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How Government Spending Cuts Will Lead to Job Losses
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Recently the two presidential candidates and their two parties started arguing about a government project called "The Bridge to Nowhere."
From Wikipedia:
The Gravina Island Bridge, also known as the "Bridge to Nowhere", was a proposed bridge to replace the ferry that currently connects Ketchikan, Alaska, to the Ketchikan International Airport on Gravina Island. The bridge was projected to cost $398 million. Members of the Alaskan congressional delegation, particularly Rep. Don Young and Sen. Ted Stevens, were the bridge's biggest advocates in Congress, and helped push for federal funding. The project encountered fierce opposition outside of Alaska as a symbol of pork barrel spending and is labeled as one of the more prominent "bridges to nowhere".
Both sides now agree the project was wasteful government spending, but both sides claim their opposition to the project shows their commitment to save the taxpayer's money and cut government spending. It is easy to be against wasteful government spending, but neither side has much to say about the role of government in America's jobs or what might happen if government starts saving instead of spending.
Starting in December 2007, seasonally adjusted national establishment employment is down 605,000 jobs. The decline was a mixture of
- 590,000 jobs gone in manufacturing, construction and mining
- a 168,000 decrease in private sector service jobs
- a 153,000 increase in government services employment, including education
If we back up a whole year to August 2007 and look at change over the last 12 months, national employment is down 283,000 jobs but government employment is up 274,000 jobs.
If we back up two years to August 2006 and look at change for the last 24 months, then national employment is up 1.1 million jobs, but government employment is up 476,000. The government increase in jobs is offsetting losses in manufacturing and construction that are not made up by new jobs in private services.
Actually, 22.5 million people work on government payrolls in local, state and federal governments, but many more work on private payrolls as part of government sponsored and government funded projects like the Bridge to Nowhere. The terms "government contractor," "outsourcing" and "privatization" all signify private businesses, but they are private businesses doing government funded and government sponsored work.
Government employment added to government sponsored employment is more than a mere 22 million: much more.
America puts a heavy burden on its jobs by funding social security, Medicare, workman's compensation, unemployment insurance, and health insurance as a cost of employment. The personal income tax requires a higher rate on wages than on corporate dividends.
Both candidates say they will create jobs and we hope they do. It would be a better campaign if the candidates would suggest some new policies toward work and pay.
Right now, and for the foreseeable future, cuts in government spending will cause an unacceptable loss of jobs. The candidates want us to think they can manage the government to save, but without some new attitudes and new policies our government cannot save, it must spend.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Exchange Rates Affect Savers' Bottom Lines
Last spring, the Washington Post ran an article entitled "Foreign Buyers Flock to DC Office Market." The article explains that foreign investors bought 10 times as much commercial property in the District in 2007 as they did in 2006, with 2008 looking like 2007.
Buyers from Europe, Australia, Asia Pacific and Latin America have bid up prices to a record $867 a square foot.
Washington is an office-based economy with a stable or growing job base, so it is good to have the construction industry creating jobs and making way for even more office jobs. It would be better if the savings and savers financing the buildings were Americans.
Foreign nationals have so many dollars to invest because Americans buy so much oil and import so many products from Europe, China and other countries abroad. In 2001 and 2002 Americans paid around a dollar for a Euro, Europe's universal currency. By 2005 they had to pay around $1.35. Today, it is around $1.57.
A bottle of French wine that was $10.00 in 2002 now costs Americans $15.70. A higher price for wine makes it easy to see how higher exchange rates and a falling dollar value discourage consumption.
It might not be as obvious how higher exchange rates and a falling dollar value can benefit American savers. American buying abroad has supplied so many dollars to foreigners they are using their surplus in America's capital markets.
Some of it is loans but some of it is to buy America's assets like the office buildings mentioned above. It is sobering for real savers to see Americans trading assets like office buildings to pay for import consumption, but the devaluing dollar will begin to change that.
The devaluing dollar that limits American consumption will also limit the dollars foreigners have to invest in United States capital markets. If Americans have to rely more on its own savers, then savers can expect to earn higher interest rates.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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If Service Jobs Fail, Then We're In Trouble
The Wall Street Journal recently published an article entitled U.S. Consumers Trade Down as Economic Angst Grows, which says that Americans are saving money by choosing less expensive brands and models of products. Wholesalers and retailers are cutting back offerings of designer brands for the less expensive "plain Jane" products.
The article concentrates on products, but has almost nothing to say about services. If Americans just cut back on designer brands, job losses should be moderate. If America cuts back on services, unemployment will spike upwards. Even though establishment employment went down by 438,000 jobs from December 2007, there is a net increase in service jobs.
Construction and manufacturing were the big losers, off more than 500,000 jobs since December 2007. Retail trade and temporary help services were the big losers in services, which were down more than 300,000 jobs. Telecommunications, finance, and real estate were down as well.
Declining industries lost 990,500 jobs, so that a net decrease of 438,000 jobs includes an increase of 552.5 thousand other jobs, all of them service jobs.
For example, new government service jobs replaced 81,500 of the 990,500 jobs — not including 44,500 new jobs in public education and 68,500 new jobs in private educational services. Government taxing, borrowing and spending is helping moderate job losses.
Despite the general decline of employment, jobs in leisure and hospitality went up 88,800 thousand from December 2007 to June 2008. Restaurants are the biggest employer in leisure and hospitality with 9.8 million jobs and nearly 78,000 new jobs since December 2007.
Cooking can be a do-it-yourself service, even though we go out more and more with restaurant jobs up 740,000 since 2005. Eating out and paying others to cook helps moderate job losses.
Other jobs in leisure pursuits are trending up faster than the national average and replacing manufacturing jobs. Combine spectator sports, amusement parks, golf and country clubs, fitness centers and gambling where jobs are up to 1.85 million nationwide.
The economic angst mentioned in the Wall Street Journal has not spread to health care services, which continue to increase, up 194,000 jobs since December 2007. Health care and social service jobs have increased every year since 1990.
Maybe the Wall Street Journal is right and more people are opting for less expensive brands, but it is trivial matter compared to America's growing reliance on services jobs. Government, restaurant, leisure and health care jobs go up in good times and bad.
If any of them start to fall, then it's time to worry.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Tax Cuts and Consumption Affect America's Jobs
It has been common in politics to hear that tax cuts in the higher income tax brackets will be good for the economy because the wealthy and the well-to-do will be able to save and provide funds for capital investment spending and jobs.
Americans must have jobs. Large scale unemployment in an urban society guarantees untenable social, economic and political conditions. It is total spending that generates jobs, which includes the investment spending generated by our savings, but also consumption spending including government spending.
In the last two posts I quoted from Alan Greenspan, who told us there are not enough investment opportunities for our savings since the year 2000. Creating hedge funds or other speculative financial investments does not create many jobs: mostly financial advisors and lawyers.
Since financial investment speculation does not create enough jobs, America must rely more on consumption spending to keep ourselves employed.
The consumption spending America needs the most is for domestic services. Consumption spending that goes for luxury products imported from abroad creates foreign jobs, but not American jobs.
The growing importance of consumption spending for creating jobs makes credit card spending a necessity. Given the wages and taxes for millions of Americans, keeping up spending requires credit card borrowing. For those of us who save and read savings blogs, it is sobering that so much of our savings supports credit card spending.
It would be better if it helped pay for long-lived physical assets, but at least we can have an interest return knowing our savings support jobs and the economy.
The growing importance of consumption spending brings us back to the politics and tax cuts I mentioned above. If America is going to have enough jobs, the well-to-do must see to it that all of their income goes back into the spending stream.
They can only save if it helps create jobs, otherwise they must consume.
Washingtonian Magazine published an article over a year ago describing the proper things to buy for the well-to-do lifestyle. They included landscaping, flowers, dog walkers, sports tickets, club memberships, personal trainers, spa memberships, dining out and charity events. For those with kids, include coaches' fees, soccer camp, piano lessons, college consultants and live in nannies.
Perhaps the editors at Washingtonian were celebrating conspicuous consumption or encouraging the wealthy to do their duty and create jobs. That I cannot tell, but tax cuts to the wealthy pose a threat to jobs and economic growth unless they go into consumption. Like it or not; that's a fact.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Saving Fuel is Costing Jobs
According to the Washington Post's "A Switch on the Tracks: Railroads Roar Ahead," rising fuel costs for 18-wheeled trucks has generated a rapid turnaround in rail traffic with freight rail tonnage and rail ton-miles surging ahead.
The article cites a 3 to 1 fuel advantage for rail over trucks, but the fuel advantage also means less environmental pollution in an eco-conscious society.
Using less fuel to transport a ton-mile of freight represents a physical savings of resources that potentially benefits many because fuel costs are reflected in grocery store prices and for just about everything else we buy at stores.
Savings that lower costs should always be good, but because even though a higher share of freight traffic could go on the rails, changing modes of transportation will affect jobs.
Trucks have been dominating freight traffic measured by value and tons. The latest commodity flow survey data published by the Bureau of Transportation Statistics and Federal Highway Administration compiles domestic freight shipments.
It shows that trucks haul 70 percent of freight measured by value and 60 percent of freight measured by tons.
Rail, on the other hand, has only 3 percent of freight measured by value and a little over 10 percent measure by tons. Truck traffic measured in value of shipments is bigger than rail by a ratio more than 20 to one. In tons of freight, trucks are bigger than rail by a ratio of 6 to 1.
Freight measured by ton-miles, or tons multiplied by miles, shows the relative advantage of rail as a bulk carrier. Trucks haul 34 percent of freight measure by ton-miles compared to 31 percent by rail. In ton-miles, trucks are about even with rail by a ratio barely above 1 to 1.
However, the ratio of tractor trailer and heavy truck driving jobs to locomotive engineering jobs tells a different story. Heavy and tractor trailer drivers have 1,860,000 jobs compared to 46,600 jobs as locomotive engineers and operators.
Heavy truck driving jobs outnumber rail engineer jobs almost 40 to 1. Those totals count only heavy and tractor trailer jobs. There are a million additional light and delivery service trucking jobs.
Efficiency sounds so much like something we should like, but saving energy and reducing air pollution by shifting to rail and away from trucks will eliminate thousands more jobs than it will create.
If America wants efficiency, we may need to think of some new ways to share their work.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Investing in Education: How Much It Pays
There are several ways to estimate returns on investments in education. One way is to compare wages between jobs using general workforce skills with jobs that need college degree skills.
Compare wages for a certified teacher with a college degree to wages for a teaching assistant, for example.
Another way converts college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets.
Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above and some are below, but let's use $6,000 as a representative tuition for 2007.
In the first year, $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000.
At the end of four years at the time of graduation, the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63.
The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. Using a forty-hour week and 160 hours a month, it is less than $2.00 an hour of extra wage and salary that pays for college.
Nothing is a guarantee — but expect college to pay.
Our thanks for these calculations go to the built-in spreadsheet functions on MS Excel. Experiment yourself.
Use the Excel help file under FV, which is the future value function. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Why Bill Gates Shouldn't Be Worried About Technology Grads
When Bill Gates testified before Congress on March 13, he had his usual requests: more money for math and science education, more funds for research, and more visas for foreigners to come and work in the United States.
He claims foreigners need to come here to "maintain a competitive edge in technology innovation."
The Bureau of Labor Statistics defines 7 different computer occupations that need at least BA degree skills, and one in computer and information science research that requires a doctorate. The Bureau of Labor Statistics reports these 8 occupations totaled 3.2 million jobs in 2006 and growing year by year.
However, computer programming jobs are down from over 500,000 in the late 1990s to fewer than 400,000 in 2006. The above mentioned research occupation has reported employment of 25,000 for 2006, but here the Bureau of Labor Statistics is forecasting annual growth under 1,000 per year.
When we look at the National Center for Education Statistics, we find 1,679 doctoral degrees in computer engineering and computer information sciences for the year ending June 2006.
The remaining 6 occupations needing at least BA degree skills include two specialty jobs in software engineering, and one each for systems analyst, database administrators, network computer systems administrator, and network systems and data communications analysts.
In our logical minds, recent graduates should compare to recent job growth for the United States to fill its computer jobs with graduates from American Universities. For the year ending June 2006, the National Center for Education Statistics reports 72,400 BA and MA degrees granted in computer and information science and degrees in computer engineering.
The average annual increase from 2004 to 2006 for the 6 computer occupations mentioned above was just over 75,000.
However, some of the nearly 20,000 MA degrees undoubtedly went to those who already have BA degrees in computing or computer engineering, so we doubt the 72,400 degrees represent new people available for computing jobs. Even so, jobs as computer programmers dropped an average of 10,000 per year from 2004 to 2006, which makes us doubt the need for 75,000 new graduates to fill those jobs.
The data for the recent years does not suggest large shortages of available degree candidates in computing from American Universities, despite Mr. Gates' worries. More ominous, though, is a decline in jobs as computer and information systems managers, down from just over 280,000 to just under 24,000 from 2004 to 2006, an average drop of 8,000 jobs a year.
We think Mr. Gates should tell us why!
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Electronic Banking is Affecting America's Jobs
There was a time when people saved at banks, savings and loans and credit unions … and that was about it.
People still do, but our federal government defines banks, savings and loans and credit unions as part of a much bigger group of establishments called credit intermediaries that do financial intermediation.
Savings is not as simple as it used to be, but jobs in intermediation still have most of the same titles, including 558,000 jobs as tellers.
Tellers are an important job to watch. Office automation could just about eliminate teller jobs or knock them out of the whole economy (like cars knocked out horses in my grandfather's day).
Money machines eliminate the need for tellers for check cashing and other basic banking transactions. Writing paper checks requires an elaborate process of handling, posting and clearance that takes much longer and requires more labor than electronic processing at the point of sale.
Today's digital technology basically eliminates check writing, paper and even currency. However, teller jobs are not decreasing — they've actually been increasing modestly in the last few years.
Our happiness with these teller jobs has to be modest, because the median annual salary rings in at $21,300, but their continued growth shows America's resistance to further changing to electronic money.
With broadband Internet connections in more and more homes, some people are comfortable with their money literally flying through the air. Perhaps paper gives comfort to others.
Whatever the reason, America's refusal to eliminate checks and currency supports many more jobs than technology requires.
We know that increasing productivity makes manufacturing more efficient, but it continues to eliminate jobs. In a digital world, finance and insurance also have room for more efficiency. The number of teller jobs means that more efficiency could affect things.
Efficiency sounds so much like something we should like, but if efficiency keeps eliminating jobs, maybe we should begin to feel differently.
If more Americans would like things that are inefficient, we would have more jobs, but if America wants efficiency, they may have to think of shorter hours or new ways to spread the work.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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