You do the Math

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It all started with a stapler. My first week in the training program at DLJ in New York, I requested a stapler from our Goldman Sachs-trained drill sergeant. Little did I know the can of worms I’d opened. Requests for office supplies, I was told, were reserved for individuals who merited oxygen. We trainees, on the other hand, ranked just below bottom feeders on the ocean floor. The name “Stapler Danielle” stuck for years to come.

How a propros. As a young child, I played office rather than dolls. I set up a desk and files and occasionally even scored real office supplies from an indulgent parent. Staplers, though, came at a premium. Hence the dismay that I would have to wait as an adult as well. One has to wonder what will elude the current generation of young workers. Is it something as trivial as an implement with which to maintain paperly order on a pathway to a vibrant career? Or is it something more profound?

Unlike many other countries ravaged by the financial crisis, youth unemployment in this country has come tumbling down since peaking at 19.5 percent in April 2010; it is flirting with a 12-percent floor and below its 12.3-percent average dating back to 1955. Likewise, at 5.3 percent, the overall unemployment rate is promising to break the five percent rate; it is below its 5.8-percent average dating back to 1948 and also a pittance of its October 2009 peak of 10.2 percent.

Is it time to pack away the worries and call it a day? That’s impossible to say because no one truly comprehends the contextual relevance of the above comparisons. There are simply too many variables absent from the above figures, many, but not all, of which relate to the shrinkage of the size of the workforce since the onset of the great recession.

The old adage about the decline in the labor force participation rate to 62.6 percent, the lowest level since 1977, when I was running my first “business,” is as tired as the recovery and equally as uninspiring. It’s been boiled down to two words which most economists can repeat in their sleep — demographics and discouragement.

Now Baby Boomers retiring have been joined by those who have found it impossible to replicate their earnings from before the crisis and have simply thrown in the towel to the detriment of our economy. And several QE campaigns ago, Fed policy entered into the fray to address the discouraged faction. Leave interest rates low enough for long enough and businesses will eventually acquiesce and follow the central bank’s script. Borrow cheap funds. Spend to grow the business. The need to hire new workers necessarily follows.

Only history can decide whether policymakers were innocent bystanders to the countervailing forces thwarting their determined money-printing efforts. Some studies, which have ignited political debate, have concluded that many sidelined workers are economically encouraged to remain out of work. Sad to say, they are making sound financial decisions: The more benign of these papers conclude that many workers’ incomes would have to double to entice them back into the workforce.

Add those on disability to the 93 million underemployed and one can roughly deduce that the current flat wage environment has much to do with the bifurcation in the labor market. There are the worker haves and have nots. There are those capable of working who have the power to command higher wages and job security, and those who don’t. My whiz bang partners in economics sleuthing, Philippa Dunne and Doug Henwood of The Liscio Report, found evidence of a continuation in this trend in the latest July data release.

Those who had jobs in June and lost them in July fell to 1.1 percent, one of the lowest readings since the onset of the recovery; those who had jobs leaving the labor force were also down. The flip side: the share of those unemployed in June who found work in July also fell and hard, from 24.1 to 22.3 percent. Meanwhile, those who were jobless in June and left the labor force also rose, from 24.8 to 25.7 percent. Their conclusion: “Less job loss, but also less job finding.”

Were it not for one more trend, the story would end in this bifurcated manner. But a recent chat with Vadim Zlotnikov, the chief market strategist at Alliance Bernstein, left me unsettled. He contended that the labor market was not bifurcated, but rather trifurcated. Yes there were those who were discouraged and disengaged. Yes, there were those who were all-powerful and completely engaged, particularly those in such industries as biotechnology whose higher wages could be passed along to end users. But there was a critical cohort being left out of the calculus – the part-timers.

To take the latest month’s data and extrapolate seems a bit ridiculous. While 6.5 million or so part-timers who would prefer to be working full-time were notable, their numbers have contracted meaningfully over the past few years. In fact, part-time employment is down smartly, by 3.3 percent over 2014 while full-time is up 2.7 percent. But that wasn’t where Vadim was headed with his observation.

Since 1955, those working part-time for noneconomic reasons have been rising steadily – they number about 20 million today. There is no huge news flash in revealing that this movement hugged the en-masse entry of females into the workforce, which meshes with the Bureau of Labor Statistics’ definition of “noneconomic.” This includes medical limitations, childcare and family obligations, and retirement or Social Security limitations on earnings among others. But something disruptive has taken place between moms and their choosing to work part-time since the onset of the Great Recession.

Beginning in 2010, the labor force participation rate for women has declined while that of part-time for noneconomic reasons has risen steadily. After suffering a temporary blow, the number of non-economic part-timers has rebounded and is approaching its all-time high. This, Vadim suggests, backs the Uber economic evolution. Think about it. A typical Uber driver sets his or her own hours and personifies the move towards flexibility being in high demand as one service industry after another is disrupted and reinvented. The clincher is that “flexibility” usually equates to part-time.

The catch is that detached workers and part-timers alike – regardless of whether they’re freely making a choice that suits their lifestyle or forced into part-time employment but would prefer a full-time job – have little in the way of wage pricing power. The theory, at least among Wall Street economists who insist wage inflation is right around the corner, is that those full-timers who are closely tethered to the workforce have enough in the way of pull to lift earnings in the aggregate. Wage pressures have never been ignored by the Fed and will in turn force a rate hike. And yet wage growth remains elusive at best – earnings are up 2.1 percent over the last year. They’ve been growing at this anemic pace for several years now.

My greatest fears for the long-term health of the job market were aired in a Wall Street Journal story that recapped the July jobs report. The president of an industrial manufacturer lamented, as many have in recent years, the skill disconnect between those seeking employment and the job requirements needed. In the wake of the housing crisis that left many a construction worker in this lurch, it wasn’t too surprising to hear this age-old refrain. But it wasn’t as simple as that. One of his laments was that he couldn’t find workers, “because people can’t handle eighth-grade math.” That one stopped me cold. We’re not talking about a construction worker who can’t work a shale site but rather a grown child with an inadequate education.

In the spirit of JFK, one suggestion for the next great debate, the outcome of which could determine who will fill an upcoming job vacancy in DC: Ask not about how to get this great nation back to work, but rather ask how to set all of our children on pathways to productive careers.