America's labour market

Something's not working

The recession probably ended months ago but employment has not yet started to recover. Is America’s jobs machine broken?

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Readers' comments



You state, as one of the consequences of the recession, that "Income inequality is likely to widen." I believe that one of the driving forces behind the recession and the main reason it is not dissipating as rapidly as expected is that income inequality in America has been fatally disrupted and worsened by Republican tax policies over the past three decades. Simply look at the GINI coefficient, and you will see that the middle class has been thinned and in danger of being reduced to ashes since 1981. The disparity between the relative income levels in the US is back to where it was in the 1920s. Until this is addressed, and the middle class is re-nourished, there will be no jobs rebound.

Dr. Richard Garres

Maybe we are forgetting an uncomfortable truth: The capitalist system's goal is profits, not provide employ to anybody; that is a byproduct of this pursuit.

Employment is a 'zero' priority for an entrepreneur: that was a novelty introduced by John M. Keynes back in 1936; and still his name sound nauseating for the 'Chicago boys' and the Austria school..

So, forget about employment: it is only useful for politicians who promise something that they have little or nothing to do with it.

Doug Pascover

It strikes me that when Arthur Okun came up with his law, large national economies were fairly closed systems and today are anything but. It's worth worrying whether the decline of the job engine might be the result of poor educational requirements, in which case it could take a generation to fix.

Blue World

Problems with US job growth.
1. Outsourced jobs based on cost not their full value to the economy. Existing jobs fueled consumers who then added value to the economy.
2. Major impact of a large standing expensive military force which adds no real value to the overall economy, and which now uses 55% of Federal budget, with very little left for the future, i.e. education.
3. Decline of education (both adults and children) due to growth of electronic media, impatience, delight in violence and gratification of the senses.
4. Selfishness and greed supplanting courtesy and community concerns for effective relationships.
5. This article cites GDP as a useful measure, when it has limited usefulness on the overall success of the economy or growth of jobs—see current Economist debate on GDP.

Most historians depict the fall of Rome due to: incentives for production atrophied, or were destroyed; expense of a large standing army and wars of expansion; decline of literacy with corn doles and shows i.e. bread and circuses; greed and displays of excessive wealth with no investment in the economy; and the expense of an increasingly large bureaucracy to support the above.

The parallels are shocking, and the elimination of jobs should not surprise anyone.


Ianmac37 is precisely correct. This problem has been a long time coming, and it is soon to be coming to the rest of the world if it is not there already. It results from a fundamental economic problem which can best be compared to a lumberjack who has trimmed all the branches from the tree but the one on which he is standing, only to find that the branch on which he is standing is the one branch which really needs trimming.

Since the beginning of the Industrial Revolution and the appearance of the modern, limited liability corporation, the rate of profit has historically been increased by replacing human labor either with cheaper labor or with that of machines, while employing a growing/migrating population in various subsidiary branches of the economy-- such as transportation, construction, and a rapidly changing retail environment. As production costs of basic commodities decreased as labor costs decreased, more consumers could afford greater quantities of those basic commodities as well as increasing quantities of non-food, mass-manufactured retail goods.

As older methods of retail distribution were replaced by "more efficient" ones (i.e. less labor-intensive), profits could continually be increased by tapping supposedly "inexhaustible" adn "cheap" fuel sources, the "industrialization" of agriculture, and producing cheaper and cheaper-cost consumer goods in order to expand consumption by those growing numbers of people employed in the various and constantly increasing/evolving subsidiary branches of the economy.

This system reached its peak in the United States in the mid-1960s, when relatively high numbers of workers were still involved in some aspect of heavy industry, a relatively high number of family farms were still thriving, and the "Main Street Model" of the retail economy was thriving-- wherein a large number of small, mom-and-pop style businesses which still stocked relatively well-made, affordable, but still mass-produced goods. Drug stores, furniture stores, five-and-dime variety stores, clothing stores, hardware stores, shoe stores, grocery stores, shoe stores-- all existed separately from one another, employing large numbers of people at very reasonable wages, so that the employees could not only afford to buy whatever goods and services they were themselves either producing or providing, but also afford a decent if humble home, an occasional family vacation, some kind of health insurance, and to send their children to college.

Then this began to happen, among other things:

So that this would follow should come as no surprise to anyone:

The moral of the story? When profits are believed to be constantly increaseable by relying on artificially cheap agricultural products and fuel, as well as continually reducing labor costs by reducing the number of jobs and wages paid to workers, applying so-called "economies of scale", then the economic system which has cannibalized itself thusly will find itself with nothing left but a mouth and a still-hungry stomach, but with nothing left to eat.


Although I'm a little skeptical of some of the explanations in the article, I DO think it's getting at something really worth understanding. One plausible explanation (I do a lot of consulting) is: In the run-up to recession, many organizations were almost drunkenly hiring, promoting, giving staggering raises to B-minus and even "C" players. Once the new reality hit and it appeared the bubble had burst, a lot of companies began looking hard and long about the need for positions, whether exisitng staff could handle it, and whether candidates are TRULY qualified and will make a difference. The new caution, I'd say, is about more than "can we pay for it?"


This is the “Great Recession,” not just a recession. In particular, it is not a recession initiated merely to suppress inflation, because the bubble collapsed while hardly being pricked and while inflation was at a modest level.

There are at least five factors at work:

1. Mature, but still growing industries continue to realize productivity gains, often taken through attrition, while also exploiting existing underutilized capacity. The key growth sectors, notably healthcare and higher education, are under great cost reduction pressure as well as suffering from drops in investments

2. New growth industries/technologies are not at a state of high job creation. For example, various wireless technologies and medical technologies may create sudden winners such as the iPhone, but these often leverage existing workforces and capital assets.

3. Counter-cyclical measures, especially low interest rates on short-term deposits, are impacting employment in otherwise stable sectors such as state and local government. The number 2 cause of layoffs in governments and public agencies is typically low interest rates paid on their financial reserves.

4. Extensive rebuilding of personal and corporate balance sheets dampens the multiplier effect of economic growth as well as of stimulus. From a cash flow prespective, a majority of stimulus has been in the form of lower governmental collections as opposed to higher than normal direct governmental spending.

5. The absence of a consensus-supported counter-cyclical strategy has pre-empted bipartisan support for targeting further stimulus investments. A somewhat bizarre populist Hooverism infects the Republican Party, which in turn forces the Democratic Party to trim its already somewhat diffident support for business recovery.


As an American businessman living in France, it seems to me that the Obama administration is totally unreliable. What confidence do we have that our businesses can remain viable if this administration seizes assets (like they did to Chrysler bondholders), imposes impossible regulations, levies heavy taxes on owners, and, heaven forbid, introduces a VAT?

So far, it seems that no one can believe anything they say. They are behaving like thugs, violating the Constitution, writing laws which make the citizens and corporations beholden to the whims of politicians, and giving themselves powers which even Fidel Castro would not dare ask for.

So, America is being subverted and changing to a dictatorship which Benito Mussolini would like. So, businessmen are giving a vote of "no confidence" and won't hire speculatively until Obama is out of office.

This will drag down the world.


A good thing to also consider is that we were on an employment bubble.

We hired a lot of people to do a lot of things, that we later realized, were not necessary. We also kept on folks that weren't such great performers because their marginal contributions were still helpful given how busy we were.

Take off the blinders and we discover we can drop 5-10% of our workforce.


OK, folks. I know that to mention Mr. Paul KRUGMAN to you is like talking about the devil, but isn´t he the previous Economics Nobel Prize, after all?

He has been writing for a solid year that the Obama stimulus package was half the size that was needed, i.e. 0.8 trillion $ instead of the 1.5 needed to get out of the liquidity trap.

I would very much like to know what THE ECONOMIST thinks about this, even if it is to state that KRUGMAN is one of the following:

1. Bananas
2. Undeserving of his Nobel prize
3. Illiterate about economics

... Then proceed to explain about your statement on him.

Because when all is said, and everyone included you is looking elsewhere, we could ponder what is the reason why the only fellow who predicted things correctly keeps being right.

And I am also sick of conservatives talking about fiscal austerity in times like this. Why, wasn´t KEYNES british, after all? Explain to us that he is dead (we have the brains to understand that) then proceed to explain why he was wrong (you have to have the brains for that, right?)

xxx hardcore


The usa is a nation going down. The government spends over 1 trillion on military a year! It is not sustainable! Transportation is in decline, too. Also, what is going to happen is that the usa will implement more stupid laws like they do in europe. these laws may decrease unemployment in the short run, but in the low run increase. (in Europe, 10% unemployment is normal.)

Alan McCrindle

As the number of extremely comments so far suggest the Economist has done a lousy job on this article in an attempt to make sense of "the jobless recovery".

And it need not have been like this. Only one month ago Greg Ip wrote a much more insightful and comprehensive analysis titled "Time to Rebalance". What does this say about the capabilities of the Economist as a learning organisation given its seeming incapacity to leverage off its existing knowledge base?

The people that are calling this a recovery and were expecting new job growth are the same people who never saw the GFC coming. We have the "Super Peter Principle" at play. The same incompetent people who were in charge when the crisis hit are the same ones in power now and with even greater powers.

If you believe that history repeats and runs in explicable cycles then Carlota Perez's analysis of the relationship between technological revolutions and financial capital since 1770 - and the associated dynamics of bubbles and what she calls golden ages - indicates that we are at the midpoint of the 5th repeat of a predictable cycle - the end of the The Age of IT and the Internet bubble.

The point is that we have been here before. The last time was in 1929. We have a similar economy driven by financial capital with the same debt fuelled asset price inflation and the similar inequality as a result.

What the Economist has missed is that employment is now almost totally explained by the level of creation of new debt. (see Steve Keene, ) And the private part of the economy has run out of capacity to increase its indebtedness - we have run out of ponzi schemes to offset the fall in real wages experienced by the majority. The house price, equity withdrawal game is up. The country is littered with oversupply and overcapacity and interest rates can't go any lower.

It is really quite simple. You can't run an economy that is dependant on debt fuelled consumption when the consumers can't afford to spend anymore and their spending drives job creation.

We have a "jobless recovery" because the government has taken the place of the consumer in generating new debt. But government spending is not the same as consumer spending and won't create new jobs. (and this ignores the change in the way we measure various economic statistics in the last 30 years that has served to hide economic problems)

New jobs come from new and small businesses and not the government or large businesses - or at least this is the case in recent history. In a recent article by Thomas Friedman in the NYT titled "Start ups not Bail Outs" he wrote “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.”

The USA is caught in a downward spiral - the dynamics of this and the feedback loops are clear. Its attempts to escape via increased government debt are simply increasing an already unmanageable debt burden and creating greater inequality. Greece is the canary in the coal mine. And this ignores the problem of more than $100T of unfunded liabilities at the same time as there is a major demographic shift as boomers reach retirement age.

At the same time the USA is trapped by high military spending, a government captured by special interest groups, rising energy prices and the rise of new highly educated competitors ($760 per month pay for a Masters degree in Engineering). California spends more on prisons than it does on higher education.

If the history of 4 previous long term cycles since 1770 is considered, nothing short of wiping out huge amounts of debt and relegating financial capital back to its role as a utility that serves production will work. Given the power of vested interests and the USA political system this won't come without a major crisis.

Karl from Chicago

The correct data to graph is change in employment by month. If you look at this data, you see that we started losing jobs at the end of 2007 and by the end of 2008 were losing over 700,000 jobs per month. In March 2009 we were still losing over 500,000 jobs per month. This number gradually went down (but remained negative) over the last fifteen months until we finally broke into positive territory in March 2010--plus 162,000 according to the story. For the author's education, generally the unemployment rate will continue to increase if you are losing jobs--to expect otherwise is pretty foolish.

If the jobs trend continues, we will soon be seeing jobs added at the pace of 300-500,000 per month. Once this occurs, the unemployment rate will start to go down. However, because of people re-entering the workforce, it won't go down as fast as jobs are being added. Therefore, the net jobs added/lost by month will continue to be the more meaningful number.


I think the issue is that the old economy principles do not apply in today's flatter world (i.e., nothing to be that surprised about breaking of trends in this recession compared to the previous ones). All companies these days are multi-national even if indirectly (as part of outsourcing). So, when the GDP is growing and corporations are doing well, they try to do it using cheaper labor overseas or using cheaper contractor. Hiring has picked up, but in international markets. So, if one were to plot two items - (1) overall employee count of all American companies (maybe even including the work they outsource), and (2) employee count in the US alone, it would show that the number of jobs have indeed increased ... only not in the US.


With the newly energized, poorer countries adding quality labor to the global economy, American workers of low or average skill levels are not particularly competitive employees.

Once the differential between the two worlds narrows significantly, then US workers will be more employable.


Your effort to instigate more serious thoughts on what ails the job machine in the US is interesting.What is more important is a serious analysis of the last decade data.This would involve differentiating between jobs that remain stable regardless the crisis or even a threat and those that are susceptible to effects.If one took one industry as a sample,say public transport,the changes are hardly any.On the other hand an industry like restaurant gets a boost with more jobs and suffers with fall in spending capacity of ordinary folks.The fast food sector stays in the middle and could if it is smart make more during tougher times with innovative pricing of greasy junk food.
The thorn in the foot is the financial sector.While the simple core banking sheds jobs with technological leaps,the other side of it dealing with investments chugs along crafting and labeling products with unkown ingredients that reveal their toxicity over a period.So this side gets a hit when the rot in the product smells and takes down with it serious amounts of fancy spending.
The infrastructure side of the economy depends largely on public or public/private partnered spending and the effect on it could be easily alleviated by intelligent government budgets.
As for jobs that got relocated by shifting process off shore whether manufacturing or service the effect and its severity needs a study.
After all the analysis it will be possible to focus on how to holistically approach,understand and grasp the problems and possible ways to lower impacts of changing economic waves in a glabalized world.
Suffice it to say that the auto,telecom,tourism,health,education and entertainment sectors all move the way job sustenance proceeds.In a changing world certain specialized skilled jobs moving away or relocating is not a serious concern.But simple stuff getting out for greedy cost considerations of short term nature is despicable.


During the Reagan years, the steady rise of incarcerated population helped to reduce unemployment figures. Maybe a new round of prison-building and prison-filling may do the trick again!


I am just wondering whether the comments have been more enlightening than the article itself!

All I can say is that it is fanciful to talk about economic recovery unless it also means recovery in job market. Ultimately the reality of bread and jobs is the common sense stat that matters more than all the fancy numbers that the Wall Street and Business Schools can make us believe are important.

A widening gap between the excessively and ostentatiously rich and the abysmally poor will only lead to social tension and crime destruction of institutions. Making the cake and sharing it equitably are BOTH important. Politicians and economists must put aside their differences and work together if the US is regain its glory.


Since 1990, the dominant machine for US 'productivity' has been to off-shore manufacturing, which resulted in both higher retail margins (and higher rents) while reducing retail product costs.

US industry does not embrace the truth that huge Government expenditure in basic research results in economic riches in future years, by dramatically reducing the cost of participation in the new industries that can take advantage of the new technologies. WW II left the US with a vastly improved manufacturing engine, and with the destruction of European capacity, a dominating position for US industry in global markets. Likewise, the space race to the moon did the groundwork in integrated circuit design, and the development of reliable manufacturing methods. US pundits still believe that free enterprise is the only engine of innovation and growth, despite history's lessons.

Meanwhile, exponential change in manufacturing systems. Exponentially better robotics) is no benefit to American workers. Asian manufacturers embraced robotics earlier, and now the driving force is the Chinese, as they try to meet the developed world's demands for cheaper, better-made goods. The advantage Chinese industry currently enjoys is the support of Government with financing and research to help them innovate. With the move of manufacturing to China, the Chinese are also enjoying the benefits of this new waver of manufacturing technology, which puts them generations ahead of US manufacturers in integrating automation from the rest of the world.

While the US talks about new expenditures in new industries (solar and wind power) the infrastructure and basic research that would make these viable is not being conducted by the US Government. It is the Chinese who are building silicon ingot factories, and tooling up for this new opportunity. This will create jobs in China, not the US.

Without profoundly new attitudes in the US to Government participation in basic research, and the refinement of the manufacturing systems that can deliver the fruits of this research, there will be no new jobs for Americans, other than in the distribution of foreign goods.

The building boom was the most recent mask for the down-sizing of the US workforce, with millions of people employed in construction, loan processing, property valuation, and the myriad jobs associated with rapid property turnover in a ballooning market. many people displaced by the dot com bust of 2001 moved into paper-processing in the property boom, and those jobs are now gone.

I am not prescient, and I may be missing some important new things on the US employment horizon, but as things stand, it seems that the rest of the world is now doing a better job of innovation, and they will see the reward of the new jobs that come with such innovation.

Meanwhile, the US Government cannot keep printing such huge amounts of money for more than another two years to support the economy, so the future is cloudy.

And meanwhile, the audit of US Government expenditures to ensure a more efficient government sector at City, County, State and Federal levels is stalled, ensuring wasteful Government processes continue unabated, raising the need for higher taxes, which will further impact the average worker. Government salaries are substantially higher for the same skills than pay in the private sector, which does not bode well for a leaner, meaner industry which has to shoulder the cost of Government.

Accordingly, greater automation will be the track onto which US companies are forced, which may mean productivity increases, but will also result in lower long term employment.

The US must add 150,000 new jobs a month just to account for population increase. The only way for unemployment to fall would be if new job creation is above 150,000 new jobs a month.

With the impetus toward automation and smaller workforces, it is a race against time and the rest of the world. It would seem that US workers will be the long term losers, unfortunately.

The US economic model has been the engine that showed the world the path to prosperity. We will now see how this applies in totalitarian states, and whether or not freedom is an issue for economic growth.


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