Six to One

I see it every day… friends, even family. Skilled people, elusive job market, lower pay where jobs do exist. The Department of Labor began measuring the ratio of job openings to those seeking employment in 2000. Clearly, the current statistic in the title above, six job seekers for every opening, is the worse in that survey’s short history, but it seems to be a more valuable way of look at unemployment than the national 9.7% official unemployment rate, the 16.8% “alternative measurement” (adding in those who want jobs but either can only find part-time or occasional work or simply have given up looking).

Another sign of the times? Social Security has seen a 23% increase in retirement claims than the year before (disability claims are up 20%), and for the first time since the 1980s, claims exceed the taxes paid to fund them. AOL Money (September 27^th): “‘A lot of people who in better times would have continued working are opting to retire,’ said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. ‘If they were younger, we would call them unemployed.’” Those folks know their jobs aren’t coming back.

The bad economy literally shorted every teetering business plan, accelerated the demise of businesses that really were on the edge and crushed the retailers who sold those products and services, taking their landlords with them. That kind of erosion is a permanent job killer… one that takes out jobs that were marginal or unsustainable or dying in technology paradigm shifts. The problem is that this explosion of joblessness all hit at once because of the economic collapse, which in turn has not given the system time to create new directions to absorb the excess labor. Had these businesses failed over time, the market would have taken those blows in stride, but with the suddenness of it all, it seems highly probable that replacing these lost jobs is going to take years.

For those just graduating, the news really couldn’t get much worse. With no real experience, what jobs are being made available at an entry level are paying less than ever. And with a smaller starting base – for those lucky enough to find employment – the lifetime earnings are likely to carry that initial impairment until such people retire; they will make less even if they get the same percentage raises as those with more experience simply because they started lower.

The Department of Labor reports that there are 2.4 million job openings… and that there are 14.5 million people looking to fill them. The law of supply and demand should tell you all you need to know about their expected pay level. What’s worse, with mandatory furloughs and reduced working hours, many workers can take up a lot of slack when consumer demand returns without a single additional hire. That excess capacity that exists even with employed people, now working an average 33 hour work week, needs to be absorbed before new workers are truly needed.

The September 26^th New York Times: “During the last recession, in 2001, the number of jobless people reached little more than double the number of full-time job openings, according to the Labor Department data. By the beginning of this year, job seekers outnumbered jobs four-to-one, with the ratio growing ever more lopsided in recent months… Though layoffs have been both severe and prominent, the greatest source of distress is a predilection against hiring by many American businesses. From the beginning of the recession in December 2007 through July of this year, job openings declined 45 percent in the West and the South, 36 percent in the Midwest and 23 percent in the Northeast.”

“Shrinking job opportunities have assailed virtually every industry this year. Since the end of 2008, job openings have diminished 47 percent in manufacturing, 37 percent in construction and 22 percent in retail. Even in education and health services — faster-growing areas in which many unemployed people have trained for new careers — job openings have dropped 21 percent this year. Despite the passage of a stimulus spending package aimed at shoring up state and local coffers, government job openings have diminished 17 percent this year.”

The ripple effect will be seen for years. Fewer and lower paychecks will hold down consumer spending and real estate prices. Governments will have a reduced tax base for years to come, and the desire to make up the difference with higher taxes will only amplify contractions in both spending and job creation. This massive “reset” will be with us for a very long time… for most adults in the job market, it is a time they will never forget.

I’m Peter Dekom, and I approve this message.