We are living through a breakdown of the great American jobs machine. This is not a recovery. Annual GDP growth in 2010 and 2011 averaged a mere 2.4 percent; in 2012, GDP growth slowed to 1.8 percent. In other words, cumulative growth for the last 11 quarters was just 6.8 percent, less than half the 15.2 percent average growth in GDP after previous recessions over a similar period of time. This is the slowest growth rate following all 11 post-World War II recessions. We need to create between 1.8 million and 3 million new jobs every year just to absorb the labor force's new entrants, at a time when technology and globalization are wiping out many middle-class jobs in manufacturing and transportation. It is unacceptable that at the current rate of job creation (151,000 per month) and working age population growth (up by 120,000 per month) it would take us until 2024 to re-attain the old employment peak, according to David Rosenberg of the wealth management firm Gluskin Sheff.
The issue is not just job quantity but job quality. Whatever job openings we have are mostly low-wage jobs that haven't been exposed to global competition. More than 40 percent are in low-paying categories such as leisure, hospitality, bars, and restaurants. The dramatic shift to a part-time, low-wage workforce reflects the fact that many companies feel it is too risky to take on people full time.
One study by scholars at the Center for Economic and Policy Research and the American Enterprise Institute showed that a worker between the ages of 50 and 61 who has been unemployed for over a year has only a 9 percent chance of finding a job in the next three months. The odds fall to 6 percent if the worker is 62 years or older. Young workers are experiencing a double whammy: The weak economy has made them realize they can't afford to start a family. The result is that the birth rate has just hit a 25-year low of 1.87 births per woman.
Millions of families are one layoff or one medical emergency away from bankruptcy. The future of the unemployed is dubious; many have seen their skills atrophy, thus shrinking their earning power for the rest of their lives. When economic activity picks up, employers will undoubtedly first choose to increase hours for existing workers.
According to Rosenberg, only 41 percent of people polled in the University of Michigan's Consumer Confidence Survey believe the economy has improved from a year ago and a mere 28 percent think things are going to get better in the next 12 months. Only 11 percent think Washington is doing a good job, while 47 percent say policymakers are doing a poor job.
What is worrisome, Rosenberg points out, is that the expectations about the economy are down 16 points in three months. This kind of drop took place before all nine recessions of the past 50 years, and produced six more economic downturns. No recession since the end of World War II has been as deep or as long as this one, severely testing the optimism, confidence, and animal spirits that typify the temper of America. The question of the hour is how can we find a way to avoid becoming a low-wage, part-time country.
Here's the draft of a solution: