Long-Term Job Stagnation

Generally we tend to spend a lot of time looking at the month-to-month changes in the total number of jobs in the economy, and occasionally the press will focus on the year over year changes. But often the most important stories are the long-term ones -- the ones that happen so gradually that they never really make headlines.

On a year over year basis, job growth has been bad, but not unprecedented. But dig a little deeper and the problems become apparent. Just for a point of reference, here is the history of year-over-year job growth since 1939:



What mostly jumps out at you from the graph is the cyclical nature of job growth, but unless you have a sharp eye you miss a larger point, namely that the overall rate of job creation in the country is slowing dramatically even if we take out the cyclical effects.

An interesting graph was posted over at the Economists View which looks at the change over a decade, rather than over a year. This is total job growth, not the annualized rate.

We are now approaching zero jobs created over the last decade, well below the previous decade-long job creation period low set back in the early 1960’s. This is not only due to the current recession having been so horrific on the job front, but also because the previous recovery was particularly anemic when it came to job creation. This is particularly true for private sector jobs.



The two major forces behind the secular slowdown in job creation have been automation and globalization (off-shoring). It would not be particularly wise to reverse job losses coming from automation, since technology is the source of productivity growth and ultimately higher standards of living.

On the other hand, that model will not work to well if there are no jobs as a result. What will happen is that there will be a further hollowing out of the middle class, with a few extremely rich people and many who are struggling to make ends meet, and a growing number in real poverty.

This suggests that we will have sort of a bar-bell economy -- with strong firms that cater to the carriage trade, for example Tiffany’s (TIF - Analyst Report) and Neiman Marcus, as well as inferior goods firms that do well such as Big Lots (BIG - Analyst Report) and Family Dollar (FDO - Analyst Report). Firms in the middle will suffer.

Read the full analyst report on TIF

Read the full analyst report on BIG

Read the full analyst report on FDO