One major reason the economy has yet to gain momentum is the sluggishness of the labor market. Not only are many workers still unemployed, but many others are employed below their capacity either in the type of job or the number of hours.
In a New York Times Economix blog post yesterday, Jared Bernstein of the Center on Budget and Policy Priorities in Washington, DC, makes some excellent points about the anemic progress of job creation in this economy, and how harmful it is not only to overall economic health, but also to the personal economy, if you will, of anyone who isn’t rich. One of his main points is that because most of depend on our jobs rather than our investment portfolios for economic sustenance, the fact that employment is still on a slow track is a huge issue.
There are a couple of problems that impact the economy and individuals when job creation is weak, regardless of how well the rest of the economy is doing. Here’s the cliff-notes version:
- Millions still can’t find a job: Despite the fact that the unemployment rate has fallen significantly since it’s recession high, there are 12 million unemployed workers, and more than four million of those have been out of work for more than six months.
- More millions are underemployed: Again, as noted above, millions of workers are underemployed below their capacity — college grads working in jobs that don’t require a degree, for example as well as those working part time who would rather work full time.
- Slow wage growth: Because of the slack in the labor market, as the economists would say, there is no pressure on employers to raise wages. And while the “official” inflation rate may be low, costs are rising for the average family in the grocery store, at the gas pump and in bills related to the home.
Because we are very far away from the full employment of the 1990s, those at the bottom of the wage scale are suffering the most. When there are lots of unemployed and low demand, workers at the higher end of the food chain — those aforementioned college graduates, for example — move down the food chain and displace other workers, who are then forced to move down themselves.
So college graduates are filling jobs previously filled by high school grads, high school grads are filling jobs that non-high school grads had, and inevitably someone gets pushed out of the labor market, usually the least skilled or the ones who have been unemployed the longest, who become less skilled as their skills degrade from lack of employment.
So while it’s a good thing that other segments of the economy are perking up in and of itself and because those trends will likely spill over into employment, the economy is not, by any means, in a sustainable growth mode. It may be closer to getting there, but until the employment problem is solved or at least shows ongoing signs of significant improvement — and that means more than the creation of 100,000 or 150,000 a month — we aren’t out of the woods yet.