Americans Spooked by Slump Cling to Jobs as U.S. Dynamism Fades
Copyright 2012 Bloomberg.
After 4 1/2 months of meetings, interviews and hand-holding, personnel recruiter William Rowe thought he had sealed the deal.
The senior executive of a major corporation Rowe had been courting finally agreed to take a top post at a venture capital- backed technology firm in California. Then four days after giving notice, the mid-to-late 40-year-old executive had second thoughts about leaving the security of his company and returned to his old job.
“He decided to go back to the mother ship” and not uproot his family to take a chance on joining a new firm, said Rowe, vice chairman of Pearson Partners International Inc., a search firm in Dallas.
The deepest economic slump since the Great Depression has left its mark on both job seekers and job creators, making them more wary about taking risks in a slowly recovering labor market.
Spooked by the severity of the recession and stuck with underwater home mortgages, Americans are less inclined to leave their jobs and less willing to strike out on their own to build businesses, government data show. Even with swelling profits, companies are holding back on hiring, complaining that they can’t find skilled workers for positions they do have open.
As a result, the labor market is losing some of the dynamism for which it’s long been known. And the trend predates the recession: An aging population and the growth of two-income households have reduced Americans’ mobility to about half of what it once was, while technological gains and globalization have led to a loss of middle-income jobs. The economic slump only exacerbated the loss of vigor.
‘Major Hollowing Out’
“The U.S. labor market is becoming more sclerotic,” said Harvard University Professor Lawrence Katz, a former chief economist at the U.S. Labor Department. “We’re seeing less gross job creation and job destruction, and we have a major hollowing out of jobs in the middle.”
The diminishing vibrancy matters because the less job turnover there is, the harder it is for others, particularly younger people, to find work. Unemployment among 16- to 24-year- olds was 16.1 percent in May, about double the 8.2 percent rate for the population as a whole. Also holding them back are older workers staying on the job longer after seeing their savings eroded by the housing market bust and financial crisis.
Americans who are thrown out of work in such an environment also are finding it tougher to get jobs. The average duration of unemployment was 39.7 weeks in May, more than double the 18.8- week average since 1990 and not far below the record 40.9 level set in November last year. American employers added 69,000 workers last month, the fewest in a year.
Looking Like Europe
“We have certainly moved” in the direction of Europe, with a less-dynamic labor market, Steven Davis, professor at the University of Chicago Booth School of Business, said in an email. He ticked off the similarities: “higher unemployment rates, longer unemployment spells, steep falls in the employment rate in the working-age population, a slower pace of worker flows, and a slower pace of job creation and destruction.”
David Bouchey was among those caught in the middle. Bouchey, of Aurora, Colorado, who lost his position as a financial analyst in 2007, said he thought he’d find work because of his experience and three post-graduate degrees.
“I’m overqualified for almost every job I apply for,” said Bouchey, 54. He, his wife and two sons live on about $1,000 a month in public assistance. “I never thought the economy would be this bad.”
Still, the economy has improved from where it was just a few years ago, when joblessness hit a 29-year high of 10 percent in October 2009. Private business payrolls are back to levels that prevailed when President Barack Obama took office in January 2009. Job openings rose in March to their highest point in almost four years, though they are still more than 20 percent below levels seen in early 2007, prior to the economic decline.
Many industries -- from leisure and hospitality to professional and business services -- have increased their payrolls since the recession ended in June 2009, according to Labor Department figures. Three of the areas most affected by the slump -- construction, financial services and government -- still lag behind.
Manufacturing has added almost a half-million jobs since the start of 2010 after shedding more than six million in the two decades before. Lower energy costs in the U.S. -- courtesy of a surge in natural gas production -- and rising wages overseas, particularly in China, are contributing to what James Paulsen, chief investment strategist in Minneapolis at Wells Capital Management, calls a “manufacturing renaissance.”
Health Care Leads
Huntsman Corp., the world’s biggest maker of textile dyes, plans to increase production of ethylene and related chemicals in Texas and is evaluating additional expansion projects to take advantage of cheaper natural gas, Chief Executive Officer Peter Huntsman said in a May 1 interview.
The biggest job gains have come in health care as the aging population drives up demand for workers from nursing aides to surgeons. While the economy lost 7.5 million positions during the recession, health care expanded staff and continues to do so in the recovery. Together with social assistance, it will add about 5.6 million employees to become the largest job gainer by 2020, according to the Bureau of Labor Statistics.
Yet many of those positions, including personal care and home health aides, won’t require a high school education and so are unlikely to pay much.
“The first baby boomer just turned 65 last year, so when it comes to health-care jobs in America, we haven’t seen nothing yet,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Stuck in Middle
Americans at the top and bottom of the income scale have benefited the most from the improvement in the labor market. Those in the middle have stayed behind. Employees making above- average wages, including doctors and energy-industry workers, and those at the other extreme, including home-health aides and restaurant staff, have seen outsized gains in hiring since the jobs upturn began in 2010, according to economists at Wells Fargo & Co. and JPMorgan Chase & Co.
That continues a decades-long trend that picked up speed during the recession. Academic economists Nir Jaimovich and Henry Siu found that 95 percent of the jobs lost during the slump were among workers who carried out routine assignments that could be easily automated. These jobs, which include office and administrative roles, bank tellers and machine operators, disappeared during the contraction and show “no recovery to date,” Jaimovich, a professor at Duke University in Durham, North Carolina, and Siu of the University of British Columbia in Vancouver, said in a paper published on March 31.
More With Less
“Companies have been driving, and continue to drive, for increased productivity, to do more with less, and the tool to do that is technology improvement,” said Jonas Prising, president of the Americas for Milwaukee-based ManpowerGroup, the world’s second-largest provider of temporary workers. “What are getting squeezed are the well-paying jobs with lower skill levels that used to give a middle-class income.”
Technological change has been a boon for those with the skills to exploit it. Job openings in the computer and mathematical fields outnumbered job seekers by almost four to one in April, according to the New York-based Conference Board.
Tyler Stalder, 24, found work in San Francisco’s technology industry shortly after he finished a one-year web-development fellowship with a nonprofit. The computer programmer started working for Singly, a startup company, on March 2 after less than two months of job interviews. And he’s still being contacted by prospective employers trying to recruit him.
The jobs recovery also has been uneven geographically. Only four states -- Alaska, North Dakota, Texas and Louisiana, all beneficiaries of the energy boom -- have reached or surpassed their previous peaks in employment, according to an analysis by economist Steven Frable of consultants IHS Global Insight in Lexington, Massachusetts. Some others, including New York and West Virginia, are close.
Sixteen states still have fewer than 95 percent of their prerecession job levels, Frable said in a report on May 21. Alabama, Arizona, Florida, Michigan, Rhode Island, and Nevada are behind previous peaks by 7 percent or more.
Unemployment rates also vary widely -- from 11.7 percent in Nevada, one of the regions most hurt by the real estate bust, to 3 percent in North Dakota, the center of the shale gas expansion and the state whose economic health improved the most last year, according to the Bloomberg Economic Evaluation of States. Hiring has been so frantic in the Great Plains state that the McDonald’s Corp. restaurant in Dickinson at one point was offering $300 signing bonuses.
In the past, such geographic disparities would have been ironed out as Americans flocked to where the jobs were. Labor mobility has long been a major source of strength for the U.S. jobs market when compared with Europe.
That is less the case today. About one in 10 Americans currently move each year, according to James Manyika, director of the McKinsey Global Institute, the research unit of consultants McKinsey & Co. That’s well below the roughly one in five average that prevailed from 1945 through about 1990, he said.
The percentage of Americans who changed residences between 2010 and 2011 fell to a record low of 11.6 percent, from 12.5 percent the previous year, according to Census Bureau figures. That compares with 17 percent in the recession of 1990-91.
The image “of the highly mobile American worker is not as true as it used to be,” Manyika said.
The rise of the dual-income family is one reason, he said: When both partners are working it’s harder to coordinate a move. More recently, the collapse in house prices has played a role in damping mobility, he added, although Davis said that research suggests the impact of that is small. More than 11 million households owed more on their mortgages than their homes were worth in the fourth quarter of last year, according to data provider CoreLogic, and would face losses if they opted to sell to move elsewhere for work.
While Americans are more willing to leave their jobs for other opportunities than they were at the depth of the recession, they still have a way to go before they regain the confidence they exhibited prior to the downturn.
The so-called quit ratio -- which measures the number of people voluntarily leaving their jobs as a proportion of total employment -- stood at 1.6 percent in March. That’s up from a low of 1.2 percent almost three years ago, yet still well below the 2.3 percent peak seen in late 2006.
Not Changing Enough
“We just haven’t had people changing jobs enough,” said Betsey Stevenson, an assistant professor at the University of Pennsylvania’s Wharton School in Philadelphia and a former chief economist at the Labor Department. “We need to see people have the confidence to quit their job and find a better one and create an opening for someone else.”
The jobs recovery hasn’t been strong enough to convince many Americans to re-enter the labor force and start looking for work again. The labor participation rate -- the share of working-age people holding a job or seeking one -- stood at 63.8 percent in May, just above a three-decade low of 63.6 percent the previous month.
A portion of those who have dropped out of the labor force have gone on disability. The number of workers receiving Social Security Disability Insurance from the government jumped more than 20 percent to 8.7 million in May from 7.1 million in December 2007, Social Security data show.
The dwindling dynamism of the U.S. labor market also shows up in the willingness of Americans to strike out on their own. The nation’s business start-up rate -- the number of new firms as a proportion of all companies -- fell to a record low of around 8 percent in 2010, according to the latest data available from the Census Bureau. That’s down from about 11 percent in 2006, before the economic slump, and a high of 13 percent in the 1980s.
The longer-run decline is partly due to the aging of the population, according to the University of Chicago’s Davis. More recently, tighter credit in the aftermath of the financial crisis also may be discouraging start-ups, he said.
That’s got big implications for the labor market. Research by University of Maryland Professor John Haltiwanger found that start-ups and young firms account for a disproportionate share of job creation, exhibiting what he calls an “up or out” dynamic -- they either grow fast or they fail.
It’s that kind of vibrancy that has helped make the U.S. economy great, said Stevenson.
“What makes the U.S. different is that we are mobile,” she said. “We find where we are going to be the most productive and we get there.” Signs that such dynamism is on the wane are “very concerning.”