April 2017 Newsletter
The Other Employment Problem
Most of us are familiar with the problem of recessionary unemployment. The concept that too many people are looking for too few jobs is the typical characterization of an employment problem. Far less familiar however, is when there are too many jobs and not enough people. This month we look at this growing supply side employment problem in our economy.
A recent Wall Street Journal started with the tagline “President Trump approved the Keystone XL pipeline on Friday, and good for him, but will there be enough workers to build it?” The thought that there are simply not enough people looking for work right now to take well-paying jobs is an unfamiliar concept to most people. We typically think of low unemployment as a good thing, something to strive for as increased competition drives up wages for everyone. But there is something to be said for slack in the labor market being healthy. We have gotten to a point where full employment is dragging on economic growth.
Across the country there is a serious shortage of carpenters, iron-workers, plumbers, electricians, farmhands, pipe-fitters, truck drivers, pilots and more. These jobs are typically median wage jobs, relatively stable middle class roles that have traditionally been sought after to secure a family’s future. These shortages are having a direct economic impact on consumers and businesses.
Figure 1: Hourly Wages of Construction Workers 2010-2017
While there has been limited growth in wages across the board during this economic recovery, many of the jobs with shortages pay well enough to have traditionally attracted people to fill the positions. This appears to no longer be the case.
For instance, in markets nationwide new residential homes are taking several months longer to build as the same companies compete for limited workers, driving up prices for home buyers. Oil refineries and petrochemical plants have experienced an increasing rate of unscheduled outages because companies cannot find workers to perform routine maintenance. These outages have taken hundreds of thousands of barrels of oil off the market. And while oil prices rebound and companies seek to initiate billions of dollars of expansion projects, including new liquefied natural gas export terminals to send American energy products to the rest of the world, they are finding it difficult to find people to build and staff them.
Figure 2: Share of Single-Family Builders Reporting Labor Cost/Availability Problems
This is a national problem, with almost 4 of 5 home builders siting labor cost and availability as their top concern.
Figure 3: Projected Shortage in Pilots
While automated trucks will likely alleviate some of the shortage in truck drivers over the next decade, the same cannot be said for pilots, of which the shortage is expected to balloon more than 400%.
One of the hardest hit industries is agriculture and farming. In California alone, thousands of farmable acres will go unplanted this year due to lack of labor, costing the farmers that own them billions in lost profits and sending up the prices of produce at the grocery stores and in restaurants. Even rapidly rising wages is not enough to entice people to work the long hours necessary during harvest season.
The recent change in immigration climate only exacerbates this problem. According to a Federal Survey cited in the LA Times, 9 out of 10 agriculture workers are foreign-born, and more than half of them are undocumented. With a crackdown on immigration in the US and an improving economy in Mexico, these trends are expected to worsen.
Figure 4: California Farm Worker Pay 1990-2015
Despite farm worker pay increasing significantly over the last twenty years, there are not enough people to take the jobs available.
Figure 5: Top States for Unauthorized Farming Labor
A significant share of the farming labor in the top 20 states is unauthorized. Removing this source of labor from the market could have devastating effects on the industry.
From a 2016 report quoted in an NPR article; ‘President Obama’s Council of Economic Advisers said 83 percent of men aged 25-54 who were not in the labor force had not worked in the previous year, leaving up to 10 million men missing from the labor force.’ From that same NPR article, “One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America’s Invisible Crisis.’
The study mentions several potential reasons for the apparent decline in the prime-age male working population, including outsourcing, a rising number of males with felony convictions (the US has the largest prison population in the history of the world), a rising number of people on disability and a recession so deep in 2008 that many skilled workers simply retired earlier than they would have otherwise, without being replaced by new recruits.
It will be important to see if we can draw more people into the labor force or if these supply side trends will end up putting the brakes on the potential growth that we can achieve for the rest of the current economic cycle.
Chart of the Month
The decline in the working-age population is a global problem. There are only two ways to grow GDP, growth in productivity and growth in labor. It appears that there will be a drag from the labor variable into the foreseeable future, which could hamper the overall growth prospects for the world’s economies.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.
Investing involves risk, including possible loss of principal.
Securities offered through LPL Financial, member FINRA/SIPC.
Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and The Philadelphia Group are separate entities from LPL Financial.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.