The Wall Street Journal is arguing in its Monday print edition that the US job market is–at least in the sense that the US may be facing the type of chronic high unemployment that has bedeviled Europe for decades.
In an earlier online version of the same article, the WSJ pointed out that, despite an unemployment rate approaching double digits, there’s actually a shortage of workers in some specialties in the US. Wages in these areas are rising significantly, meaning employers can only fill these positions by poaching from rivals, not from dipping into the sea of unemployed. It also gave machinery-related examples–but it’s now lost in cyberspace.
The JOLT (Job Openings and Labor Turnover Survey) complied by the Bureau of Labor Statistics points out the same phenomenon. As of the latest JOLT reading (September 2011), there are 3.4 million unfilled job openings in the domestic labor market. That figure has risen pretty steadily since July 2009, when there were 2.1 million such openings.
Also, the head of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, made a much-publicized speech on this topic in August 2010 (see my post), in which he said that the Fed doesn’t have the means to change construction workers into manufacturing workers. Retraining does this, not easy money policy.
Of course, the roots of European unemployment have been mostly caused by very rigid labor laws that make it very time-consuming and expensive to fire a worker, once hired. In the US, in contrast, (the smaller) part of the issue is that scared Baby Boomers have stopped retiring at normal rates, and are thus not freeing up jobs for younger workers. In addition, globalization has moved unskilled labor jobs to emerging markets. This has been going on for a long time, but adjustment in the US was put on hold during the housing bubble that lasted half a decade. So the US labor force has a lot of catching up to do. That’s the main problem, in my view.
why is this important?
It’s probably right to use money policy to stabilize the stock market, so that Baby Boomers will move into the retirement phase of living, freeing up jobs for younger workers. But, as Mr. Kocherlakota observes, low interest rates can’t retrain workers. Legislators can–but so far won’t.
The main reason I’m writing this is that I think most American investors believe the domestic economic recovery is somehow broken because it isn’t following a typical post-WWII pattern. They continue to think that high unemployment is a business cycle signal that all is not well. As a result, they’re suspicious of any strong corporate earnings reports and are only willing to pay low multiples for what they regard as “broken” profits.
I think the WSJ article I cite above is interesting because it suggests that, as I’ve been writing for a year or more, that for 90% of the US, the economy is expanding, jobs are secure and the future is bright. I think that’s why Black Friday and Cyber Monday have been so strong this year.
If this is correct, we should see resumption of wage increases on a wider scale next year.
Frictional unemployment is, say, 4% of the workforce. This means that 5% of the workforce wants work and can’t get it (I know this figure excludes the underemployed and discouraged workers). Normal retirement patterns by Baby Boomers might clip 1% from that number, leaving 4% of the workforce to receive government support and retraining assistance. Yes, that’s still a big number. But it’s doable. And denial–or nostalgia for the 1950s, when the US had the only industrial base untouched by WWII–won;t help.
From a Wall Street point of view, however, I think recognition of the structural nature of current high unemployment would mean the gradual expansion of the price earnings multiple investors award to the market.