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Is the job market broken?

Posted By Barry Ritholtz On February 10, 2004 @ 6:45 am In Finance | Comments Disabled

Nonfarm Payrolls (% change from recession end)
non_farm_payrolls_feb_2004.gif [1]
Source: Chart of the Day [1], February 10, 2004

We’ve been saying “It Really is Different this Time [2]” since last Summer. The data coontinues to support that thesis.

Now, the mainstream media is finally catching on to the idea that this is, in fact, a very different recession/recovery cycle. Job creation has not followed the usual pattern, and is unlikely in the near future to revert to the old post war recovery cycle. Some of this is stimulus related [3], while the adminstration’s over focus on the stock market [4] (rather than the macro economy) also shoulders part of the blame.

What’s become apparent is that this structural shift [5] has finally started receiving widespread mainstream acknowledgement:

“In fact, the current “jobless recovery” has been much worse than the last one. Some 2.35 million jobs have disappeared since the job market peaked in March 2001, 34 months ago. That long after the labor-market’s peak in June 1990, about 400,000 jobs had been added.

Some economists believe globalization, technology and stagnant prices have conspired to make today’s economy a great deal different than even that of the early 1990s, making it easier — even critical, in fact — for businesses to move work overseas, where workers’ skills are growing at a fast clip.

“This is really the first post-NAFTA, post-WTO economic recovery we’ve ever had in this country,” said Wachovia Securities chief economist John Silvia. “Because of the globalization of the labor market, the relationship between economic growth and employment is different this time than it has been in the past.”

In other words, he said, “the models are permanently broken.”
Mark Gongloff [6], CNN/Money February 9, 2004

This structural shift cannot be blamed on the President. Longer term trends such as Globalization and Productivity gains are the most likely culprits, and both of these have been in the works for quite some time. However, economists — and voters — can hold his administration accountable for failing to recognize these macro changes, and then failing to respond to them accordingly.

There may also be a larger issue here: one of perception and dogma. One cannot respond appropriately to problems if one fails to see them in the first place. I suspect that this administration — like most of the traditional economists — have simply failed to recognize what are very significant changes in the structure of the Global and U.S. economies. The most obvious manifestations of these structural changes are found in the new job creation data. The ressponse to this has been tortured rationalizations [7] explaining the divergences between the household and establishment jobs surveys.

Dismal Scientists get more Dismal:

prognostsication_breakdown.gif
Source: CNN/Money [6]

Indeed, creation of innovative solutions is difficult (if not impossible) without an adequate recognition of the underlying problems. Perhaps innovation is really an issue of flexibility: Can economic policy wonks apply a necessary degree of creativity if they are intellectually boxed in to the Supply Side thesis [8]? This is the danger of rigid dogma. To the man who’s only tool is a hammer, everything soon looks like a nail. If your only economic tool is new tax cuts, that limits your options when responding to what are new and different problems.

Its a question of modernity versus history. At what point do you recognize that the old tools, the familiar patterns, the comfort zone, are not working?

In some ways, the administration’s philosophical blindspot is parallel, albeit more in a more subtle way, to the President’s father. Recall the least positive re-election campaign moment for George H. W. Bush: Expressing wonderment over the supermarket scanner. That “out of touch” incident is what in some politcal analysts’ post mortems as emblematic of why Bush the elder was defeated.

Bush the younger may have painted himself into a similar intellectual corner. If there is going to be a replay of that kind of incident, won’t be anything quite so blatant as a supermarket scanner, and the accompanying devasting photo op. Rather, it is the failure of his economic team to recognize these seismic structural changes in the global economy.

There has been a general perception forming in the public’s collective mind: This administration has an old and tired approach to the world. Their dogma often fails to recognize significant new ideas and tectonic shifts. White House’s policies have a discomforting tendency to force square pegs into round holes [9]. The reaction to a new and different threat — non State terrorists — was a cold war response, i.e., propose a new, expensive and ineffective missile shield. It was apparent in the cherry picked intelligence which ignored the weight of the evidence to justify invading Iraq.

Finally, we see elements of this approach in economic matters [10]. There has been no innovative response to the structural changes in the economy. The President may yet be proven right on his approaches to Iraq as well as the economy. Each passing month where the data is below expectations, however, brings him that much closer to a point of no return.

The clock is ticking . . .

Source:
Chart of the Day [1], February 10, 2004

cnnmoney_logo.gif [6]

Is the job market broken? [6]
Economists struggle with hiring forecasts; some say globalization makes all the difference.
Mark Gongloff,
CNN/Money, February 9, 2004: 2:17 PM EST

http://money.cnn.com/2004/02/09/news/economy/jobs_model/index.htm

Job forecast: higher than it looks [9]
White House expects 320,000 new jobs a month this year, a number not seen in a decade.
Mark Gongloff
CNN/Money staff writer, February 10, 2004: 6:47 PM EST

http://money.cnn.com/2004/02/10/news/economy/jobs_forecast/index.htm

Productivity in the 21st Century [11]

http://www.dol.gov/21CW/prod-book.pdf

2004 Economic Report of the President (pdf [10])

http://www.gpoaccess.gov/eop/download.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/02/is-the-job-market-broken/

URLs in this post:

[1] Image: http://www.chartoftheday.com

[2] It Really is Different this Time: http://bigpicture.typepad.com/comments/2003/07/it_really_is_di.html

[3] stimulus related: http://bigpicture.typepad.com/comments/2003/10/the_frankenstei.html

[4] stock market: http://bigpicture.typepad.com/comments/2003/09/stock_market_vs.html

[5] structural shift: http://bigpicture.typepad.com/comments/2003/09/structural_job_.html

[6] Mark Gongloff: http://money.cnn.com/2004/02/09/news/economy/jobs_model/index.htm

[7] tortured rationalizations: http://bigpicture.typepad.com/comments/2003/12/the_self_employ.html

[8] Supply Side thesis: http://bigpicture.typepad.com/comments/2003/12/2004_a_test_of_.html

[9] square pegs into round holes: http://money.cnn.com/2004/02/10/news/economy/jobs_forecast/index.htm

[10] economic matters: http://a257.g.akamaitech.net/7/257/2422/09feb20040900/www.gpoaccess.gov/usbudget/fy05/pdf/2004_erp.pdf

[11] Productivity in the 21st Century: http://www.dol.gov/21CW/prod-book.pdf

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