The New York Times this weekend had a stark picture of the imbalance of supply and demand in the employment. Nearly 14.5 million people are out of work and there are only about 2.4 million job openings in the U.S.
Coincidentally, John Mauldin’s letter this Saturday takes a close look at the scale of unemployment and discusses what kind of job growth will be required to return our economy to a state of more robust employment.
Mauldin has been thoughtful and analytical in his series of letters details what he terms The New Normal. His overriding message is that a statistical recovery in the economy is masking serious weakness in the consumer economy. As a result, a recovery will be slow and painful, with ongoing economic risk, Mauldin says.
Look past the current unemployment figures, as dire as they are, and a formidable challenge lies in front of the U.S. as we work to recover from this downturn, Mauldin says. The workforce is continually expanding, so on the rebound the economy will have to make enough jobs to accommodate the new workers, as well as the unemployed and under-employed workers. This challenge of job creation comes in the face of a current workforce that is working a record-low number of hours.
Let’s assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. Five percent unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week. And maybe the
extra 1.5 million a year I mentioned above.
The problem? To get back to 5% unemployment in the next five years, the economy will have to average 250,000 jobs created a month, a pace that is well more than two times higher than the average pace of the last decade.
The implications of this are significant. First, consumer spending will recover slowly. Households will have fewer incomes and a smaller pool of income-producers will need to support a larger group of people in each household. In real dollars, consumers are earning the same amount they did in 1982. Second, government entitlement programs will need to grow in order to support basic services to the large pool of unemployed. Third, government policies will be politically influenced by short-term job creation, rather than supporting longer-term innovation that will create new industries.
The implications on government revenue are discouraging. In order to generate the tax receipts to pay for the entitlement services, the tax rate on high earners will inevitably need to rise. This burden will fall square on business owners and entrepreneurs, groups that are important generators of job growth.
I highly recommending reading his letter. You can subscribe to it here.
