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Why the Jobs Disappeared

Last week, I wrote that the data overwhelmingly shows the reason our economy is slow is that consumers are deleveraging. It's a demand problem.

"The recovery isn't slow because of regulation, taxes, health-care reform, or some vague 'uncertainty' bogeyman," I wrote. "It's slow because consumers are still deleveraging. And it's not going to get any better until they're done."

Some took issue with this. Of course regulations are to blame for the decision by businesses to slash payrolls and sit on their hands, they argued.  

I still don't buy it, and there's another way to back my point up.

The Bureau of Labor Statistics tracks not only how many workers companies are laying off, but why those layoffs occur. It does this the old-fashioned way: It asks them. There are dozens of options companies can choose from -- everything from seasonal factors to bankruptcy to foreign competition to weather events.

Looking at a few of the biggest reasons businesses blame for layoffs, here's how things fared over the past four years:

Number of job losses from mass layoffs







Lack of demand 248,056 516,919 824,834 384,565 144,746
Government regulations 2,637 5,505 4,854 2,971 1,119
Supply issues 1,163 3,446 583 NA 2,637
Automation/technical advances 1,851 1,703 744 1,002 NA
Financial (bankruptcy, lack of credit) 101,556 165,426 228,499 86,637 42,266

Source: BLS. *Year to date. NA: no information available.

By a factor of as much as 200-to-1, it's lack of demand, not regulation, that's causing jobs to disappear. Supply issues have actually caused more layoffs this year than government regulations.

Are regulations and red tape responsible for any job losses? Sure. But that's always been the case, and it's overwhelmed by the elephant of low demand. Regulatory-inspired layoffs have actually plunged since 2008.

As I've written before, other data backs this up. The National Federation of Independent Businesses takes a survey of small businesses across the country, asking what their biggest problems are. Recently, 33% said poor sales were the biggest obstacle holding them back; 13% said regulation -- the latter being exactly average over the past 15 years. The 33% claiming poor sales are the biggest problem is nearly three times the average.

"If you don't have the demand, you don't hire the people," small-business owner Ross Riddle recently told the Los Angeles Times. That's what it's all about.

Consider another statistic: Private-sector jobs growth has been substantially better over the past two years than it was after the 2001 recession. What's different today is that the government sector is shrinking. Since January 2010, private employers have added 2 million jobs, while government employment has shrunk by nearly half a million jobs. Two years after the 2001 recession, private employers shed 884,000 jobs, while governments added 174,000.

The vast majority of the recent government job losses have been at the state and local level (although federal employment levels have been flat for a decade and are down sharply since the 1980s). This isn't surprising, since state and local tax revenue hasn't come close to recovering since the recession. According to the Rockefeller Institute of Government, state tax revenue is still about 8% below 2008 levels -- more like 15% below when adjusted for inflation. Sales-tax revenue is down about 6% in real terms over the past two years. Why? Because demand is down. That's bringing jobs down with it.

It's slow, and the prime culprit is demand. In that kind of environment, high-quality stocks with consistent dividends and geographic diversity such as Johnson & Johnson (NYSE: JNJ  ) , Procter & Gamble (NYSE: PG  ) , Chevron (NYSE: CVX  ) , and Wal-Mart (NYSE: WMT  ) might be your best bet. That, and a healthy dose of patience -- you're going to need it.

Fool contributor Morgan Housel owns shares of J&J, Procter & Gamble, Chevron, and Wal-Mart. Follow him on Twitter, where he goes by @TMFHousel.  Check out his holdings and a short bio. The Motley Fool owns shares of Wal-Mart Stores and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Chevron, Wal-Mart Stores, and Johnson & Johnson, as well as creating diagonal call positions in Wal-Mart Stores and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (13) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2011, at 6:06 PM, michnow wrote:

    Of course job growth is based on demand. Something obama has no concept of, but business's will delay hiring as long as possible with so many unknown costs coming from dc.

  • Report this Comment On October 05, 2011, at 6:10 PM, cmfhousel wrote:

    When was the last time costs coming out of DC were known? Amazes me how many people yearn for the certainty we had in 2007 (the future was so clear!).

  • Report this Comment On October 05, 2011, at 6:39 PM, sgt1917 wrote:

    Yeah, but why is demand down? Because so many people lost their jobs and the remainder are either scared and scaling back on expenditures, or their living off of the people that still have jobs through entitlement programs. They lost their jobs because of excessive regulations, litigation, unions and taxes which have sent so many of American jobs to Asia, Mexico and South America. Make it cheaper for businesses to do work in America again and the problem will be solved.

  • Report this Comment On October 05, 2011, at 7:27 PM, Doris411 wrote:

    Oh, the horrible, horrible, entitlements!

    Unemployment compensation is funded, theoretically, by taxes paid by the former employer. UE taxes are figured into the total cost of payroll, which is much more than pure salaries.

    So if Nancy the bookkeeper works for employer A for ten years and then loses her job, employer A was paying unemployment taxes for those ten years. Now they may take a hit in their future UE tax rate for laying off Nancy, but Nancy worked hard for those ten years and deserves those benefits. (And if she didn't, how did she last that long?)

    Corporate officers get huge severance packages, while the rank and file get unemployment compensation at a fraction of their former earnings. The C-suite get bonuses that could have funded dozens of staff-level employees.

    Who is living off of the people that still have jobs?

  • Report this Comment On October 07, 2011, at 12:34 PM, starz188 wrote:

    Morgan - is there any data easily available with regard to historical demand trends and related job losses?

    I'd be curious to see how these numbers compare to the early 80s, or '37... or even the Great Depression.

  • Report this Comment On October 07, 2011, at 12:40 PM, GilliganJR wrote:

    If the Bureau of Labor Statistics is asking "why the layoffs?", I assume they could also provide a breakdown of layoffs by industry (housing/construction, auto, retail) and region/market (hardest hit by housing).

    If the reason is "demand" (which I believe), then is the lack of demand focused on areas hardest hit by the housing/credit crisis?

    Vegas seems like a "perfect storm". The housing bust kills their boom, the construction market dies, followed by the recession (and intense corporate scrutiny) drying up the corporate/government convention market, followed by states desperate for cash approving slots/gaming creating local competitors to what was once primarily a Vegas monopoly. The dominoes just keep falling for Vegas.

    I apologize in advance if you have already answered this question elsewhere, Morgan.

  • Report this Comment On October 07, 2011, at 12:41 PM, renton6275 wrote:

    The lack of demand may not only be from deleveraging but global pessimism; the belief that it may be wiser to save now rather than consume.

    The wealth effect in reverse may also play a role. Property values keep shrinking, 401k keeps disappearing why splurge on items that aren't absolutely necessary? Spending habits may be permanently affected for a few generations..

  • Report this Comment On October 07, 2011, at 12:41 PM, FutureMonkey wrote:

    Don't try to confuse us with facts Morgan - sheesh


  • Report this Comment On October 07, 2011, at 4:01 PM, astuber9 wrote:

    Great article Morgan. This overused excuse by Republicans really gets old. I do believe that we have more regulation than what is necessary and of course it hurts businesses' ability to predict the future, but absolute certainty is impossible in a democracy. That is a fact of politics, we vote the bums out and the new bums come in and change the laws. "Certainty" in our government is not possible by design, our great founders did this intentionally. Do you want the alternative, some form of dictatorship/monarchy that would give you certainty about the future in a bad way?

  • Report this Comment On October 07, 2011, at 10:00 PM, herraw wrote:

    Wow, what a simplistic, surface scraping analysis of the data. Lack of demand was the majority response, so over regulation and uncertainty can't be a problem...

    Why is there a lack of demand? People don't have jobs perhaps? Why don't people have jobs? Nobody's hiring? Why aren't they hiring? Well, survey says lack of demand....


  • Report this Comment On October 08, 2011, at 3:18 AM, ACNFool1 wrote:

    I'm too busy working to even have time to comment. Companies are asking more with their employees. I'm lucky to see my Son 8 hours a week. I need the Greek lifestyle. I guess it is interesting to try and figure out why the unemployment rate is so high. I agree that the numbers in this article don't cover the entire story.


  • Report this Comment On October 08, 2011, at 5:02 AM, CaptainWidget wrote:

    Captain Obvious chiming in

    Demand is down why? Because the current mixture of capital and labor in the US is undesired by the marketplace. There's next to no demand for construction, and every industry tied into it is seeing the reduced demand. There's only two ways to increase to fix this. Inflate the undesired markets (with govt mandates and cheap money) or to let the mixture of assets liquidate, letting the capital flow into other productive activities where the labor is desired.

    There's no middle ground....either inflate undesired goods, distorting market; or liquidate undesired goods, correcting the markets. Either one could fix the jobs situations in the near term, but only one will fix the economy in the long term (and in fact, the other hurts long term...I'll let ya'll figure that one out).

    The massive resistance to letting capital liquidate is 100% coorelated to regulation. By definition, regulation is hurdles to capital flowing into new industries. Regulation makes it harder (for the benefit or mankind or whatever bunk you want to use to justify it) for people to open businesses. Period. NO sane human would deny that. The market no longer demands 10 million people building houses (thank god), but because of the hurdles of regulation, they can't flow efficiently into new productive areas. They sit around waiting for the economy to grow enough to re-employ them in current demanded for at a profitable rate.

    Until the economy grows at a commensurate rate in current productive areas, the current non-productive areas will remain unproductive. If the capital were allowed to flow in an UNREGULATED, market directed movement to profitable industries, unemployment would cut in half in two quarters.

    Unfortunately the current administration has demanded that we wait...good leadership....

  • Report this Comment On October 16, 2011, at 6:16 AM, thidmark wrote:

    When your workplace has storage closets with shuttered doors and signs on them that read "Not An Exit," you can bet regulation is approaching ridiculous levels.

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