Wednesday, January 13, 2010

Where Have All the Jobs Gone?

Down the drain is the answer. The sad truth is that most lost jobs are gone forever; lost to globalisation and technology. We call this episode of job destruction, the wheels of progress and, in a sense, it is no different this time than at any other time; we have seen this countless times in the past. It is the process of creative destruction at work. It is a process that we have now known for centuries. True, the cycle used to be longer. We used to have time to adjust to changes. Now we don't. In a new globalized world, things happen fast; faster and faster. And it won't get better. Get used to it.

To convince yourself and to better accept this undeniable reality, I suggest that you read Justin Lahart, Even in a Recovery, Some Jobs Won't Return, published yesterday in the WSJ. There is a few good sides to the story if you are an investor. The profit outlook is fantastic in certain sectors and you could benefit if you know where to look. Moreover, inflation is likely to remain in check for a while longer.

“Even when the U.S. labor market finally starts adding more workers than it loses, many of the unemployed will find that the types of jobs they once had simply don't exist anymore.

“The downturn that started in December 2007 delivered a body blow to U.S. workers. In two years, the economy shed 7.2 million jobs, pushing the jobless rate from 5% to 10%, according to the Labor Department. The severity of the recession is reshaping the labor market. Some lost jobs will come back. But some are gone forever, going the way of typewriter repairmen and streetcar operators.

“Many of the jobs created by the booms in the housing and credit markets, for example, have likely been permanently erased by the subsequent bust.

“"The tremendous amount of economic activity associated with housing, I can't see that coming back," says Harvard University economist Lawrence Katz. "That was a very unhealthy part of the economy."

“Unhealthy but a boon for men without a college education. One in three jobs, or six million total, have been lost in the manufacturing sector since 1997, the last year the sector posted job gains. The upsurge in construction jobs accompanying the housing boom provided these workers in manufacturing with an opportunity to earn decent wages.

“Now that door, too, has shut. With 1.6 million jobs lost over the last two years, the construction sector has accounted for more than a fifth of the jobs lost since the recession began.

“For more highly educated workers, finance may no longer offer as many high-paying jobs as it has in the past. Thomas Philippon, an economist at New York University's Stern School of Business, estimates that the financial sector's share of the economy was nearly 20% larger than it should have been. Since the start of the recession, the financial sector has lost 548,000 jobs, or 6.6% of its work force. Mr. Philippon's estimate suggests there will be further pressure on financial jobs.

“In other areas of the labor market, the recession accelerated job losses that were probably coming anyway. In November, there were 36% fewer people working in record shops than two years earlier, according to the Labor Department. There were 23% fewer people working at directory and mailing list publishers, and 46% fewer at photofinishing establishments. Those are jobs that, with the advent of mp3 recordings, Google and digital photography, were likely disappearing anyway.

“But as the recession hurt already ailing businesses, workers were forced into a sudden adjustment rather than the gradual one they would have otherwise faced. The recession also provided companies with an opportunity to cut jobs no longer as critical as they once were. That may be particularly true of the secretaries and mailroom clerks that advances in information technology have made less necessary. The ranks of people doing office and administrative work have fallen 10.1% since the recession began.

“"Those are the production jobs of the information age, and they're being to a substantial extent automated," says Massachusetts Institute of Technology economist David Autor.

“The permanent loss of many jobs may keep the labor market from fully recovering for a long time to come.

“Prior to the 1990s, jobs rebounded quickly once recessions ended. Payrolls fell by nearly three million in the deep downturn that extended from July 1981 to November 1982. But by the start of 1983, the economy was creating jobs again, and by the end of 1983, the U.S. job count had exceeded its old peak.

“That was because more of the job losses were essentially temporary, with manufacturers and the like letting workers go with the implicit expectation that they would be hiring them back once the worst was over.

“But since the early 1990s, jobs have been slower to recover from recession. After the 2001 downturn ended, job losses continued for nearly two years. It wasn't until 2005 that the job count returned to its prerecession high.

“Productivity-enhancing technology and competition from low-wage countries like China made more job losses permanent. And it took time for new jobs to be created and for workers to acquire the skills needed to do them. In the wake of a far deeper recession, creating new jobs and retraining workers to do them could take even longer.

“It is anyone's guess what those jobs will be. The Labor Department has done little more than extrapolate from recent trends. It expects growth in areas like health care, which has been one of the few bright spots. Given the exigencies of an aging population, that seems a fair bet.

“One could also make the case that the U.S. is shifting from a consumer nation to a nation of producers, and that will lead to a resurgence in technology and high-tech manufacturing jobs.

“But Harvard's Mr. Katz warns that past experience suggests such conjecture is likely fruitless. "One thing we've learned is that when we attempt to forecast jobs 10 or 15 years out, we don't even get the categories right," he says.”