Since the global financial crisis (GFC), the number of
employed in the US has reduced dramatically (see Chart 1). What this graph
shows - and mere unemployment rates do not - is the trend in the number of
people actually working. Considering that one percentage point on the graph
represents 2 million workers, the number of people who have departed or been
dissuaded from the workforce is significant.
Chart 1 Source: Federal
Reserve Bank of St. Louis economic Research
The trend is similar to the US pre-1980, during the times
of oil crises and stagflation. However, the world is a different place
today: back then, there weren’t as many women in the workforce, and men
mainly worked full-time and earned enough to support a family. Thus, there
were far fewer people on the job market. The US census of 2011 measured 100
million people in the US to be receiving welfare in Q2 of that year.
The US’s Bureau of Labor Statistics (BLS) may report that
there is a growth in employment, yet close analysis of this reveals certain
To begin with, apparently computer issues in counting
unemployment numbers in California over a period of five months have meant
that official figures are well below the reality.1
They also show that 77% of new jobs created in 2013 were
part-time positions2, which in the US do not carry the
social protection of a full-time job. It is estimated that less than half of
American adults have a full-time job3 and that, while
labour force participation is actually on the up amongst the over-55’s, it
is still on the slide amongst 24-54-year-olds (see chart 2) - all this just
as the baby-boom generation is approaching the age of 70. The concern here
is that this impairs that major engine of economic activity, consumer
Chart 2 Source: Federal
Reserve Bank of St. Louis economic Research
A smaller workface also reduces business spending in many
ways, hence the record levels of corporate profitability. One positive spin
on these numbers is that increased asset prices have allowed many baby
boomers to retire having achieved adequate wealth goals to do so - if true,
this is also a huge concern in that the assets that have appreciated the
most are those with significant risk, such as equities, which now look
expensive and vulnerable to a major correction - the virtuous circle of
higher asset prices generating wealth and facilitation retirement could very
easily unravel if retirees are dependent on high dividend stocks and
corporate or high-yield bonds for their retirement income. Not only could
this income vanish or at least diminish in a moment, this would create a
self-fulfilling cycle of ongoing selling that could have devastating effects
on assets such as US equities and fixed income. The wealth created by the
stimuli of the last few years could easily disappear just as quickly as it
was conjured into being.
The last US census, conducted in 2011, revealed that
median household income had fallen in four consecutive years. In 2012, just
over 67% of wage earners had net compensation less or equal to the mean
average4, which was just under USD 42,500. Taking
inflation into account, these figures are similar to those of 20005,
although in 2012, 53% of earners made less than USD 30,000, a slightly
higher percentage than those earning the equivalent twelve years previously.
However, if we compare salaries between 2012 and 1968,
the difference is revealing. Back in the year of the Prague Spring, the
minimum wage in the US stood at USD 1.60/hour. According to the BLS
inflation calculator, the 2013 equivalent would be USD 11.08. That
translates into an annual salary (allowing for a two-week annual holiday) of
USD 22,160. Given that 40% of the working population earned less than USD
20,000 in 2012 we can see that real salaries have decreased extensively.
Furthermore, according to the US Department of Agriculture, over 47 million
people are currently supplementing their income with food stamps6
- only 17 million people required food stamps in 20007.
In spite of all the money being printed by the Federal
Reserve, the vast majority of Americans will be no better off in 2014.
Commentators suggest that the newly-printed wealth has become trapped in the
financial sector, where speculators buy cheap US Treasury debt and
Whilst it may not be new that people working on Wall
Street are able to enrich themselves through market conditions, it is
significant that when economies are struggling, speculation appears to be
winning out over innovation and entrepreneurship.
Next week: Part 3 - Housing and Mortgages & Debt.
4 US Social Security http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2012
5 US Social Security http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2000
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