More Jobs, Less Work, Low Wages, Dark Future: Part 1

Nearly every recent survey asking Americans about their most pressing concern points to the same answer: a job. People are upset about taxes, politics, deficits, and wars, but until you can clock in five days a week and get a paycheck every other Friday, almost nothing else matters.

The good news: Jobs are starting to come back. About 3.3 million more Americans are working today than were just two years ago. That's great from a social perspective. People are going back to work and regaining dignity. Let's hope it lasts.

But even if it does, it might not be enough to fuel a strong recovery. What drives the economy isn't necessarily jobs -- it's people's ability to save and spend money. And even though jobs are coming back, average weekly hours and wages, by and large, are not. More people have jobs than did a year or two ago, but we're working fewer hours, for barely more money, than before the recession began.

The average private-sector employee worked 34.3 hours per week this year, according to the Bureau of Labor Statistics. Five years ago, the average workweek was 34.7 hours long.

That might sound like a small difference, but it adds up fast. Working more hours means bigger paychecks, which means more saving and spending, which drives economic growth -- just like adding new jobs would. According to UBS economist Sam Coffin, every one-tenth of an hour increase in an average private-sector workweek is the equivalent of adding 320,000 jobs. So if employees were working the same number of hours today as they were five years ago, the increase in spending would be like having an additional 1.3 million people employed -- enough to push the unemployment rate well under 8%.

Then there are wages. From the end of World War II through the late 1990s, average real (after inflation) hourly earnings increased 1.8% a year, and growth coming out of recessions was usually stronger than that. Not this time. Average real hourly earnings have been essentially flat over the last several years. If wage growth followed its historic growth rate from 2009 through today, the average worker would be earning almost $1 an hour more than they are now. The additional spending that would generate is the equivalent of some 2 million new jobs in today's economy.

All of this underlines something important about today's jobs market: A disproportionate number of jobs being created are for low-wage, part-time work. According to a recent Bloomberg Briefing, 41% of jobs created since 2010 are from "low-wage" sectors like retail and hospitality, even though such sectors only make up 29% of the total labor force. When government job losses are factored in, 70% of all job gains in the last six months came from low-wage sectors. In March, the notoriously low-wage restaurant and food-service industry added 37,000 of the 120,000 total jobs created for the month. "Administrative and waste services" made up another 15,000 of the total (though month-to-month figures can be murky).

Measured by the number of jobs alone, our employment recovery has been extraordinarily weak. But, when you factor in the quality and pay of the jobs that are bouncing back, it's been downright abysmal. When it comes to spending and stimulating the economy, creating 3.3 million new jobs today might be the equivalent of several hundred thousand jobs in years past. That's a dark thought when thinking about our future.

But here's what's amazing. Even though unemployment is still high and new jobs are mainly low-wage gigs, total consumer spending growth has been strong. Retail sales boomed over the last two years, and are now some 9% higher than before the recession began. Real (inflation-adjusted) personal consumption expenditures are now easily at an all-time high, some $200 billion a year more than before the recession, and should hit a new high in per-capita terms this year. Retailers from all ends of market -- from Wal-Mart (NYSE: WMT  ) to Tiffany & Co. (NYSE: TIF  ) -- have done well over the last few years given any economic environment, let alone a literal doubling of the unemployment rate.

And all of this, mind you, happened as the personal savings rate rose and household debt fell.

So there's a paradox. As unemployment increased and Americans saved more money -- and new jobs centered around low-pay, low-hour work -- we actually kept our wallets open and spent a good amount of money. Something doesn't add up. How did it happen?

The answer might be more complicated, and frightening, than you think. We'll explore it in the second part tomorrow…

Fool contributor Morgan Housel owns shares of Wal-Mart. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, creating a diagonal call position in Wal-Mart Stores, and have recommended shorting Tiffany. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (16) | Recommend This Article (22)

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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 April 25, 2012, at 3:08 PM, DJDynamicNC wrote:


    So strange that a "good" outcome would be for more human beings to be spending more time doing things they don't really want to do.

    I realize that given the rules of the system we've built, more people working for longer is both necessary and positive relative to the alternative. But I think that makes it worth questioning the nature of the system we've built.

  • Report this Comment On April 25, 2012, at 3:12 PM, DJDynamicNC wrote:

    Related - I'm less interested in the contrived "dignity" and more interested in the joy of passionate work.

    I'd also like to point out that those who speak most often of the "dignity" of work are just as likely to mock a mere McDonald's job as beneath them, which is a funny way of according dignity. I might also point out that those same people are quite likely to decry the poor as lazy welfare recipients, no matter how many hours they may work.

    Not to tar you, Morgan, I expect you don't fall prey to those same biases, but you've used the framing and I think it's worth calling it out for the false framing that it is that we all might better understand the picture before us.

  • Report this Comment On April 25, 2012, at 5:37 PM, johnluma wrote:

    Part of it is, most Americans still want to live their aspirations, not their anxieties. So this translates into -- despite what Chris Christie has said recently -- the lower class striving to get out of poverty and the middle class striving to live like they intend to live a middle class life. And this means every dollar acquired gets spent and pumped back into the economy.

  • Report this Comment On April 25, 2012, at 7:44 PM, CaptainWidget wrote:

    I think it's pretty simple. If you have a dollar, you can either spend it today and get the gratification of it's results, or defer spending until the future, delaying gratification for the increased rewards of the wait.

    With interest rates averaging out to 0%, what's the point of saving it? It won't be worth more if you wait a year to spend it, so just buy what you want now.

    So unemployment is high because it's too risky/expensive for businesses to hire, wages are down because only minimally productive industries are hiring, debt is down because everyone is defaulting, and savings is down because the interest rate is abysmal. Is that tomorrows conclusion?

  • Report this Comment On April 25, 2012, at 7:52 PM, TMFMorgan wrote:

    <<With interest rates averaging out to 0%, what's the point of saving it? It won't be worth more if you wait a year to spend it, so just buy what you want now ... savings is down because the interest rate is abysmal.>>

    When short-term interest rates were 6% 12 years ago, the personal savings rate was 2%. When short-term interest rates were 0% in 2009, the personal savings rate was 6.5%.

    <<Is that tomorrows conclusion?>>

    No. But stay tuned.

  • Report this Comment On April 25, 2012, at 8:02 PM, TMFMorgan wrote:


    I got ambitious and ran the numbers. Going back to 1955, changes in interest rates only explains 45% of the change in savings rates.

  • Report this Comment On April 25, 2012, at 8:05 PM, CaptainWidget wrote:

    Micro-shot. We were also going through a horrible recession in which people were tightening their belt buckles because jobs were being lost left and right.

    The current savings rate hasn't been this low since pre-recession, and the the month-to-month rate has been dropping since 2010.

    Of course, there's lots of factors involved in how much a family saves, but the highest savings rate in modern history was in 81-82ish when the funds rate was 19%. The lowest savings rate in modern history was 2005ish when the funds rate was 1% and everyone was happy as a clam.

    All things equal, people save more either when things are terrible or when there's a large incentive to do so. Currently neither is a big enough motivator.

  • Report this Comment On April 25, 2012, at 8:37 PM, maiday2000 wrote:

    Umm...$5 trillion in government debt?

  • Report this Comment On April 26, 2012, at 1:40 AM, kyleleeh wrote:

    @Captainwidget and Morgan

    Captain I noticed that the link you posted lists the savings rate as a percentage of disposable income.

    Morgan are your saving rate numbers a percentage of total income or disposable?

    I can't tell if you guys are comparing apples to apples, or not.

  • Report this Comment On April 26, 2012, at 2:46 AM, CaptainWidget wrote:

    Good point, I don't know either. I just pulled the first credible source I could find. He may be using another highly credible source as well.

  • Report this Comment On April 26, 2012, at 9:31 AM, TMFMorgan wrote:
  • Report this Comment On April 26, 2012, at 10:58 AM, XMFGortok wrote:

    @TMFMorgan it's great that you posted the savings rate... except that you forget that 6 years ago, we were in a boom. Now, we are in a recession.

    People want to save in a recession. Lowering interest rates to zero punishes savers.

    Keynesians everywhere would be proud, since they erroneously believe that investment can happen without savings.

  • Report this Comment On April 26, 2012, at 11:16 AM, TMFMorgan wrote:

    I didn't forget it. I was pointing out that people base their savings decisions on more than interest rates alone. And yes, low interest rates punish savers. Nowhere do I disagree with this.

    <<Keynesians everywhere would be proud, since they erroneously believe that investment can happen without savings.>>


  • Report this Comment On April 26, 2012, at 12:06 PM, DJDynamicNC wrote:

    "it's great that you posted the savings rate... except that you forget that 6 years ago, we were in a boom. Now, we are in a recession."

    I hope you remember that booms and recessions can completely rationally call for different responses the next time government deficit spending comes up.

  • Report this Comment On April 26, 2012, at 2:39 PM, astuber9 wrote:

    maiday2000 wrote:

    "Umm...$5 trillion in government debt?"

    Bingo. If the legislators ever get their act together and agree to raise taxes and cut spending like responsible adults (isn't that hilarious?), we are all in for a world of hurt.

  • Report this Comment On April 27, 2012, at 8:23 AM, XMFGortok wrote:

    @DJDynamicNC I disagree with that premise entirely, because if I agreed with it, I would essentially be saying that the government can [successfully] 'centrally plan' the economy, which they cannot.

    The most the government can do is paper over the problem with money printing (which they are doing). In the end, you will have two problems: The original, and the effects caused by the government manipulating the money supply.

    @TMFMorgan It's only a straw man if I used it as part of my argument -- it is not, it's merely an observation (related, yes).

    On a completely unrelated note, I enjoy your articles immensely. Fool on!

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