What’s the Future for Jobs?

There are a number of trends in the labour market that do not bode well for a prosperous future for North America and its citizens. We began to collect these from various sources to create a larger picture. Then came Chairman Bernanke’s Jackson Hole speech followed by the September FOMC meeting. Both had a focus on restoring employment and introduced QE3 which will continue until the unemployment rate is down, probably under 6%. The Fed’s premise is that unemployment is cyclical and their QE or LSAP policies are benefiting the economy.

We believe that the Fed’s premises are we wrong and were recently encouraged to advance this topic in the essay: Signs of a Structural Change in the US Economy. The latter followed in turn from other recent posts including our commentaries on the Jackson Hole speech and recent Fed policy announced in the September FOMC meeting. Altogether, we will show that the unemployment situation is structural and the Fed’s policy of QE will fail to restore employment to expected levels.

In this essay Click on any image to open in a new window to enlarge it. Our own research is courtesy of FRED® from the St. Louis Fed.

Trends in Employment

We begin with a brief look at how employment numbers are faring. The blue line in Figure 1 shows the percentage ratio of non-farm employees to the population (left-hand scale). It is back to 1988 levels but beginning to recover. It seems reasonable to hypothesize that there is a maximum level to this ratio that would involve considerations such as productivity. As we approach this hypothetical maximum, recoveries from pullbacks would be slower.

Figure 1. Year-over-year change in employment (red line) and its ratio to the population (blue line).

The red line above, shows the yoy percentage change in total employment (non-farm). The striking feature which we have commented on elsewhere (The Hole in Jackson Hole), is that the rate of recovery from recessions (grey vertical bands) is limited by a downtrend line that extends back before WWII. In short, employment never fully recovers to earlier levels.

The graph of the employees to population ratio (blue line) is even more revealing. Since the recessions of the early 1980s, the number of employees per capita that have participated in subsequent recoveries (troughs and peaks shown by light blue horizontal lines) and denoted by the vertical black lines, have shown a decreasing magnitude. The true significance of this must also take into account the duration of the recovery. This is in fact the slope of the green line drawn for each recovery and represents the rate of recovery. The rate of recovery has been steadily decreasing since the 1970s.

This is structural change!

Permanent Full-time Versus Temporary and Part-time Jobs

Since about 2000, there has been a trend towards increasing part-time employment, both in absolute numbers (blue line in Figure 2) and percentage of the those employed (red line).

Figure 2. Part-time employment (blue line) and its percentage of total employment (red line).

Zero Hedge gives us a closer look at the relationship between full and part-time jobs. We see in Figure 3 that part-time jobs (red line) have replaced a number of full-time jobs (black line) in the total employment picture.

Figure 3. The relationship between part-time and full-time employment.

Apart from giving employers more labour market flexibility, part-time jobs generally do not require the employer to pay benefits (see a new trend: Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers’ Hours; Are Other Companies Doing the same? Tip Sharing Lowers Minimum Wage; Like One, Like All?), significantly lowering the cost of labour inputs into production. They also allow employers to assess prospective full-time hires both in terms of suitability and future needs based on the direction of the economy. (For a lengthy discussion see Dear Person Seeking a Job: Why I Can’t Hire You).

On the topic of temporary jobs, David Rosenberg, quoted in Zero Hedge (“The Use Of Temps Is Outpacing Outright New Hirings By A 10-To-1 Ratio”) states:

the use of temps is outpacing outright new hirings by a 10-to-1 ratio. The reality is that few businesses want to commit and this shows through in the Household Survey as well with part-time employment in an uptrend and full-time in a downtrend. Moreover, according to a Manpower survey, 30% of temporary staffing this year has led to permanent jobs, down from 45% in 2011.

Returning to Figure 2, we note that absolute levels since the recessions of the 1980s have tended to peak after the end of the recession and fall from that point. It is too early to tell whether levels will fall from the last post-recession high or remain elevated. Certainly they remain elevated for longer than the previous recoveries. However, the part-time percentage of the workforce is no worse than for most recessions going back to 1958.

We conclude therefore that although the trend in part-time employment has been upwards, there is no indication that it is worrisome. Only if it fails to decline should we become concerned. As for a trend to temporary jobs, we note the situation but lack the data to study it.

The Rise in the Number of Individuals Receiving Disability Benefits

Since mid 2010, the number of people receiving disability benefits (blue line, left scale in Figure 4) has been steadily rising. However the percentage of people on disability relative to the number of people employed has been steadily rising from 2008 and the start of the data, to 21% today.

Figure 4. The number of people receiving disability benefits (blue line) and as a percentage of the total employment (red line).

The period covered by the data is rather short (only one recession) to base assessments on but there is a clear trend towards higher numbers in the data available.

This trend is gaining increased attention. The Republican side of the Senate Budget Committee has produced an article with the chart in Figure 5.

Figure 5. Recent trend in disability claims.

They also included the chart in Figure 6 relating the change in the workforce to the change in the numbers on disability.

Figure 6. Change in workforce and disability numbers since 2008.

From the height of the financial crisis in 2008, there has been a massive shift from the available workforce to a workforce on disability. CNS News examined this trend in an article titled 8,753,935: Workers on Disability Set Another Record in July; Exceed Population of 39 States.

Mike Shedlock discusses the likelihood of fraud contributing to the rise in claimants (see 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate; Will Higher Disability Taxes Fix the Problem?).

The Services Sector

We did an overview of the service sector in Canada in The Service Sector in Canada. Our conclusions were:

The Canadian economy is fast converting to a service-based economy. At the same time, as Stanford notes: On the whole, then, lousy services jobs are being created much faster than better services jobs, and the overall quality of that work is deteriorating. In addition, Canada’s trade in services is deteriorating creating a negative impact on Canada’s balance of payments. This motivates another study, an analysis of the structure of the service sector in Canada, to see where the loss in value is coming from (our bet is the increasing size of the civil service  in Canada).

For the American economy, MarketWatch noted a similar decline in US job quality in their article: U.S. job quality is in trouble. The trends they see are not good:

However, longer-term trends point to a tough future, as employers want to maintain high productivity, and there’s pressure from technology [see the section on technology below] and international markets.

And Zero Hedge reported a similar trend towards a low wage bias through the service sector as shown in Figure 7.

Figure 7. Data showing a low wage bias to job creation in major service sectors since 2008.

They note in Goods Are Good, Services Stink: Chart Of The Day, that

The service sector shrank as a share of the economy over the past two years. That said, this was only a slight reversal from the multidecade trend away from goods toward services, which has left services as 70% of the economy.

The Impact of Robotics and Technology

The following video (14:08 minutes) describes the impact of technology on the job market much more eloquently and comprehensively than we can.

The main point is that technology is replacing workers not only in manufacturing, agriculture and resource extraction industries but in service and knowledge-based industries as well. The trend is accelerating, will continue, and will penetrate deeper into all these areas as the replacement technologies become smarter, more dextrous, more flexible and more general.

Mike Shedlock has written a number of essays reporting and commenting on news about robots and their impact on jobs.

Summary

We note a trend towards more part-time and temporary jobs. We note a trend to jobs of lower quality. We note a trend to lower levels of employment in the population. Our concern is for the social fabric of the nation. We expect an increasing number of citizens dependent on social assistance of various types some of which we documented in Signs of a Structural Change in the US Economy. This suggest increasing polarization between the “haves” and the “have nots”. Attendant on this is larger government and more money required for social support. This situation exists in various forms and degrees across much of the developed world. We are not optimistic of any good outcome.

A section in which we compiled a list of links to robotics and the labour market has been moved to a separate post: Robotics In the Labour Market.

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