Entry-level job market a zero-sum gain

  • By James McCusker
  • Wednesday, February 11, 2015 2:57pm
  • Business

There are some encouraging signs that the economy is gaining positive momentum. The jobs picture is brighter, although we still have a long climb ahead of us in that area — both in the number of jobs and their wage levels. At the end of December we had over 5 million jobs open, the largest number in this century. And the U.S. dollar’s strength reflects both our financial market stability and the investment opportunities seen by foreign investors.

The two areas where questions keep coming up, though, are our anemic economic growth rate and the distribution of job opportunities.

There is really only one reliable source of sustainable economic growth: productivity. Other factors are important, certainly, but their impact is often uncertain, transient, or sullied by “too-much-of-a-good-thing” syndrome.

The measure of our economic growth used by economists is the Gross Domestic Product (GDP) which is the total value of goods and services produced in the U.S. in a specific time period. The Commerce Department produces estimates of GDP each quarter and refines those estimates as more data becomes available.

The bloom is coming off the rosy estimate of GDP growth in last year’s fourth quarter. The initial estimate of 2.6 percent was itself a slowdown from the beginning of the year, but information on inventories and other elements indicates that the final number will be even lower.

As always, we’re not sure exactly why our economic growth slowed down, but a clue may be found in the productivity statistics. Productivity is defined as output per unit of input and, most commonly, the unit of input used by economists is labor. The U.S. Labor Department, then, calculates labor productivity by dividing total output by the number of labor hours it took to produce it.

Productivity actually fell in fourth quarter 2014, to an annualized rate of negative 1.8 percent. The decline was driven by a sharp increase in the number of hours worked colliding with a sluggish rise in output. This is not a good thing.

While the arithmetic of the decline is known the underlying causes are not. Did employers hire a bunch of less competent workers? Did people flock to entry-level, low productivity jobs or low productivity businesses? We do not know the full story yet, but when productivity goes negative it sets off alarms.

The relationships that connect employment, productivity, wages, and economic growth are complex. The overall employment picture, for example, is much brighter, but there is still a lot of discontent about overall job prospects and wage levels, both of which are related to economic growth.

One factor is immigration. Recently released government statistics on federal work permits issued for the past six years, which encompass most of the post-crash time economy, were analyzed by the Center for Immigration Studies (CIS), which found that millions of these permits were issued to aliens who were here illegally, had overstayed their visas, or were otherwise not authorized by law to join the workforce. In some cases permits were even issued to people who had returned after being deported.

This data “reveal” raises questions about border security and exactly what U.S. immigration policy is, but the work permits data does explain how our economy’s forward progress has been weighed down by immigration; not stopped, surely, but slowed down.. It also suggests some reasons why the improving jobs picture has not extinguished discontent over job opportunities and prospects.

There used to be an expression used as advice to newbies in the financial markets: “Don’t fight the tape.” Don’t deny the importance of big numbers. The reference to “tape” is obsolete, of course, since “ticker tape” to report market transactions hasn’t been around since the 1960s. It is still good advice, though, when we try to understand our huge economy. Big numbers count.

The immigration numbers are certainly big; big enough to absorb every new job our economy created since January 2000 — and more. The labor pool of recent immigrants is usually weighted toward marginally productive, entry-level jobs, which could explain why it is difficult to move the productivity needle.

The immigration numbers are also large enough to transform the entry-level job market into a zero-sum game — if you get the job, I don’t and vice versa. This is as toxic to the American dream as income inequality and probably even more so.

Congress needs to step up and address this question before it snuffs out the idea of economic opportunity. It is precisely that idea which makes us so moved by immigrants’ stories of overcoming obstacles and achieving success. But from our economy’s standpoint this isn’t about anecdotes and stories, no matter how moving they are. It’s about the big numbers and not fighting the tape.

James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.

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