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Did you hear the air slipping out of the economy earlier this month?
That was the sound of a terrible jobs report, showing an increase of just 69,000 jobs when economists had expected 150,000. To make matters worse, March and April's jobs numbers were revised down by a total of 49,000.
The unemployment rate ticked back up to 8.2%, far above its historical average of 5.8%, and even if job growth came in at a rate of 175,000/month, we would not reach 6% unemployment until 2021. Economists are starting to say that low national unemployment could be a thing of the past. This may be the new normal.
They call it structural unemployment
The unemployment rate generally rises and falls with the overall business cycle, but for a number of reasons, some economists believe that full employment may not return with a healthy economy. One trend they've spotted in the U.S. and other developed countries is the "polarization" of the job market, meaning that technology is making more and more middle-class jobs, including many in manufacturing, obsolete. The need for humans to do certain white-collar jobs like travel bookings and low-level legal work has also been disappearing. What's left over are positions that demand advanced degrees like software engineering or financial services, or jobs that can't be outsourced overseas such as collecting trash, prepping food, or taking care of children.
Two of the economists studying the trend, Nir Jamovich and Henry Siu, said that the last three recessions have led to "jobless" recoveries because "you have these middle-skilled jobs that are being wiped off the table" and aren't coming back. Another example they cited is the advent of e-commerce and automated checkouts in the retail sector, which helped that industry shed 34,000 jobs in March despite an increase in sales.
The invisible hand never said anything about jobs
Forgotten in the national debate over the economy is that capitalism has never really been about job creation. Free markets are based on competition, efficiency, survival of the fittest, and creative destruction. They're about letting consumers decide what's best for them, creating a marketplace where buyers essentially vote with their wallets. An entrepreneur starts a business that he or she hopes will provide a meaningful and valuable product or service, which will turn a profit if the economics and market forces are right for it. Job creation is secondary. While businesses generally need to hire more employees to grow, there is little correlation between the number of employees and the success of a business. Facebook's (Nasdaq: FB ) recent $1 billion purchase of Instagram offered a stark reminder of this. The 16-month old photo-sharing service has all of ... 13 employees. For every W-2 the company distributes, it's valued at $77 million. How's that for efficiency?
Contrast that with General Motors (NYSE: GM ) , a company so important to the country that its bellwether status became an expression. The carmaker's massive workforce of about 200,000 might make it a darling of a job creator, but its bloated payroll and pension obligations were a major part of the reason it had to come groveling to Washington for a bailout in order to survive.
Perhaps, the best recent example of this debate centers around Transcanada's (NYSE: TRP ) proposed Keystone XL pipeline, which has become a flashpoint in the battle over the economy, the environment, and energy. The debate mainly focused around job creation with claims varying from as high as "more than 100,000" to as low as 5,000 to 6,000 temporary construction jobs. Transcanada itself estimated 20,000 new jobs from the project, which it emphasized to help sell the project, but job creation was not what they were talking about in the board room (and I don't mean that in a bad way). They want to build Keystone XL because it's good business. Pipelines in that part of the country are at capacity, and Transcanada would like to ship its oil down to the Gulf to refine it and bring it to market. Good business doesn't just benefit the company undertaking the project. Increasing supply would help bring oil prices down (even if by ever so slightly), benefiting consumers, and the direct investment to build the pipeline would also benefit the country, along with any jobs created, of course.
If you're focused on job creation you're missing the point
The beautiful thing about capitalism is that jobs are (supposed to be) created organically, not as a corrupt favor to an industry lobbyist or to pander to a valuable constituency come election time. Like happiness, employment is best created as a byproduct of something else. When a successful business creates jobs in a fair market, that adds value for all other stakeholders, including consumers and the nation as a whole.
Critics like to lament the fact that in the Internet era companies like Facebook don't employ nearly the numbers that industrial giants like GM did back in their heyday. But they are forgetting that an entire industry has sprung up because of social networks. Social media has become a huge part of marketing -- according to one survey, 7.4% of marketing dollars are now spent in that area, and that percentage is expected to jump to 19.5% in the next five years. You can bet there's someone, if not an entire department, at nearly every corporation you've heard of dedicated to managing and promoting the brand on Facebook and Twitter.
Same thing with search engine optimization and Google (Nasdaq: GOOG ) , or Apple (Nasdaq: AAPL ) and smartphone apps. Googling things has become such a force in the modern economy that competition to sit at the top of searches is enormous. Companies will pay you a pretty penny if you've mastered this skill.
App development, meanwhile has become its own niche industry, thanks to the strength of the iPhone and the copycat Android platform. Rovio, the maker of Angry Birds, has been valued at as much as $6 billion, simply by giving people a way to entertain themselves flinging birds into pigs. Fellow game-maker Zynga would never have reached a post-IPO valuation as high as $12 billion without the platforms enabled by Facebook and smartphones.
In Part 2 of this article, I'll discuss more growth industries of the future, as well as the post-consumerist economy visible in countries like Denmark, and steps the government can take to encourage job creation and a strong economy. Stay tuned.
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