply cyclical, the result of a disappointing recovery from a deep recession. But he attributes 30% to changes in the job market that began a decade or more ago.
Consider these new trends:
Past
When business slumped, employers cut work forces and accepted less work per employee. During the deep recession of the early 1970s, the output of goods and services in the U.S. fell by 5% and employment by 2.5%. Economists puzzled over "labor hoarding," or the tendency of companies to hold on to unneeded workers.
Present
In the most recent recession and the previous two—in 1990-91 and 2001—employers were quicker to lay off workers and cut their hours than in previous downturns. Many also were slower to rehire. As a result, the "jobless recovery" has become the norm.
No one talks about labor hoarding any longer. Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy's output of goods and services fell by 4.5%, but the number of workers fell by a much sharper 8.3%. Today's puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?
In an earlier era, when more Americans worked on assembly lines, many layoffs were temporary. When business bounced back, workers were recalled, often because of union-contract guarantees.
At the worst of the 1980-82 recession, 1 in 5 of the unemployed were "temporary layoffs." In the recent recession, the proportion of temporary layoffs never exceeded 1 in 10. In part that's because fewer Americans work in factories, where production can be stopped and restarted; if a restaurant doesn't have enough customers, it goes out of business.
Economists Erica Groshen and Simon Potter of the Federal Reserve Bank of New York said.
"When layoffs are temporary, subsequent recalls can take place quickly."
When layoffs are permanent, job recovery is slower, they say. If the employer wants to hire, there's the time-consuming chore of sifting through applications.
The New Corporate Hiring Mentality
- Stock Prices and Profitability - Corporate employers are more concerned over their bottom line and maintaiing their stock price to satisfy shareholders
- Less Workers Is Better - The recession showed corporations they could do more with fewer workers than many of them previously realized.
- Full-Time Workers No Longer Needed - In a survey of 2,000 companies in 2011, McKinsey Global Institute, the think tank arm of McKinsey & Company, found 58% of employers expect to have more part-time, temporary or contract workers over the next five years and 21.5% more "outsourced or offshored" workers.
- "Just In Time" Worker Technology - According to McKinsey, "Technology makes it possible for companies to manage labor as a variable input. Using new resource-scheduling systems, they can staff workers only when needed—for a full day or a few hours."
- Importance of Temporary Help Agencies - Temporary-help agencies are playing an ever-larger role—from providing clerical and factory workers to nurses and engineers.
Black & Veatch, a Kansas City, Mo., engineering firm, which shrank from 9,600 employees before the recession to about 8,700 today, is hiring about 100 workers a month. About 10% of its workers are temps, says Jim Lewis, the firm's human-resources chief. Mr. Lewis says.
"That's a quick way to bring people in, and gives you a little time to see if growth is going to hold or not."
It also makes it easier to cut back in tough times. Workers, in short, now can be hired "just in time." And many employers apparently don't think it's time yet. Because they can hire temps almost instantly, there's little need to hire in anticipation of a pickup in business.
When they do hire, big U.S.-based multinational companies are more able and more willing to hire overseas, both because wages are often cheaper there and because that's where the customers are.
In the 1990s, those multinationals added nearly two jobs in the U.S. for every new job overseas; in the 2000s, they cut their U.S. work forces by 2.9 million and increased them abroad by 2.4 million, according to the Commerce Department.
Hal Sirkin of Boston Consulting Group says rising wages in China are dulling its edge as a low-wage nirvana. In 2000, wages of Chinese production workers averaged 3% of what their American counterparts made. Today, they are at 9%. BCG expects the figure to reach 17% by 2015. Mr. Sirkin predicts that will prompt some manufacturers to move jobs back to the U.S.
How many? He is still working on an estimate. But one thing is clear, though, "These are $15-an-hour jobs," he says, "not $30-an-hour jobs."
Even though the government counts 4.68 unemployed workers for every job opening, some employers insist they can't find workers with the skills they need at wages they can afford.
Federal Reserve surveys of local economies find employers from Boston to Kansas City to San Francisco reporting difficulty in hiring workers "with specialized technical skills, particularly in the health-care and technology sectors."
But workers without college degrees find well-paying jobs scarce in the modern U.S. economy. The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June. About 1.6 million said they were looking for work; the rest weren't even looking.
COMMENTARY: In a blog post dated July 10, 2011, I wrote about the root causes behind America's high unemployment rate and why I thought this situation was no going to be changing anytime soon. I do not use the term, "disposable worker", in my blog post, but draw the same conclusions mentioned in the above article and dwelve deeply into the forces behind the current jobless recovery. Here's that post:
In a blog article dated July 22, 2011, I wrote about what Apple could do with its huge $76 billion cash hoard. I also pointed out that hoarding cash is not an Apple phenomena, but is common practice in both financial and non-financial industries. Here are a few highlights of that post:
- In October 31, 2010, US non-financial corporations had accumulated nearly a trillion in cash since cash bottomed at $400 billion during the financial meltdown of September 2008.
- In March 31, 2011 the 376 nonfinancial S&P 500 companies, or about 91% of the nonfinancial companies in the S&P 500, aggregate cash and short-term investment balances total $1.023 trillion.
- Three sectors--information technology, health care, and industrials--account for 67.3% of nonfinancial S&P 500 cash totals, compared with 67.2% in the final quarter of 2010.
- According to government data, American multinational corporations have kept abroad more than $1 trillion worth of foreign earnings accumulated over the last five years. Microsoft, Google and Apple have offshore $29 billion, $17 billion and $12 billion respectively.
- According to Federal Reserve data, companies in the United States have $2 trillion stashed in bank accounts, Treasury securities and other investment-ready assets. And this excludes cash held abroad by their foreign subsidiaries to avoid taxes.
- According to the Federal Reserve, at the end of April 2011, U.S. financial institutions held over $1.6 trillion in cash in excess of their reserve requirements.
The hoarding of cash doesn't stop with corporations. Many wealthy American's are also hoarding cash, not in US banks, but foreign banks. In a blog article dated July 20, 2011, I wrote about the practice of American citizens maintaining illegal bank accounts in several major Swiss banks in order to avoid paying income taxes on the earnings from their foreign investments. According to the IRS, the practice of maintaining illegal offshore bank accounts by hundreds of thousands of Americans has cost the U.S. government an estimated $300 billion in lost tax revenues.
Courtesy of an article dated July 27, 2011 appearing in The Wall Street Journal
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