2010 January 10 Sunday
Temporary Work More Common
An article in BusinessWeek entitled The Disposable Worker looks at the trend toward greater use of temp workers. The huge downturn in employment in this recession is due in part to greater use of temporary workers who are easily laid off.
In a typical downturn, the percentage decline in payrolls is about the same as the percentage decline in gross domestic product. But in the recessions that began in 2001 and 2007, the decline for payrolls was much steeper—1.8 percentage points more during the latest downturn. Worse yet, only about 10% of the layoffs are considered temporary, vs. 20% in the recession of the early 1980s.
About a quarter of the labor force has jobs that are not standard full-time jobs.
The trend toward a perma-temp world has been developing for years. Bosses are no longer rewarded based on how many people they supervise, so they have less incentive to hang on to staff. Instead, the increasing use of bonuses tied to short-term profit performance gives managers an incentive to slash labor costs. The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the U.S. workforce had jobs in 2005 that were in one way or another "nonstandard." That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said.
The article reports on an increase in hiring of more skilled workers as temporaries. This has been happening with software developers for decades. But now some companies even hire temporary marketing directors and and temps in other management positions.
The situation is especially difficult for young people, many of whom haven't been able to get a first foot on the career ladder. The percentage of people 16 to 24 who have jobs has plummeted by 13 percentage points since the beginning of 2000, while the share of workers 55 and over who have jobs has edged up over the period, despite the recession. Some young people are so desperate to get a start, they're working for free as semi-permanent interns. "Companies that used to use only one or two interns are now asking me for five or six at a time," says Lauren Berger, who runs a company that matches interns with entertainment, marketing, and media companies. Berger also reports a rise in the number of "adult interns," who work for free while trying to break into a new career.
After the 2001 recession jobs came back very slowly. This recession is deeper and the job recovery looks to be just as long. Given the financial crisis I expect the recovery to be much slower.
Those internships might look like plum spots in years to come, for the gloomy trends in the labor market show no sign of abating. Consider some statistics. In the 2001 recession cycle, the economy lost 2% of its jobs and took four years to get them back. This time it has lost more than 5% of its jobs.
The recovery this time will take several years. More jobs will go abroad. Salaries will stagnate at best. If the global recovery becomes strong then oil prices will go so high that our living standards will decline due to high energy prices.
Once upon a time living standards in the United States went up every year for the vast majority of workers. That was then. This is now.
Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation.
US oil production peaked in 1970. We need to send more and more goods and services abroad to pay for the imported oil. That lowers living standards. But we are still running a large trade deficit. Closing that trade deficit will happen sooner or later and will require lowered US consumption (i.e. lower living standards) to do it.
Businessweek: "Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation."
1. This meme cleverly uses "wages" rather than "compensation," because looking at the total compensation, including the skyrocketing costs of healthcare coverage, tells a different story.
2. Furthermore, the calculation is fallaciously skewed downward by including not just the descendants of the last generation of Americans, but also the low-wage workers imported from 3rd world countries.
3. Furthermore, how exactly are economists comparing the price of modern inventions to their price in 1973? There are countless inventions today that would have been priceless in 1973, like medical cures, cell phones, and the internet.
Any 1 of those 3 points taken by itself would be enough to cast serious doubt on this meme. All 3 taken together, and we're probably looking at significant gains.
There was lots of contract work coming out of the early 90's recession.
1. Wages vs. compensation: How am I better off if any gains in "compensation" are eaten up by increases in costs? If every increase in my pay over the years, and then some, simply gets transferred to insurance companies, taxes, etc., I'm worse off, no matter what the dollar value of my total compensation package is. I've never understood why "total compensation" gets trotted out as some kind of refutation of falling real pay. If a worker made $50K in wages in 1973, with $5K in company-paid insurance costs bringing his total compensation to $55K, he's not better off in 2010 with a total compensation of $70K, if $30K of that is company-paid insurance. Both the employee and the employer are getting hammered here, but the fact that his company has to pay more for his work, via increased total compensation, doesn't mean the increased value of that compensation is being enjoyed by the employee. (And no, medical care and access have not improved so spectacularly that his standard of living is objectively better even with that $10K cut in real wages.) That's like arguing that my kids' will enjoy a tertiary education 5X better than my own, because the academic-industrial racket has jacked its prices over 5X the rate of inflation, and despite the fact that tuition increases are now capturing the value of the gains in lifetime earnings that a degree once provided to the degree-holder. (The "different story" here is the expansion of the class of non-productive, value-sucking hustlers.)
2. Wage calculations skewed by recent mass introduction of low-paid Third Worlders: Imported low wage workers are not employed and paid in isolation from native-born workers. While it is correct that their very low wages skew the calculations downward and probably give a figure lower than the real native-born average or median wages, their presence lowers both wages and employment opportunities for the native-born - and not just unskilled natives are subject to this wage suppression.
3. Pricelss inventions, medical cures, cell phones, and the internet: Yeah, they are nice. Not that increasingly disposable labor-widgets can have any confidence that they'll continue to be able to afford to have access to 'em.
...we're probably looking at significant gains.
Whatever, Dr. Pangloss.
I'm well aware of the increases in insurance and payroll taxes that cause part of the wage stagnation. But 1973 is just seriously in the rear view mirror. We are talking 37 years ago.
Electronics advances: All pretty amazing. So why haven't they raised living standards more? Sure, I can shop for cheaper stuff online. But online prices form part of the formula for determining price inflation. So no gain there.
Yup, third worlders in the US are one of the reasons wages have stagnated. They keep coming. Obama wants more. So do many of our other masters.
-US oil production peaked in 1970. We need to send more and more goods and services abroad to pay for the imported oil. That lowers living standards. But we are still running a large trade deficit. Closing that trade deficit will happen sooner or later and will require lowered US consumption (i.e. lower living standards) to do it.-
As if oil was the reason.
"Electronics advances: All pretty amazing. So why haven't they raised living standards more?"
Aren't the technological advances themselves the raised living standards? The masses love having cell phones, laptops, email, instant messaging, Google, digital cameras, iPhones, YouTube, Facebook, etc. It'd be nice if our jobs lets us buy more groceries etc. than we could buy in 1973, but if we're assigning a value of $0 to all these technological miracles, I think our calculation isn't doing a good job comparing living standards.
"More jobs will go abroad."
The falling dollar is reducing the incentive to send work abroad.
Many people would like to get more then two weeks off a year but stick with a regular job for the health insurance. If Obamacare passes then they would be more comfortable with temporary employment. Outside of government there aren't permanent jobs anyway. Why work yourself to death for a job that could end at any time with no notice?
"After the 2001 recession jobs came back very slowly. This recession is deeper and the job recovery looks to be just as long. Given the financial crisis I expect the recovery to be much slower."
The recession is deeper but in 2001 you did not have a large number of workers reaching retirement age. Some people will try to postpone retirement to rebuild their assets but many will still retire for health reasons and from giving up on finding employment because of discrimination against older workers.
The total compensation figure matters if what is included in that compensation is something you would buy anyway. So, if it is normal to purchase health insurance, then company provided insurance would need to be included in that calculation. The focus on wages exclusively is actually dishonest.
But again, the costs of basic things like food, housing and energy have certainly gone up. Electronic doo-dads don't compensate for that.
Think about this sentence:
It'd be nice if our jobs lets us buy more groceries etc. than we could buy in 1973
Isn't one's buying power for groceries a pretty good measure of how we're doing in areas that most matter for our well-being? Stuff that can be made smaller due to Moore's Law and other doubling rates in electronics are great for small stuff. But cheaper small stuff doesn't reduce your daily calorie need.
Oil really is one of the reasons our living standards aren't rising. Industrializing Asian countries also compete for limited natural resources. Salmon and many other fish were far more plentiful in 1973. Ditto trees. World gold production has been declining for almost 10 years now in spite of much higher prices. Resource scarcity impacts living standards.
Our imports fell because of falling general consumer demand. Today the new trade figures show our imports are growing faster than our exports. We are still going deeper into debt to the world.
Re: "Isn't one's buying power for groceries a pretty good measure of how we're doing in areas that most matter for our well-being?"
How much more has the cost of healthcare coverage increased since 1973? I think a conservative number would be 15%. That would erase Business Week's claim that there's been a 9% decline, and would leave us up 6%.
How much is that number skewed down by importing workers from the 3rd world who have earning power that's some fraction of that of the native population. If that phenomenon skews the number down by 4%, that would leave us 10% ahead of 1973. And that's only for the bottom 80% of society, which was the segment Business Week was looking at.
These are, of course, just back-of-the-envelope speculations, but I think they're enough to warrant skepticism toward the hypothesis of a real decline in compensation.
=The falling dollar is reducing the incentive to send work abroad-
Which way are taxes headed? And Mr. Parker, I still believe oil has little, if anything, to do with a decline in the living standard.