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July 9, 2013
THE JOBS REPORT AND THE REAL REASON STOCKS ARE UP
By Arshad M Khan
Following the jobs report, we are told stocks have jumped because the jobs report
was better than expected. Was that the real reason?
Let us first go back a few years, a century in fact: In 1914, Henry Ford announced he
would pay his workers $5 a day, twice the prevailing wage. In a distinct reversal of his
thesis, which helped to grow his company and develop America's industrial might, the
latest Labor Department BLS jobs report continues a disturbing trend -- lower income
due to a decline in better paid manufacturing jobs (6,000 in June) and growth in the
lowest level service sector.
While the report brought in more jobs than expected, these low paid jobs can do little
to generate strong consumer demand. Thus, restaurant jobs (servers, dishwashers,
bartenders, busboys) accounted for 51,700 i.e. more than a quarter of June's
195,000 non-farm jobs added (BLS Table B-1); gambling and recreation (18,900),
lodging (5,900) and retail (37,100) were responsible for another third.
Professional and business services accounted for a quarter (53,000), of which
employment services (understandably prospering ) added 18,600. Health care
contributed 19,800 with the lower paying ambulatory care (13,000) supplying
two-thirds. Financial services provided 17,600 and construction 7,000 jobs.
Thus low-wage, low-skill service jobs accounted for almost two-thirds of new jobs.
The report also noted that the number of involuntary part-time workers rose by
322,000 to 8.2 million. Of course these people lose their benefits, and the low level
service jobs are also unlikely to include any health care or pension plans. In
consequence, an ever-increasing number of Americans are a serious illness or
accident away from financial disaster.
The jobs being created cannot sustain a family. Worse, even with both parents
working in these circumstances, it remains a hand-to-mouth existence with food
pantries often helping out as paychecks are prioritized for shelter and utilities. It does
not take an economist to foresee the ultimate tragic consequences of such a
Our business leaders may be better educated and informed than Henry Ford but they
are also subject to the pressures of globalization; Mr. Ford was not. He said he
increased his workers' wages because he wanted them to be able to buy his cars. He
also knew that labor costs on mass produced assembly line autos were not as
significant as when they were craft built. His productivity being much higher, he could
afford to pay the doubled wage.
It leads to two questions: First, productivity has also doubled since the 1970s, but
wages adjusted for inflation are at a standstill -- the minimum wage has actually
declined. Among the many reasons given are the weakness of unions and the
constant threat of jobs being shipped overseas. The latter compels workers to often
accept cuts, or reduced fringe benefits, or both.
The second question is naturally, who is going to buy Ford's cars now? And that is
the crux of the problem. With poorly paid low-skill jobs replacing the lost
manufacturing jobs, the economy is being hollowed out. Old skills are being lost, and
newer skills required in, say, computer-controlled manufacturing are not being
developed fast enough.
Wall Street has been riding high since the jobs report, but it is not because it was a
good report as has been trumpeted -- it was favorable in a small way in producing
greater than expected low-paying jobs as noted in the beginning. No, it is because it
signaled an economy in the doldrums. That means the Fed will be obliged to continue
its quantitative easing -- more cheap money, and that Wall Street loves.