The job numbers you really need to know
To fix the economy, we need to look past the headline employment figures - and instead study the creation and destruction of jobs
SAN FRANCISCO (Business 2.0 Magazine) -- From a casual look at the jobs numbers, the labor market is just in the summer doldrums. The last four monthly job reports have reported the economy adding less than 150,000 jobs a month - the bare minimum we need to keep up with population growth.
But there is more to the sleepy job market than the much-watched monthly jobs figure.
Underlying that number, which reflects the net increase or decrease in the number of jobs in the U.S. economy, are two figures that the Bureau of Labor Statistics only started tracking in 1992. They are the gross job gains and the gross job losses, as measured in the bureau's Business Employment Dynamics series.
What they measure, respectively, is the true number of new jobs created and old jobs destroyed. The former minus the latter gives you the monthly jobs figure that makes headlines and moves the stock market.
Why watch these numbers, if all they do is add up to the figure that everyone already pays attention to? Because they measure the massive amount of job creation and destruction that constantly churns the economy. They give a raw picture of the actions of millions of firms across America, as growing companies create new positions and companies in decline eliminate them.
As painful as losing a job can be for the individuals involved, economists hold up high job creation and destruction rates as one of the things that makes the U.S. labor market so efficient and vibrant.
In the fourth quarter of 2001, for example - the nadir of this recent economic cycle - the gross jobs data showed that U.S. employers created about 7.9 million new jobs. But in the same quarter, they also wiped out more than 8.7 million positions.
What did that mean in practice? Salespeople at, say, the late, unlamented WorldCom likely were leaving in droves to find work as mortgage brokers, real-estate agents, or Home Depot reps, moving from the overstaffed, unproductive telecom sector to the suddenly vibrant real-estate business.
This is one aspect of what the economist Joseph Schumpeter called creative destruction.
The problem is that these beacons of economic vibrancy are dimming. Both the job creation and destruction rates have been falling this decade. Ten years ago, gross job gains were running at over eight percent of the total workforce. Last year, they were under seven percent.
A point or so drop may not sound like much, but it's a big deal when you're talking about a labor force with 150 million people. It amounts to millions of jobs every year. You'd expect the job creation rate to be much higher, given that we're in the midst of an economic expansion.
Where did the new jobs go?
Some blame the outsourcing of America's manufacturing base, others point to weak business investment in job-creating projects. But there's no consensus on the cause of this job-creation collapse.
"The big news is the drop [in job creation] since the expansion of the 1990s," says Scott Schuh, a senior economist and policy advisor at the Federal Reserve Bank of Boston. "Fundamental job creation has not really come back, and that's a puzzle."
Job creation hasn't rebounded to its late-'90s peak, but the reported employment numbers still look okay. Why? Simply put, for the past few years, the economy hasn't been destroying as many jobs, and there's been a mild rebound in job creation. That adds up to reports of net job gains.
But that modest increase in job creation is more of a blip in an otherwise long-term slide, economic experts say.
One could argue that the data suggests jobs are becoming more stable in the U.S., says Jonathan Leonard, an economist at the University of California at Berkeley's Haas School of Business. "When you have jobs that come and go quickly, you get very high creation and destruction rates," says Leonard. "But there now seems to be less churn in the labor market."
However, lower job creation is fundamentally a bearish signal of the U.S. economy's health and international competitiveness. "A recovery that doesn't generate as many jobs as last time around is troubling," adds Leonard.
My own guess is that the decline in job creation will continue as bosses at big companies use fears of offshoring and mass layoffs to impose more and more work on existing staff. Memories of over-hiring and subsequent layoffs during the bursting of the bubble are still too fresh.
Instant companies -- just don't add people
At the same time, bosses at the startups that have disproportionately contributed to the job creation rate in the past are going to increasingly adopt the "instant company" model, which we chronicled in this story last summer.
Instead of hiring a start-up team of 50 people, entrepreneurs are farming out not just manufacturing and IT work but design and sales. That practice will fuel the growth of the contract workforce - the so-called free agent nation - but not necessarily the permanent, payroll workforce that's measured in job-creation numbers.
There's no magic for boosting job creation. It didn't really get off the ground during this decade's recovery, and now a whole raft of problems are eating away at the foundations of this expansion, from America's fiscal and trade deficits to high energy costs and slowing growth in the U.S. workforce's skill level.
Reversing any one of those trends would help re-boot the great American jobs machine.click here.