The Big W

Picture 2In the movie “It’s a mad, mad, mad, mad world” a bunch of people are trying to find a fortune buried under a “big W.” The movie ends badly for just about everyone, with no one getting the money — which had been stolen to begin with.

The parallels between that movie and the current jobs crisis are getting to be uncomfortably close. We may be heading for own version of the big W — a double-dip recession. That is, a brief recovery followed by another downturn.

The reasons are simple. Much of the current growth is fueled by government spending — which will dry up at some point. Unless the power behind the expansion switches to the private sector the economy cannot continue to grow. And that is far from certain.

The U.S. Bureau of Labor Statistics estimates that 8.6 million jobs have been lost since the recession began, and while layoffs are slowing, there’s no sign that hiring is growing at anything close to the levels needed to make up for the loss. About 1.3 million people enter the workforce each year, so that many more jobs need to be created annually — in addition to the ones lost.

History in the Making

We have not seen anything like this before. In past recessions the speed of the recovery equaled or exceeded the speed of the downturn. Based on past experience the economy should have been in overdrive by now, with unemployment in full retreat. Following the dot-com bust in 2001, the number of jobs lost had been made up in about two years. This time we’re seeing a sluggish recovery and no jobs growth.

The last time unemployment hit 10.2% was in 1981. Back then the government’s response was aggressive tax cutting and deregulation. This resulted in employment reaching its previous peak within two years. This time the size of employment decline has been nearly twice as large as in 1981 (5.3% vs. 3%) and the policy response so far has been the opposite — increased taxes and regulation.

We’re in a spiral that’s getting hard to break out from. The simple fact is that much of the growth in jobs has to be driven by consumption, most of which is done by consumers. That cannot happen unless people have money to spend, and when people are not employed they don’t spend much money. Whatever benefits the stimulus packages have had, they cannot be the solution. And all the programs that have been the focus of the administration and Congress for the last year (cap and trade, healthcare) require spending money that must be borrowed and will eventually have to be paid back, i.e., taxes will have to rise, further reducing the money available to consumers for spending.

The Secret of Happiness

The secret of happiness is to lower your expectations to the point where they’re already met. That’s going to have to be the mantra for a long time. With so many unemployed workers employers have every incentive to underpay qualified workers. And with credit scarce and people increasingly focused on reducing their debt, there’s little chance that spending will recover. We may be in for European-style unemployment where 10% is the norm.

Recruiters looking for opportunities should look to service industries – retail, healthcare, government, and education. About half the jobs lost were in manufacturing, construction, and finance, and most are not coming back ever. But healthcare and education are growing. Geographically, opportunities will be the most in the states with the lowest tax burdens and most business-friendly, i.e., least regulated, environments: Texas, Oklahoma, Virginia.

It’s a mad, mad, mad, mad world starts out with the person who had the money driving off a cliff, after which everyone else comes up with wacky ideas to get it. They find the big W but end up without the money and badly hurt. I just hope we don’t see a documentary with the same title.

Post written by: ERE Articles