May’s disappointing jobs report received better press than I expected, at least based on a quick scan of mainstream news outlets Friday.
And that’s probably appropriate. As noted, 559,000 jobs is “not nothin’,” so to speak. It’s just not 1 million.
It feels like traders are waiting on one “big bang” report to declare the economic boom well and truly underway. Such a scorcher may not be forthcoming. Rather, it could be that the labor market simply walks out of the deep, dark woods at a reasonably steady pace, tripping here and there, never sprinting, never hurtling and never pole-vaulting over any overhanging tree branches.
The obligatory figure (below) shows you the remaining “gap” between the current state of affairs and pre-pandemic levels of employment. We’re a little more than 7.6 million jobs short.
Most analysts seem predisposed to mentioning enhanced unemployment benefits last when listing factors that might be contributing to supply constraints in the labor market. Employers are discovering that some of the shifts (no pun intended) in work habits brought about by the pandemic aren’t so easily reversed. In simple terms: Some people would rather quit than go back to the office, especially when there’s a labor shortage and other employers offer more flexible arrangements.
If you’re reasonably confident in your job prospects, why would you go back to the office? Jamie Dimon’s contention that “young people” like the “hustle” notwithstanding, folks generally don’t enjoy their commute and most people don’t particularly like the office either, especially not when the alternative is pajamas.
It’s undoubtedly true that enhanced benefits play a part, though. I’ve never denied that despite my overt Progressive lean. There’s no point in pretending the obvious isn’t obvious. But the calculus is infinitely more complicated than the “lazy freeloader” argument parroted by too many Republicans.
It’s not as simple as comparing benefits to wages. Getting to work costs money (e.g., gas) and so does making the arrangements that make work possible (e.g., childcare). If your occupation doesn’t pay much, netting out those costs and comparing what’s left over with what’s available in unemployment benefits might not make financial sense.
In that scenario, it’s not incumbent upon you to “explain” yourself to everyone else or to take a terrible job even though you’ll be worse off financially. Rather, it’s up to employers to pay more, the government to adjust unemployment benefits or, ideally, some middle ground where enhanced unemployment benefits remain for those who really do need them and employers pay more than enough to entice people back to work.
And yes, I said “more than enough,” with emphasis on “more.” Too often, we pretend the mere act of offering people a job is inherently benevolent. Small business owners are almost universally celebrated in that regard. Cheers to the local bar owner who “generously” employs three bartenders and two (human) dishwashers!
I’m reminded of a small restaurant I once frequented whose owners were celebrated around town as especially benevolent people just because they provided jobs and prided themselves on fostering a “family-run” atmosphere for their employees. Never mind that, as far as I could tell, every, single one of those employees besides the owners’ son, daughter and the kitchen manager, lived in what may as well have been poverty, while the owners lived comfortably on a local lake. Some “family.”
Were the owners “good people,” as advertised? Well, it depends, doesn’t it? If you employ more people than you have to (which, in my judgement anyway, they did) and you make a show of treating them all like family (which they also did) and you live comfortably but not extravagantly, you can create a nice facade.
But contrast those folks with one of my own former employers. He lived extravagantly and was, by almost all accounts, a wholly despicable (even nefarious) individual. But he employed only the number of people he needed to employ (no more) and paid them almost as extravagantly as he lived.
Never mind who’s a better person. Who’s a better employer? The owners with the Italian joint (they sold it in February of 2020, by the way, according to a local press clipping) whose extended “family” enjoyed guaranteed employment but also guaranteed poverty, or the asshole with the $3.5 million mansion who cared nothing for me or his handful of other employees, but paid us enough to live nearly as extravagantly as he did?
Good questions. And while that comparison is actually apples to oranges (I wasn’t working in leisure and hospitality), I think it strikes at an important point at a critical juncture for the US economy. America is a highly prosperous nation where almost nobody (statistically speaking) is very prosperous.
As Deutsche Bank’s Aleksandar Kocic put it at the onset of the pandemic last year, the setup is “intrinsically unstable.”
“In the absence of a major disruption, the system is capable of moving along by collecting small installments of rent (‘clipping the coupons’) from a large segment of the population,” Kocic said. “However, if an exogenous shock disrupts the fragile order of these cashflows, there is a chain reaction of collective insolvency ready to sink the entire system.”
“The truth is simple,” he wrote. “A surprisingly large segment of the population is practically one paycheck away from some kind of insolvency.”
Crucially, the rest of the population is also one paycheck away from insolvency and, due to the chain reaction dynamic, it’s the same damn paycheck — the people collecting the rents are taking most of what the renters earn. If the renters don’t earn anything, they can’t pay rent. Everyone quickly becomes insolvent except for people like Jamie Dimon.
How can we correct this situation? The truth is, I have no idea. I’ve argued on innumerable occasions that the US economic model is inherently unsustainable. For example, in November I wrote that,
A disproportionate amount of economic activity is accounted for by consumption that takes place at restaurants and retail stores. The people doing the eating and the shopping are, by and large, not making much more than the people serving the food and stocking the shelves, precisely because they are the same people (in an economic sense).
How is that sustainable? It’s circular to the point of absurdity. The people providing the services for meager wages are in most cases the same people consuming them when they’re not providing them.
That dynamic is a dead end. As Kocic wrote, it can “move along,” but it makes almost everyone miserable and reduces the majority of the population to modern day serfdom.
It’s safe to say the majority of the 7.6 million people still out of work (versus the pre-pandemic labor market) could count themselves among the serfs, even if their own pride won’t allow them to.
Maybe they should all go on strike. Along with everyone else caught up in this nightmare. Because that’s what it is. Serving other people all day, every day for pennies is a nightmare.
And it’s particularly haunting when you realize the people you’re serving are actually just you, on break. Or you, on your one day off per week.
The US economy – purportedly the “envy” of the world – is something of a castle in the sky. It’s a mirage built on what, at best, is the flimsy foundation of late stage capitalism.
Little wonder so many people are questioning whether it’s worth participating.
Wonderful article.
Follow the money… Follow the lack of money…..
Well said!
When policy decisions are based on narrow monied interests, and no one asks “What kind of society are we creating?”, society becomes the proverbial frog and is slowly boiled.
I dunno. I still think there’s too many middle upper class people for UBI to be politically viable. We need doctors, accountants and even more lawyers (and portfolio managers/wealth advisors) to lose their jobs… Someone was saying that when AGI or even just ML processes will be deployed, we’ll go from UBI being decried as a socialist monstrosity to the most obvious and widely approved policy in the western world…
Hey I am an RIA and help my clients- lay off!
lol
You are at your best in this one H…… Everyone is to a large extent a product of their past experiences. Me I lived with , partied with , and supported (mentored ) most all my employees. I did the rottenest jobs and never put the burden of it on my people (on Saturdays). The volunteers wandered in during the later part and without ever punching a clock got me through all the 3 hr jobs that turned out to be 10 hour jobs.
No one begrudged a penny I ever made whether it was 30,000 a year or some other number.
I talk to them still after twenty years and thousands of miles of separation.. We are happy for each other ! You covered it all but the last sentence even if true pops a bubble for me.. Thanks for writing this one !
I took WMT as a test case, assumed +$10K annual comp increase per employee, that’s +$22BN/yr increase in expense, which wipes out the EBIT. So WMT would need substantially higher revenue, likely via substantially higher prices. Maybe the lesson is that wage inflation not only causes, but requires, goods/services inflation.
The food service labor shortage finally felt real to me this afternoon where I live in S. Florida. I was taking my elderly mother out to lunch and the first place she wanted to eat had a 1/2 wait at 1pm on a Friday afternoon (never had to wait for lunch anywhere around here). Then we went over to Chilis where the restaurant was about 25% full and were told it was a 20+ minute wait. They only had 2 servers and 1 bartender working the whole restaurant. Pretty surprising for what is normally the slow season here as the snowbirds have all flown North already. My own suspicion is that all the food service workers pre-pandemic are trying to find anything else at all to work at before they go back to their last resort choice.
Interesting take by Cedric Durand in New Left Review https://newleftreview.org/sidecar/posts/1979-in-reverse?pc=1348
At this point it is amazing exactly how pointless it is to try to work for a living. If you figure you need child care the minimum wage necessary to go to work and basically earn nothing at all if practically $20/hr. My wife works in high end medical manufacturing, about the highest pay I’ve seen with only a HS degree (her other degree’s are not recognized in America) outside of heavy labor like construction and that is barely $20 per hour.
So exactly what is the entirety of the population meant to do? It isn’t go to college given there are way more graduates than are needed in just about every field and those educations come only at insane costs these days. It can’t be trade schools, I mean they are great options for some but not everyone needs to be a plumber or electrician. It seems at the moment the answer is work one job to pay for the ability to go to work, then work a second job to pay for your ability to be alive, then work a third to take care of your kids. This is insanity.
H
Once again you are spot on with your views on this topic. I’ll add a couple of recent pieces of data. You noted: “Everyone quickly becomes insolvent except for people like Jamie Dimon.” Interesting that Dimon reported his bank collected $1.5 bil in overdraft fees from those near insolvent “great unwashed.” It was also interesting that after that data was published several of JPM’s competitors loosened their overdraft fee policies. One large bank eliminated those fees entirely. Kind of like lawyers on the bottom of the sea — a good start.
Then this morning I saw a piece from the Guardian that reported the most outrageous item I’ve seen in my memory. It seems that MIcrosoft has a subsidiary in Ireland that has only one function, to collect royalties from licensed MS products. This subsidiary is incorporated in Bermuda, housed in Ireland, has no employees except its directors and made a profit for its latest year of $320 bil while paying not one dollar of tax to anyone, anywhere. This profit represents something over three quarters of Ireland’s GDP. The sub sent two dividends totaling a bit over $40 billion to the parent company which reported only $143bil in revenue in the latest year. In other words, this massive royalty income, more than twice what the company reports as total sales, is essentially invisible. More than $270 bil of this money is hiding in a cash account somewhere. Not on the balance sheet of the parent. How many MS workers could get a 10% raise from this “petty cash. I’m sending a nice potload of money to the IRS this week while these bastards escape tax entirely on $320 BILLION in profits that they just disappear! That’s enough of this nonsense. Enough!