Will There Be Another "Jobless Recovery"?

Lunch conversation with some of my work mates last week was on the issue of hiring.

People were hoping that with an uptick in holiday spending more people would be hired to help out with the work. Folks are tired from working long hours through the summer and into the peak Christmas season. Even part time workers have been pressured into cranking up their hours. Yes, it's good for paying the bills, but hard on the families--particularly parents that do not have much flexibility with childcare arrangements.

My friends were hoping that the company would hire some of the temps brought on for the seasonal rush as permanent full time employees.

My guess is that they will not.

Why do I think that? History.

The bounce back from recession of the early '00's has been called "the jobless recovery". Economic activity increased but hiring did not.

The company that we work for is a good reflection of what goes on in the country at large.

During the recession of the '00's sales remained flat. To increase profits the company decided to increase market share--to go out and grab business from their competition.

Before this time labor costs--the wages and benefits that workers receive--had made up more than half of the company's annual budget. The company decided to bring labor cost down and shift their budget toward marketing and advertising.

They made this shift by laying off employees, increasing production quotas and decreasing benefits for those who remained.

After the layoffs the budget for advertising and marketing was well over 50% and labor costs were well below 50% of the budget.

Accrual of vacation and sick pay was reduced. Employees picked up larger percentages of health insurance costs.

The government reported in the next year that US productivity increased but that families were working longer hours to maintain the same standard of living which they had previously enjoyed.
That was no surprise to me. That was what I and my fellow employees were doing.

This trend has continued through the current period. All of this is consistent with "supply side" economics as advanced by the Regan administration in the 1980's.

The widespread corporate strategy of laying off workers of course did nothing to stimulate the economy. Though some of our competitors went out of business, company sales remained flat.

As the economy increased a little in the middle of the decade economists began to worry about "the jobless recovery". They knew that a strong recovery could not happen without either an increase in wages or an increase in employment and neither was happening.

This still remains a concern of most economic analysts.

Will the recent increase in sales and profit cause our company--and others--to hire new employees?

Most stockholders are looking for larger profits and more return on their investments to make up for their losses in the Great Recession of 2008-9. There is still great fear about the future of the economy.

Companies will be much slower I think to hire.

What incentive to they have to hire? With unemployment high labor costs are low--they have a pool of people desperate to work under any conditions.

I think companies are going to play it conservatively--still shifting their attention toward increasing market share, being competitive, rewarding stockholders and reducing labor costs.

Yes, hiring would stimulate demand and lift the economy but what corporate leader is going to go down that road? Our current version of capitalism encourages the short-term gain over the overall good.

In fact a report today reveals that US companies have created more jobs overseas than they have domestically. Labor is cheaper there and with the infusion of new cash flowing into foreign investments the rate of growth of those economies exceed that in the US.

This does not bode well for the worker or for the economy. The gap between the wealthy and the working class will continue to grow until we whose labor generates those profits organize and demand a greater share of the wealth which we create.

Will there be another "jobless recovery"? I do not think such a thing is possible.

What's in Your Wallet?

U.S. corporations earned profits at the highest annual rate ever in the third quarter of this year.

Wow!

This is kind of making supply side economics look bad, don't you think? Where is the trickle down?

Well, Bill Gates and Warren Buffet are urging their fellow billionaires to give $600 billion dollars, or half their wealth away to charity. There's some trickle down. See, The Giving Pledge http://www.givingpledge.org

But wait? Isn't that 600 billion pretty close to the 700 billion that the top 2% of the US wealthy will get with the extended tax cuts? Hmmn. Even with all of that generosity there's a 100 billion net gain still going from the bottom to the top of the economic spectrum, by my reckoning.

Why not just tax the earnings of these folks?

I know, its just my opinion, but I think those earnings are a bit excessive. Let's just say that is not the way I was raised.

My co-workers and I have worked hard, built the reputation of many a company by the quality of our work and the most we ever got was $15.00 an hour.

Or the billionaires could back a living wage for their employees and those of their vendors and associates?

It would be interesting to know how many of the companies that experienced increased profits got those profits by cutting their work force this year, sending them onto unemployment and leaving the rest of their employees to work harder.

And how do you feel about receiving charity? Would you rather have a raise? Job security?

Or how about universal health insurance? It is said that 70% of Americans are for it.

Or perhaps they could dump their billions into our pension funds that have been shrunk by collapsing stock prices that came about through deregulation of securities. It would be nice to know in retirement that your pension was secure. Well, hell, most of us don't even have pensions any more. And, boy, did those 401k's take a hit in the last couple of years.

Sure it's great to put money into homeless shelters but how about a nationwide freeze on job layoffs? That would take care of a lot of homelessness. It would also add tax dollars to fight the deficit. 600 billion could go a long way to making that happen. All we are saying is that we want to keep working. Paying taxes is fun compared to unemployment. Let us, please.

The idea of 600 billion in my wallet just got my mind racing. Let me get back to what I started with--I will ask your opinion of charity in a future post.

I will let columnist Bob Herbert have the last word on the current economic situation:

"Recessions are for the little people, not for the corporate chiefs and the titans of Wall Street who are at the heart of the American aristocracy. They have waged economic warfare against everybody else and are winning big time.

The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter — the highest total since the government began keeping track more than six decades ago."

What Would You Do with $700 Billion?

The Republican Party bludgeoned President Obama with the national debt figures and managed to scare the hell out of enough people to take back the Congress of the United States.

But was that just a political ploy? 'Cause now they want to add 700 billion to the debt in tax savings for the wealthiest two per cent of Americans. Hmmn.

A friend sent me this link to Vermont Senator Bernie Sanders' reaction to the new deal being forced on President Obama in a trade for extensions of benefits to unemployed workers.

Even the first three minutes of this video will highlight the crux of the issue.

http://sanders.senate.gov/newsroom/media/view/?id=b2332112-a527-4986-8d56-3f02723f4c5f

Not Just Me

As a follow up to my last post: I read in the paper today that the nonpartisan Congressional Budget Office (US) says, regarding the extension of tax cuts for the weathly, "increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers."

They go on to say that demand is the principal driver of those decisions.

Basic blue collar economics. A factory worker can tell you that.

But if you need to hear it from the "neckties", there you have it.

US Unemployment Rises

An announcement today that US unemployment is up .2%. Republicans are going to hold up extensions of unemployment benefits until Democrats agree to give tax breaks to the most wealthy Americans.

Ending unemployment payments is not going to create the demand that the economy needs to get moving. It will only deepen the crisis.

This is basic blue collar economics.

The only news that the people at the top seem to be paying attention to is the stock market. It has gone up in the last week. And those who earn their income from stocks would really like a tax break. Perhaps they have some sense that todays' market value of their stocks is not exactly money in the bank.

Snap quiz for students of blue collar economics: Which is the most important driver for the economy, the price of a share of stock or the amount of money in the wallet of the average American?

Take your best guess.

Extend the Bush Tax Breaks for the Wealthy?

"Supply Side Economics" came along with Ronald Reagan. The idea was that if we take care of the wealthy they will take care of us.

Supposedly if we lowered their taxes they would invest their extra money and that would provide jobs for the rest of us. "A rising tide raises all boats." was the saying.

What actually happened was that--little known fact--the Reagan tax cuts ran up the largest deficit since the debt that funded World War Two. Social programs for working class families and poor were cut, unemployment began to be taxed and workers began to be taxed more and more for the cost of Social Security. Social Security retirement age was increased.

The first big layoffs of my career happened with the stock market crash at the end of the Reagan era.

And since Reagan took office families are working more hours to maintain the same levels of income they once enjoyed and the gap between the richest and poorest in the nation has widened considerably. Rates of indebtedness have increased and savings decreased for the average US family.

It was called trickle-down economics but so far the movement in wealth has been the other way-- from those that produce the wealth on the front lines of industry to those who control it at the top. Executive wages have increased and bonuses gone through the roof while average families work harder to make ends meet.

The tax burden falls more and more on working and middle class families as the wealthy get tax breaks and shelters for investment income.

Extending tax cuts for the rich will not provide more jobs.

Why? Because the problem is demand. There is none. The working and middle class do not have the cash to create demand. There is no demand for goods and services and there won't be until the average family has money in its pocket.

Companies will not hire workers when there is no demand. They are not going to hire people just to be good guys. That is not what capitalists do.

They want to get the price of their stock high and that is what they will do. They will try to grab market share, increase advertising, pay off debt, but they will not be creating jobs until the working and middle class have money to spend.

Cutting taxes for the rich will mean cutting government which will mean laying off workers which will mean less income tax revenue for governments which will lead to more layoffs which will necessitate more government cuts and less tax revenue again--a downward spiral.

All of the government layoffs will mean less demand for products and services because unemployed people do not have money to spend.

Cutting off unemployment insurance will have the same effect. No money in your pocket, no spending it--less demand for goods and services.

A downward spiral.

The supply siders said, "A rising tide raises all boats." The reality was that "a rising tide raises all yachts." Wages are the engine of the economy and this is not where the money was going.

Or as they say in the factory about the "trickle down", "I have been trickled on enough, thank you."

The economy will not rebound until the flow of wealth from those that produce to those who hoard it is reversed. The money needs to flow back into the hands of the people who create it--the working class--the frontline workers of our economic system. We are not expendable, to be ignored. We are the people who support the economy and make it strong, not those at the top.