The Jobs Aren't Coming Back: Outdated Ideas Fuel Economists' Unrealistic Optimism

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Economists are forecasting a recovering U.S. economy. It's great that they're optimistic, but are they right? It could be that they're applying old forecasting models to an economy that has changed in fundamental ways. After all, since the advent of the Internet in the mid-1990s, businesses have found that they can meet demand with fewer workers. Outsourcing to cheaper labor markets has also become standard business practice. And that could mean a permanent class of millions of former workers who never get reemployed.The National Association for Business Economics expects 3.1% GDP growth in both 2010 and 2011. And the NABE anticipates that jobs will increase by 50,000 a month in the first quarter, followed by 103,000 a month in the remaining three quarters of 2010.

Economists make these estimates based on a historical correlation between increased economic production and job creation. Simply put, they assume that the more the economy produces, the more people businesses will hire. But productivity is increasing at a rapid rate -- most recently at 6.2% in the fourth quarter -- which is just the way companies want it. If they can meet demand without hiring new people, that's what they'll do.

That's because shareholder pressure to boost quarterly profits never ends. The NABE predicts 2010 corporate earnings growth of 15%, which -- in an economy that's growing at 3.1% -- can come only from squeezing more revenue out of fewer workers. Unless businesses perceive that they'll miss out on more profit than the long-term cost of hiring full-time employees, they'll resist hiring new people.

It's Easier Than Ever Not to Hire Full-Timers

It's no accident that the average time after a recession for employment to reach its previous peak has increased -- from almost two years to nearly four. Specifically, that rebound period has grown from 21 months (pre-1990) to 31 months (1990 recession) to 46 months (2001 recession), according to The New York Times.

Two big things have changed in the economy since that pre-1990 period. The first is that businesses began using the Internet to boost productivity, and the second is that they're increasingly outsourcing work to countries where the labor costs are lower. These two changes give businesses many options to boost their productive capacity without hiring more full-time workers.

Officially, 15 million people are now out of work -- 6.3 million of whom have been unemployed for more than six months, and 2.7 million of whom will lose their unemployment checks in April unless Congress extends jobless benefits again. Over the last decade, automation has resulted in the canning of 5.6 million workers, the equivalent of a 0.9% annual reduction in the workforce.

The 2000s featured a well-orchestrated war on workers. Recall that NABE prediction of employment growth that will soon hit 103,000 new jobs a month: Well, it will take an economy producing at least 100,000 jobs a month just to absorb new entrants to the workforce. While it sounds robust, that level of job creation won't even make a dent in the 15 million unemployed.

In the battle for ever-higher corporate profits, the casualties suffered by American workers are just collateral damage. And the economists who predict a healthy recovery appear to have completely missed this point. Today's economic realities will leave millions of former workers unable to get new jobs. And unless taxpayers pay for their food and shelter, these millions could find themselves on the streets.
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