What’s Lurking Beneath the Glossy Veneer of the Jobs Report?
July 7, 2014
by Charles Hugh Smith
The jobs report has little value if we don’t peer beneath the glossy veneer.
On the surface, last week’s jobs report was glossy good news: the U.S. economy added 288,000 non-farm jobs. Beneath the glossy veneer, however, the news wasn’t quite as good as advertised: full-time jobs declined by 523,000 and part-time jobs surged 840,000.
Courtesy of Zero Hedge, here’s a chart depicting the entire job market:
Here’s a chart of full-time employment from the late 1960s. After unprecedented intervention by the Federal Reserve and Federal deficit spending since late 2008, full-time jobs (the only ones that count in terms of supporting a household) have reached the level of 2006, while population has risen by 7.5%.
Courtesy of Mish, here is a chart of full-time employment from 2003 to the present:
Courtesy of Lance Roberts, here is a chart depicting full-time employees to population: note that the ratio has been flatlined since 2009.
It’s important to note that employment growth is only the first half of a real recovery: real household incomes must also grow. Real (adjusted for inflation) incomes haven’t expanded except for the top layer of households.
Expenses haven’t stagnated along with incomes. As a result the price tag for the American dream (i.e. a middle class lifestyle) is $130K a year.
This chart depicts the happy story trumpeted by container-loads of superficial analysts and paid cheerleaders: jobs that pay above-average outnumber below-average paying jobs.
Courtesy of Market Daily Briefing, let’s dig into employment by sector.
The salient point here is that only three of the nine sectors have expanded since 2000; the other six have declined or stagnated. In those 14 years, only Professional & Business Services, Education & Health and Leisure & Hospitality have gained, and only Education & Health has soared. Note that jobs in Leisure & Hospitality typically pay below-average wages, so the growth of this sector may be one reason why household income has stagnated.
Why have Education & Healthcare soared despite the deep recession? Simply put, Education & Healthcare are functional monopolies that can add costs with impunity. In economics jargon, these sectors are largely untradable, meaning they are not exposed to much competition from overseas providers of Education & Health.
They also benefit from immense lobbying of government to protect their fiefdoms from transparency and competition. Consider this chart from the University of California system that reflects the Administrative Bloat at American Universities that is the underlying cause of soaring college costs.
It is not unusual for administrative costs to have exploded higher by 300% while the number of students rose by 15%.
Meanwhile, as college costs have skyrocketed, wages of those with college degrees have stagnated:
As for healthcare (a.k.a. sickcare) The incredible rise in healthcare/sickcare costs in the U.S. since the early 1990s is easily seen in this chart:
Note that Japan provides care for its populace for a mere 36% of what the U.S. spends per person. Germany and France spend about half of what the U.S. spends per person. Our advanced-economy competitors have a global advantage as a result of our inability to control sickcare costs, which act as a hidden 8% tax on the entire economy.America’s Hidden 8% VAT: Sickcare (May 10, 2012)
Our Two Most Onerous Taxes: College Tuition and Healthcare Insurance (February 3, 2014)
There are two realities nobody dares mention, much less discuss:
1. The expansion of the Professional & Business Services sector is all about cutting costs and boosting productivity while reducing payroll. How else could the economy expand while full-time jobs and household incomes have both stagnated? By boosting productivity and slashing payrolls.
2. The bloat, waste and inefficiencies of Education & Healthcare mean that these sectors offer the juiciest yields on innovation. As a result, they are the primary targets for transparency, real competition and technological innovations.
By my own reckoning, a college diploma shouldn’t cost more than a few thousand dollars for the entire four-year program: The Nearly Free University and The Emerging Economy: The Revolution in Higher Education: Reconnecting higher education, livelihoods and the real economy.
The structural changes triggered by the Internet and digital automation, networking, software and robotics have barely begun. The jobs report has little value if we don’t peer beneath the glossy veneer.