Sunday, April 14, 2013

Jobs, Income, and How We Can All Win

A great deal of data can be mined from the frequent reports issued by the Bureau of Labor Statistics (BLS).  In every report there is usually a mixture of good and bad news, but the key is looking at data in different reports, analyze the results, and offer a conclusion.  Now I am not an economist, but the media’s fixation of solely the job creation numbers and the unemployment rate is lazy ‘journalism’. I am not expecting Brian Williams to suddenly become Paul Krugman, but I do expect data, analysis, and hypothesis from someone in the media.

Let’s start with the business side.  One of the most common talking points you will hear is that companies are not investing because the economy is sluggish.  Perhaps the opposite is true.  Richard Katz in the Oriental Economist says Businesses do not invest because the economy is weak; the economy stays weak because businesses do not invest.  The fact that $1.7TRILLION is sitting on the balance sheets of U.S. corporations tells you that there is no appetite for investment or hiring.  Yet according to the January report from the BLS that there are 3.7million unfilled jobs in America and you have to wonder if these jobs are really available.  While I am sure many openings go unfilled due to a lack of unqualified candidates, something is still amiss.

The BLS has also performed additional analysis of where the job growth is coming and it is telling.  The annual BLS Occupational Employment and Wages report was released on March 29th and here are some salient points:

·         Office and administrative support is the largest of the 22 major occupational groups equating to 16% of total U.S. employment, followed by sales and food preparation.

·         7 of the 10 largest private sector occupational groups had annual mean wages below $30,000.

·         5 of the 6 largest public sector occupational groups were education related

·         Correctional officers and jailers is the largest occupation in state government

·         Healthcare and social assistance industry is the largest industry, followed by retail trade.

·         Not surprising, highest annual mean wages were found in finance-related occupations ($98.670) followed by oil/gas extraction and software publishing

·         Equally not surprising, restaurants and food service sector had the lowest mean wage at $21,250

Summarizing the above, we are clearly a service economy where most of the jobs are relatively low paying.  When you combine this with incentive-laden executive compensation, it is easy to see how income disparity has grown.  Stock-based variable compensation has increased the earnings on the top end as the Wall Street recovery has outpaced the Main Street recovery.   This is seen by a recent analysis by David Cay Johnston which noted that the average income for the bottom 90% grew by an average of $59 between 1966-2011 versus $116,071 for the top 10%. 

As for job growth, the headwinds are severe.  As retail sales increase, retail employment lags behind mostly due to the advent of e-commerce.  The likes of Amazon hire ½ as many workers as traditional brick and mortar businesses.  Automation continues to replace workers in office, manufacturing, and clerical occupations.  ATM’s replace bank tellers, robots replace human assemblers, and Management Information Systems’ solutions replace office staff and clerical positions.  And while the increase demand for nurses is good for median wages, many of the healthcare jobs gains have been in the significantly lower occupations.

Which brings us to the Minimum Wage increase debate.  Conservatives are convinced their argument that increasing minimum wages will cost jobs are making several misassumptions.  Firstly, for the immobile occupations where are the jobs going to go?  You cannot outsource a hospital orderly, dishwasher, or any other function needs to be served locally.  Will businesses close?  Absolutely not because labor costs are not always significant drivers in costs of goods (or services) and otherwise, business owners may pass on the prices to customers.  But most importantly, if more people have extra disposable income they will spend it and a growth cycle can ensue.

I am not arguing for socialism here.  I do not believe it is the role of government to set compensation limits for executives, that’s why there are Boards of Directors and shareholders.  Like Lincoln, I do not believe that “you cannot help the wage earner by pulling down the wage-payer”.  Raising the minimum wage helps both sides as more disposable income means more commerce.

We need to fill these higher paying jobs with increased worker skills.  The technicians who can operate complex equipment, program robots, repair automation systems, write computer code, and install machinery are in short supply.  We can also increase the raw number of jobs by reversing the post 9/11 trend of limiting the number of “H-1B” visas.  As reported in The Economist 40% of the Fortune 500 firms were founded by immigrants or their children according to the Partnership for a New American Economy.  These firms are often high tech firms and it is not just in Silicon Valley, 45% of New Jersey’s high tech companies were founded by immigrants, 42% in Massachusetts.  These immigrants are JOB CREATORS, and we close the door to them and our economy suffers.

A service economy does not have to be an income inequality economy, and our future doesn’t need to be a few haves and millions of have nots.  Fix the tax code, invest in education, reform immigration and all ships will be lifted in the rising tide.

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