Anyone familiar with my work knows I have not been optimistic for some time on a sea change for the better in the U.S. labor markets.
But that said, I disagree with the assessment of media and financial pundits on the latest Employment Situation Report. On balance, I do not believe the April report was any better or any worse than prior months. Yes, expectations had been stoked. But those expectations have been and remain unrealistic. Nothing has dramatically changed in the political and economic arena to warrant an optimistic reassessment of the economy’s ability to create new jobs.
Year-over-year (from April 2013 to April 2014), non-farm payrolls increased by 1.7 percent. Total private payrolls — excluding the government sector — rose by 2.1 percent. Strained government finances — at the federal, state and local levels — continue to retard hiring.
Compared to the same statistics in April 2013, the current twelve month pace is actually an improvement. Based on revised numbers, non-farm payrolls rose 1.6 percent, while private payrolls increased 2.0 percent. Broadly we have seen a slight acceleration in hiring over the past twelve months.
If I see a dark cloud in this silver lining it is the persisting slump in private sector managerial hiring. In the twelve months ending April 2014, such positions have grown by just 1.4 percent. And, they now account for just 14.6 percent of all non-farm positions; a level down from a January 2004 high of 16.2 percent.
The past fifteen years have not been kind to white collar professionals. First the dot.com bust, then the financial crisis. The combined one-two punch has induced firms to shed the very jobs the 21st Century American middle-class depends on.
Their disappearance possibly explains some of the recent anomalies in the labor force participation rate. The consolidation and elimination of white collar professional positions, through business failures, cost reduction initiatives and merger and acquisitions may account for a significant share of the decline in the labor force participation rate of men between the ages of 45 and 54. For most men, these are their prime earnings years. Historically such rates have exceeded 90 percent. Today the proportion hovers just above 85 percent. So, unless, he has hit the proverbial financial jackpot, it is hard to explain why a man would voluntarily exit the work force just when retirement is just over the horizon and the children are going off to college.
The culling of the ranks of the white-collar, managerial class may also go a long way to explaining the stagnation in real wages and salaries (that is, adjusted for inflation). As a hypothesis, it is worth further exploration. Unfortunately, the patchwork of statistics frustrates arriving at a conclusive answer.
Forgive me for what may seem a digression, but given current labor market conditions, I sense a merger and acquisition boom is the last thing the economy needs. While it may be welcomed by investment banks, I expect it will further hinder final demand growth. If so, this is yet another case where the interests of Main Street and Wall Street diverge.
Why? Another round of business consolidation will accelerate the continued contraction of the nation’s managerial class.
A culprit driving companies to merge or acquire their competitors has been the Federal Reserve Board’s low interest rate policy. Historically low nominal and real interest rates have induced firms to issue debt not just to buy back their shares, but to gobble up other businesses as well.
Each deal completed often leads to consolidation of the combined firms’ ranks, and, largely those of white-collar professionals in what are deemed support functions or non-revenue producing roles.
As Federal Reserve Board chairwoman Janet Yellen considers the central bank’s next moves in its monetary policy, she should consider the unintended consequences of the Fed’s keeping interest rates so low, for so long.
To read more about the disappearance of the American managerial class click here, 20140507 Belabored Reporting