08.03.12

Jobs Report Hides Real Change in U.S. Economy

Do Friday’s wage numbers show a ‘conservative recovery’ or a ‘non-recovery’? More important is the generational shift they reveal in the U.S. economy. Zachary Karabell on the vision we need to turn it around.

Friday’s jobs report was immediately heralded as a strong rebound from months of weak employment growth. With the jobless rate at 8.3 percent, barely changed from 8.2 percent last month, financial markets, ever fickle and always flighty, staged a relief rally after a week of disappointments that the central banks of the world were not swooping in cavalry-like to the rescue. Yet what is most striking about this report is how truly static the job picture in the United States is overall and how that stasis masks the American economic system’s continued, relentless transformation—which has been going on for years.

One way of looking at these reports is to say that as blah as they’ve been, they show employment growth every month, which is not enough to bring down the unemployment rate but is enough to justify the idea that we are in the midst of what my colleague Dan Gross calls a “conservative recovery.” Another way, and we will surely hear this from Mitt Romney and a host of Republicans in the coming weeks, is that we are in the midst of a “non-recovery” that is in imminent danger of slipping back into recession and may already have.

What you will not hear during the campaign season is that we are in the middle of a generational shift that was dramatically exposed by the financial crisis of 2008-09 but which was not caused by it. As anyone who looks at wage figures knows, the wages of “average” Americans ceased growing sometime in the mid-1980s. Of course, averages always lie, in that you can find many millions who thrived during these decades and many millions whose standards of living decreased appreciably. Wage numbers also say little about the cost of goods and their quality; a car or refrigerator today is loaded with electronics—ice makers, satellite radio—that make them more efficient and elaborate. TVs and many home goods cost much less. Even so, it’s unequivocal that system-wide, the U.S. economy stopped being an engine of wage growth for many in the middle class 30 years ago.

As these jobs reports make clear, however, even there it isn’t so simple—and that very lack of simplicity is why we aren’t taking about it in the election silly season or in most forums that demand sound bites. For the college-educated, wage growth has been decent and unemployment not a major problem. College-educated people have an unemployment rate nationally of 4.1 percent, and between 1989 and 2010, those with a college degree saw wage growth of nearly 20 percent. So, for the past 30 years, those who don’t have a college degree have fallen further and further behind those who do. What happened in 2008-09 is that people could no longer use cheap credit and loads of debt to close the gap between the standard of living they needed and wanted, and the income they were earning. That was compounded by the dual forces of globalization of manufacturing and technology, both of which put downward pressure on wages and on the number of jobs in heavy industry. The final nail was the collapse of construction jobs once the housing bubble imploded.

That story emerges powerfully from the reams of data embedded in these jobs reports each month but not from the unemployment rate or from the number of jobs added or subtracted from payrolls. The financial crisis created sharp dislocations that accelerated those trends, and since 2011 the economy has stabilized and employment has settled into a static groove with very modest job growth, save for health-care services and a slight rebound in domestic manufacturing. The rebirth of American manufacturing has been touted, but even there, it is more a case of output rebounding rather than employment. Technology and robotics mean the same factory that once employed 5,000 may employ no more than 500 today and produce twice as much, twice as fast.

Our political system and the media maw’s need for news are ill-suited to multiyear changes with multiyear solutions. Few societies possess that long-term approach, though one could argue that China, with its communist legacy of five-year plans, does think ahead; we will see whether it can implement that thinking in the coming years. The United States could use a grand vision of the coming years that starts with an embrace of the structural changes under way and then considers a range of policies to address global competitiveness: education, vocational training, a realistic level of sustainable growth, and spending in sync with that. Given current realities, that feels like a pipe dream, which leaves us with the hope and the prayer that the magical messiness of American society, with its churning drives and unrealistic dreams—the very pursuit of which propels us forward—will somehow carry us through to the next era of prosperity. That has worked in the past. Even the New Deal was only a retrospective success because of the unexpected and wrenching economic benefits of a tragic world war. We can pray it works in the future, but that is a thin reed on which to rest our collective fate.