The August national job report came in today and to say the reports are dismal is an understatement. The preliminary number is at approximately 17,000 jobs. That amounts to 350 per state. While much of the media is neglecting to report on how the numbers are a touch skewed by the Verizon strikes that involved somewhere in the vicinity of 40,000 employees (which was just resolved), it is not as though the revised numbers are bound to be impressive. And people are calling on the Fed and the President to act on it.
The only problem is that there is little the government can do.
Based on all current conditions we should be seeing an uptick in job creation. Even with the tumultuous stock market since the buildup to the debt ceiling increase, stocks have recovered much of the loss endured in 2008 and 2009 with the Dow Jones sitting close to where it was at the start of 2007, which had a rapid ramp up before busting 18 months later. The Fed has kept interest rates and nearly nothing, priming the business sector to invest and expand businesses. Congress has been reluctant to end subsidies for key industries despite the rising debt in fear that it would harm the economy. Private organizations saw record bailouts in 2008 and the states have received money to stimulate local economies. As we all know, corporate tax code is written in such a manner that highly profitable industries and companies pay a pittance of the stated rates. The health care bill has not gone into effect yet save a handful of provisions that are a minuscule impact on the industry. Company profits are up by and large and the private sector is said to be sitting on the largest quantity of cash at hand than any time memorable. Despite the attempts to create favorable conditions for job growth, the private sector has been exceptionally stingy on the matter.
It's easy to try to use President Obama as a scapegoat for such matters even if his impact on economic matters, particularly concerning the private sector, is low. Contrary to what many may believe, the Fed and Congress are most involved in economic policies and can really only attempt to create policies that encourage business production. If companies take those propitious conditions and still refuse to hire, there is little government can do to further entice them. Nor can the government force the banks to loan their money for start-up enterprises. It's a classic case of leading the horse to the trough.
The economic problems lie in the private sector and their continued emphasis on cost saving policies such as outsourcing and wage reductions/hiring at lower income levels (in the economic report, the average American wage slipped $.03 nationally in the month of August) to raise profits at the expense of the American middle class. It is understandable to see cost savings in times of hardship to preserve a greater number of jobs, but for many companies the idea has evolved to squeeze more work out of fewer workers at a lower pay so that the shareholders and top officials see increasing quarterly profits with each quarter. I am going to give one such example that I can express from a personal level to emphasize how irrational corporate cost savings have become:
I have a boyfriend who works for HP.... yes, the computer giant, through HP's acquisition of Ross Perot's company, EDS. In 2008 he saw a significant wage reduction despite making less than 25,000 a year (after 5 years) as a cost saving measure for a company that continued to post well north of 1 billion of profit per quarter. To contrast: the CEO had a compensation package that was over 33 million for fiscal year 2008. It took over 2 years and the ouster of CEO Mike Hurd for the reinstatement of most of the workers' previous wages. However, they have eliminated cost of living increases and moved toward strict 'merit' based increases. While he was one of the handful to merit a wage, most workers in his unit have not seen their wages move from 2007 levels. On an amusing note though, he was one of the few to receive a raise in his recent review when he admits that he was much less willing to go above and beyond on the job than he was prior to the wage decrease. While I never asked him, I have continued to question just how much productivity was reduced amongst his co-workers as a result of those two years. I doubt that their work confidence is returning any time soon.
This is becoming a large problem for many Americans as their wages have stagnated or the jobs they are finding on the market are largely low in compensation as there are many expenses that have increased in the past 4 years. Oil and gasoline remains volatile and rising with every concern on the commodities market. In a market that is turning back toward renting, the demand has raised the cost in many regions for units. Health care costs continue to increase in the vicinity of 10% annually with a greater portion of those costs being placed on workers. None of these things are counted when measuring inflation, meaning that even those who see those elusive cost of living increases are feeling poorer than ever. You can't eat electronics after all.
This is particularly sad given the fact that the American public have never failed to be good consumers of goods. When other countries have had concerns about the populaces saving too much and troublesome to lure out into a consumer economy, we have always been counted on to use our disposable income to the benefit of various businesses and producers. The growth of American wages through much of the 20th century, particularly from the 1950s-1970s, made us prosperous as we used our affluence to not only consume goods and services but to take our wages and invest in our own businesses and further expand the economy. At some point the tide changed and we decided that the average worker was no longer a significant player in the economy and the emphasis turned toward those already at the top of the ladder. We ended up investing in cheaper services and effectively bet against the American people.
Even more troubling is that there will become a point in which labor costs cannot be cut any further and the poor outlook of the worker, which doubles as most of the consumer market, will cause a rapid decrease in profitability that will not be easily rectified. By the time the wages have been cut and the jobs outsourced to India there will be no market left to make use of the services these companies offer. This kind of change can happen rapidly and the loss of the American market would have a devastating effect on the world market as a replacement would be needed for those corporations to continue conducting business. The development of the Indian and Chinese markets, the most likely candidates, are still uneven and the consumer classes in those countries still a small portion of their populations compared to developed countries. Cost cutting by corporations, if not held in check will eventually result in not just the shrinkage of the middle class, but jeopardize their own long term profitability by destroying their own market with 10 and 11 dollar an hour wages. Americans are currently seeing less of their paycheck and forced to re-balance a household budget to fit their dwindling purchasing power.
What needs to happen at this point is for companies to release the trillions of dollars they hold in reserves and to use it to expand the economy. This means not only job creation but readjustment in wages and compensation. The CEOs need to take some sensible risks and develop areas of their companies that have been neglected since the market crash and be willing to bet on better work conditions yielding higher profits. America needs to bet on the middle class and lure them out of their terrified state. Remember: it has never been the consumer who has failed this country. Business has always been a risk and companies have for too long sheltered themselves from any of them. In the long run we would likely see a stronger economic rebound as well as a stabilization of the stock market that has most of these people so spooked as of late.
Sure I don't make hundreds of thousands of dollars as a stockbroker, but sometimes being an outside observer has its benefits.
In the meantime, we need to stop looking to the government for answers on the private sector economic crisis. The interest rates can go no lower and we cannot afford further tax cuts that will, based on previous actions, have a major long term benefit. Sure the government could regulate, probably an action that ought to happen in some sectors, but would then open the perpetual debate of how much the government should intervene. We can't have it both ways by asking the government to make jobs when the private sector is hellbent on self-destructive behaviors. It is time to stop the misguided anger and start asking business why they have lost their faith in us.
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