I hate sounding like a broken record, but the recent announcement that 204,000 jobs had been created continues to mask serious flaws in the “recovery” since the recession supposedly ended in 2009. For many Americans, especially those with only a high school diploma (or worse), there hasn’t been a recovery. Jobs are not plentiful, while wage growth remains stagnant. In fact, the US economy has 1.2 million fewer jobs today than at peak employment prior to 2008. Nearly five years into the recovery and we still have 1.2 million fewer jobs – that is staggering. Unfortunately, our labor force continues to shrink, as defined by the labor participation rate of 62.8%, marking a 35 year low. We still have more than 11 million unemployed in the US and more than 90 million age-eligible individuals are out of the labor force for one reason or another.
Of the jobs being created, many, if not most, have been in lower paying industries, and a significant percentage are part-time. With so many individuals out of work, there is little pressure on wages. With no sustained wage growth, there remains muted demand for goods and services. Is it any surprise that GDP growth since the recession has been as muted as we’ve witnessed? The 2.8% GDP growth in the third quarter was mostly smoke and mirrors. If it weren’t for the fact that inventories had to be rebuilt, we would have seen below trend growth again. Who is going to be buying these goods? According to a Morgan Stanley report, this holiday season is shaping up to be the weakest since 2008. Is it any surprise that retailers are opening their stores on Thanksgiving (I personally think that is shameful)?
As a country we can’t afford to have an entire segment of our population not participating in the economy. These individuals are losing more than a wage. Regrettably, their lack of participation in the labor force today has grave consequences for them in their later years. With the demise of the defined benefit plan, funding retirement falls squarely on one’s own shoulders. For those without a current means of support (no job), they are certainly not in a position to fund a defined contribution plan. In addition, their social security benefit is based on their highest 10 years of contributions. Again, no job, no contribution. This is a vicious cycle!
In order to stimulate the economy, create jobs, raise wages and increase aggregate demand for goods and services, we need to continue with the federal stimulus until the private sector once again participates to the extent that it has historically. Driving down the federal deficit at this point is only working to stagnate the economic recovery, and doom an entire segment of our population to long-term unemployment and economic hardship.