Sunday, May 6, 2012

The noneconomist's view of labor markets

Friday’s Bureau of Labor Statistics (BLS) was met with tepid response due to the relative small number of private sector jobs and the further decline of the participation rate (ratio of civilian labor force to total civilian noninstitutional population).  Judging employment or any data on a month by month basis can be dangerous and misleading, just like watching stock market results day to day, what’s more important is following trending data over the longer period.  Therefore, I have copied the famous Bikini Graph, popularized by MSNBC’s Rachel Maddow, below to see the trend over the last four years.  Clearly the trend is in the right direction, but we could all agree that the job growth rate is too slow.

When looking over the last four years, almost every sector has fewer workers today versus April 2008. There are 4.8million fewer Americans working today compared to 4 years ago where the drops and gains have been in:

·         1.7million fewer in construction

·         1.6million fewer in manufacturing

·         1.3million fewer in trade, transportation, and utilities

·         .5million fewer in financial activities

·         .4million fewer in information

·         .2million fewer in professional and business services

·         .1million fewer in leisure and hospitality

·         .4million fewer in government

·         1.5million gain in education and health services

·         .1million gain in mining

Sadly, over the last year we have not made the necessary dent in manufacturing, construction, and trade. 

So how can we expedite the recovery?  Well if I knew that I would be teaching Economics at Harvard, working for the government, or a Nobel Peace Prize winner.  Nonetheless, I will give it a shot.  Here is my 10 point plan:

1)      Take advantage of low borrowing costs and put the unemployed construction workers to work on the plethora of public works projects required to rebuild the nation’s infrastructure.

2)      Do not try to retain manufacturing jobs for the sake of manufacturing jobs.  Instead, establish public-private partnership with community colleges to retrain workers for higher technical-content jobs.  Deloitte estimates 600,000 of these types of jobs went unfilled by Americans.

3)      Reinvigorate the vocational primary school system with a focus on technology. 

4)      Government, Banks, the Fed, and the GSE’s must implement a principal reduction plan for underwater mortgages that keep people in their homes, reduce payments, and allow refinancing.

5)      Increase energy exploration, pipeline, and drilling efforts.  This bright spot in the labor market can offer more economic gain PROVIDED we do so safely. 

6)      Increasing our domestic production of petroleum products from shale-based reserves will reduce the current account deficit as we export more.  The reduction in the current account deficit will increase GDP by keeping more cash here.  As energy costs decrease, domestic manufacturing becomes more economically attractive.  Increase job demands.

7)      Allow for repatriation of foreign earned income at a reduced tax rate provided said companies invest in domestic development and worker wages and benefits.

8)      Be patient and avoid the American obsession with instant gratification.

9)      Initiate more trade agreements with developing nations requiring the products and services in which Americans are leaders: heavy equipment, industrial technology, etc.

10)   Implement corporate tax reform in such a way that multinational services firms will find America attractive to invest and hire.  We have the world’s most advanced services sector, let’s take advantage of it.  However, we must increase revenues from current companies that are paying zero or single digit effective tax rates through the same reform.

The above list contains short, mid, and long term actions because the turnaround won’t overnight.  Remember joblessness is the by-product of an economic upheaval, not the cause.  That being said, in the short term get people to work even if it requires additional deficit spending.  Ultimately growth will be the best cure for federal indebtedness. 

Americans have the will; do our politicians?

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