The New Competition for America's Jobs

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The New Competition for America

Today, in the wake of what future generations may come to call the Great Recession, we are awakening to a changed world.  Just two years ago, we sat dumfounded as Citigroup fired 53,000 people, Bank of America let another 35,000 go, AT&T sacked 12,000, Chrysler handed out 5,000 pink slips, and on and on, until some 8.5 million jobs had vanished from what had seemed like a healthy economy. 

As recently reported in DailyFinance.com, this situation is beginning to turn around, but perhaps "turn around" is the wrong way to put it.  That implies that things are going back to what we used to call "normal."  But we are not going there, or at least not entirely.  We are entering an unknown territory that we'll call "the new normal."

On the bright side, the creation of jobs did increase in the first three months of 2010.  The National Association for Business Economics1 recently released its survey results, showing that 37 percent of the firms it queried plan to hire people in the next six months, up from 29 percent in January, and a big increase from 16 percent 12 months earlier — meanwhile, 25 percent of companies surveyed plan to pay higher salaries. 

The problem is that a troubling trend has been emerging over recent decades:  The time from the end of each recession to the recovery in the jobs market has been increasing.  There were eight recessions between 1947 and 1982, and in each one it took an average of 20 months for the labor market to bottom out and recover fully.  However, in the early '90s recession, the same process took 32 months.  Even in the relatively mild "tech wreck" recession of 2001, it still took 24 months.

One of the big factors driving this is the marriage of technology with new management techniques, leading to vastly increased productivity.  In short, companies have found the means to do business with fewer and fewer people over time.  The period that spans the increasing recovery times parallels the penetration of information technology into every nook and cranny of industry.

As Brian Wesbury of First Trust Portfolios observes, non-farm productivity went up nearly seven percent in the fourth quarter of 2009, while the cost of labor was down almost six percent.2  So the trend of increasing productivity is accelerating.  In fact, the last three quarters of 2009 represented the most rapid increase in productivity in half a century, reaching a 7.4 percent annual rate. 

This took place when jobs were still being lost, as companies did more with less...

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