When 10% Feels More Like 20%

Whoopee, the economy is in recovery mode!  But where are the pompoms (and the enthusiasm) when you need them?

If you're an economist, indeed we have officially left the recession in the dust, or maybe in the mud. If, however, you're unemployed or feeling like you're hanging onto your job by your (slipping) fingernails, where's your economic love?

That's the not-so-secret dirty secret of the labor markets: they tend to peak shortly after the economy peaks, but tend to recover well after the so-called recovery has began. For those unlucky enough to have been impacted by the 2001 recession (a pretty minor one by most economic standards), you may recall that the labor market took a fairly big hit, and then it didn't start to rebound in any significant way until more than a year after the recession was officially declared dead. Judging by the depth of this recession, and the anticipated weak recovery, it could be like that this time around too.

The "official" U.S. unemployment rate today is 10.0%, but the real unemployment/underemployment rate is far higher. By by the broadest government measure of unemployment, which includes some of the "underemployed" (normally full-time workers working part-time to get by) and those who have given up on looking for employment right now, the rate is 17.5%, or about one-sixth of the labor force. In a few of the harder-hit states, the rate exceeds 20%.  If you add in the full-time workers who've accepted jobs outside of their chosen profession and/or at wages well below what they had been accustomed to  making, the rate is easily a few points higher than 17.5%.

So, with about one-fifth of labor market participants unemployed or underemployed in some fashion, where is the jobs recovery? (When 60 Minutes interviewed President Obama recently and the topic switched to jobs, he said he'd prefer to keep talking about Afghanistan instead, which is understandable, considering the millions of jobs that have been lost since his inauguration). 

There will indeed eventually be be a jobs recovery, but it's likely going to be in the second phase of the overall recovery, when growth reaches the the level where employers feel more confident, and have a pressing need to expand their workforces.  Right now though, most employers are extremely reluctant to begin hiring and to expand their fixed costs, even as business conditions have started to improve. Many -- if not most -- employers are still shell-shocked from the 2008-2009 period.

The good news for now is that it appears the labor market is bottoming, or possibly that we have already hit bottom (only history will tell).  The November job loss count of just 11,000 jobs nationally (seasonally adjusted) was the lowest monthly tally of job losses in nearly a year and a half. If December's data is similarly good, than maybe we are at the bottom,  If not, then we'll probably just skim around the bottom for a while before turning upward sometime in the first half of 2010.

Additional good news, in form of increased temporary worker hiring, is already happening. In November 52,000 temporary workers were hired, and these count as "employed," and this contributed significantly to the low number of total job losses reported last month.  Eventually, businesses will feel comfortable enough to start converting some of these temporary worker slots into full-time "regular" employees.

So, what does this impending recovery mean for wages? First of all, don't expect much of an up-tick anytime soon. Recovering labor markets are like a Sloth on a Sunday stroll (slooooow moving), since it's a supply/demand market.  As long as the supply of labor exceeds demand, there's not much impetus for hiring wages to increase (and those who remained employed will mostly receive very modest pay increases in 2010 and beyond). So, until the supply/demand equation gets re-balanced, don't expect much on the upside. Demand will eventually pull wages upward, but not until most of the excess supply is soaked up.

This labor market funk will pass within the next few months, and we'll be at the bottom or moving slightly upward soon. Don't expect an upward surge though, but a bottom for sure (my fingers crossed), and then a slow but steady improvement.

Cheers and Happy New Year to you all, and to a better 2010 for workers and businesses alike!

Doug Sayed, SPHR, CCP, is Principal at Applied HR Strategies, a Seattle-area compensation consultancy, and the developer of the StrategicPay Series, a series of "hands on" do it yourself (DIY) guides to developing sound, strategic compensation programs.  The first guide in the Series, the Base Pay Toolkit is now available.

Comments

[John]

Not to be negative, but do you really feel that the 52,000 temporary hires nationally is a good sign of a recovering economy that we can hang our hats on, or the sign of the holiday season? How many of those did UPS and Federal Express Account for??

[Doug Sayed]

Thanks for your comments John.

You raise a good point, but keep in mind that after a string of 1/2 million jobs lost per month during the depths of the recession (including temporary hires), the fact that job losses have dried up to a trickle and that there is now a net increase in temporary hiring is a very encouraging sign.

Coming out of a economic downturn, increased temporary hiring virtually always precedes an increase in "permanent" hiring, as employers tend to be quite shy about making new commitments before they are confident of a sustainable recovery.

I can't speak for UPS, but as a former regional HR professional for FedEx, my guess is their temporary hiring was quite light this year. At FedEx, nearly all professional staff kick in to help over the holidays, and this limits the need to hire large numbers of temps, even in good years, which 2009 certainly was not (although it was better than 2008).

[Klaus]

Hi,Doug,

This BNA report shows that there has been wage growth in the overall economy in 2009. BLS also reports the same phenomenon. Wages tend to remain rigid during recessions, as you may know.

BNA Index Predicts Slower Wage Growth
Arlington, Va. (Dec. 15, 2009) — The rate of annual wage increases in the private sector likely will slow further in the coming months, according to the revised fourth quarter Wage Trend Indicator™ (WTI) released today by BNA, a leading publisher of specialized news and information.

The WTI fell for the seventh consecutive quarter, to 97.53 (second quarter 1976 = 100) from 98.00 in the third quarter. “We've seen some signs that the job market may be hitting bottom, but it will take a lot more than that to produce a turnaround,” Kathryn Kobe, an economic consultant to BNA, said. “Until the labor market strengthens, annual increases will remain very weak,” Kobe said.

Although very few jobs were lost in November, most workers have little bargaining power to demand higher pay because of double-digit unemployment and reduced workweeks, Kobe says. The rate of wage growth overall in the private sector is expected to drop below the 1.4 percent posted in the third quarter, according to the latest Department of Labor data. That was the smallest year-over-year gain on record and less than half the 2.9 percent increase for the same period in 2008.

Reflecting poor labor market conditions, five of the WTI’s seven components made negative contributions to the revised fourth quarter index, while one was positive and one was neutral

http://www.bna.com/wti/highlights.htm

Klaus

[Doug Sayed]

Thanks for the additional data and perspective Klaus!

[Becky Regan]

Doug,

Very interesting post and commentary on our current employment situation. While I do agree that the labor scenario is better than it has been, I think the most private sector employers (particularly small businesses) will hesitate to add employees until the costs for health care reform and cap & trade are known. The pain of layoffs from an employer's perspective are too fresh to forget (yes, it's hard for employers too!) unless a sustained increase in business can justify the addition of a FTE.