Thursday, February 5, 2004

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More on job growth

As I said in my last outsourcing post, anecdotes about large corporations laying off workers can crowd out information about smaller firms (traditionally defined as less than 500 employees) that are hiring more workers. Since two-thirds of all new jobs are created by small firms, the latter can more than compensate for the former.

MSNBC's Martin Wolk makes this points in a must-read story on the role that small businesses play in the economy (link via Virginia Postrel). Here's the part I found interesting:

A study of net job growth in 1996 suggested why small can be beautiful. Firms that were at least two years old that year cut employment by 7 to 36 percent overall, with the biggest job losses coming at the oldest firms. Meanwhile, job growth of nearly 150 percent was seen both at small firms that were less than two years old and at new branch offices and stores opened by larger firms.

“For employment growth, it looks as if the more important factor is age and not size,” said the study by economists John Haltiwanger and C.J. Krizan. “One clear pattern that emerges is that net job creation rates decline with plant age.”

That was 1996 -- what about the present? Let's go to the National Federation of Independent Businesses and see what they're saying about the economy and job creation. The economy first:

[T]he nation's small-business owners' outlook bubbled up 1.6 points to 106.9 in December, less than a point shy of the National Federation of Independent Business's (NFIB) Index of Small-Business Optimism's 1983 record and the fourth highest in the survey's history.

As for employment:

Operating small firms added a seasonally adjusted average of 0.19 employees per firm, nearly double the November figure. As a result, the entire fourth quarter was in the black for job creation. Over the past three months, 17 percent of all owners reported increasing employment a seasonally adjusted average of 3.9 employees, and 13 percent reported reducing employment by a seasonally adjusted average of 2.5 employees.

Until now, rising productivity and some uncertainty delayed the step-up in hiring that rising sales demand. This productivity cushion has been exhausted and job creation must now fill the gap to ensure that production keeps up with demand.

The percent of firms with at least one “hard to fill”job opening rose two points to a seasonally adjusted 20 percent of all firms. This reading is well below the 35 percent reading reached in 2000, but above recession readings of 10 percent reached in 1991. Eighteen (18) percent reported at least one opening for a skilled employee and 3 percent reported at least one opening for an unskilled employee.

Overall, it appears that there was substantial job creation in the fourth quarter and that job creation is poised to pick up speed early in 2004. The unemployment rate should fall a few tenths of a point by mid-year.

Obviously, this optimism must be seriously tempered by the shedding of jobs among large firms. Still, one hopes that this is a harbinger of healthy job growth across the board.

UPDATE: Hey, Technorati is hiring!!

ANOTHER UPDATE: The employment numbers for January are out:

Employment rose in January, and the unemployment rate, at 5.6 percent, was little changed, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Nonfarm payroll employment increased by 112,000, with job gains in construction and several service-providing industries. Manufacturing employment continued to trend down, but the rate of job loss has moderated in recent months.

Not great, but a definite improvement over the 1,000 jobs created in December. Here's the AP report.

FINAL UPDATE: The Chicago Tribune has a story on the rise of self-employment. Most of it is quite informative, but see if you can spot the error that will drive Brad DeLong round the bend and post another "Why oh why can't we have a better press corps" post!!

posted by Dan on 02.05.04 at 03:53 PM


Anyone with even a bit of economic knowledge knows that old jobs will be destroyed---and new jobs will be developed. This is the unavoidable cost of a growing and afluent economy. Some people admittedly will be put through the proverbial meat grinder. That is a harsh fact and I have no magic answers to offer. Still, the odds are overwhelmingly favorable that most of us will live a fairly nice life, far above the expectations of our ancestors. We worry about becoming obese when they barely could find enough to fill their stomachs. An American man at the turn of the previous century barely lived to be 45 years old. Many of us will easily see our 80th birthday.

What is the price tag? Most Americans are doomed to be job hoppers. It is a virtual certainty that few will be employed by the same firm until they retire. This insecurity will, of course, cause some anxiety. The Democrats and the “Oldman” conservatives will try to tell you that this needn’t always be the case. They are deluding themselves. Did somebody promise you a rose garden? Well, if they did---they lied to you!

posted by: David Thomson on 02.05.04 at 03:53 PM [permalink]

Dave Thomson,

First of all the oldman has changed his career personally four times and is in the process of doing it again - by choice. However, as a macro-economic principle if the average career turnover rate is less than the average retraining time you are going to create a structural economic problem with your labor supply, drive down consumer demand, and cripple employer hiring. It's not about a job guarentee for life. The oldman hated the old career for life strait-jacket model. But he fears the new churn-a-cycle economy as being not personally harmful but market inefficient.

As for Dan, I applaud his stirring defense on job creation. Bravo! My rebuttal is this quote from Fed Reserve Governer Barnacke's speech. As he points out the payroll survey has been revised to take into account startup and small business better. And this morning the oldman heard on the radio that unemployment numbers were up. However as is widely known, the payroll survey is a lagging indicator and the indices Dan cited are leading ones, so he may be right about sustained new job creation. Or the economy could just be having another hot quarter that will cool off again. Time will tell. Dan's defense was impressive. Most impressive. I look forward to crossing wits with him again in the future. Most definitely.

Until then, the oldman leaves you with the important excerpt from the Nov6'03 speech by Bernacke:

"On this latter point, however, a recent redesign of the payroll survey, which among other improvements allows new samples of employers to be drawn more frequently, has likely improved the survey's coverage of startup businesses. Indeed, the latest two benchmark revisions, in March 2002 and March 2003, both revised payroll employment downward; if the main problem with the survey had been a failure to measure employment by new businesses, the revisions would have been upward. "

posted by: Oldman on 02.05.04 at 03:53 PM [permalink]

Here, again, the Oldman is spot-on regarding employment: It never occurred to me to attack the 'new' economy as *market inefficient*, but know that I mull it over, you've really hit on something there.

Looked at in this light, it would seem to me that the 'all consultants, all the time' model will never allow for 'structural' growth - only individual success stories - and, ultimately, a disaffected general population.

posted by: Art Wellesley on 02.05.04 at 03:53 PM [permalink]

As someone who has done industrial consulting before, I see that your remark Wellesley is far short of reason like usual. Consider the old saying: "Too many chiefs, not enough braves." Not everyone is gonna be able to be a "higher level" worker at least in the foreseeable future, and even if they were what's to stop foreign countries from competing for those jobs too? Let me repeat a mantra you ought to din into your thick skull: when they can do anything we can do, but cheaper - what are we gonna be doing? We're not there yet, but we're getting closer all the time.

posted by: Oldman on 02.05.04 at 03:53 PM [permalink]

Unfortunately, I am not well versed enough in the facts to really know whether this is a well argued case or not. I can grant Dan's point that "smaller" companies are creating jobs - heck, in my experience , it is nearly always better to be in a small company - more responsibility, less paperwork and BS to deal with, etc. I think the question, is whether this "good news", is minor or major, relative to the US population as a whole, and the outsourcing trend as a whole. One cresting wave doesn't mean the tide isn't going down, after all.

I'm still not sure how my point in the previous outsourcing post is addressed by Dan's new post. Namely, that the "tide" (in my above analogy) is that the buying power of a median job hasn't gone up in the last 30 years - and the point about buying a house, supporting a family on your own, still holds true. And, are we going from a "overall" GM to an "overall" Walmart economy - and what does this mean for workers? All the "new" jobs based on "new" technologies, inevitably can be managed with fewer people after all.

As an aside, since we ARE moving in this direction, and it is doubtful this will stop, it seems to me that there are ways to cushion and manage this so it isn't so brutal to people. If you contrast Walmart and Costco, newish but similar businesses (low cost retail) clearly there can be vastly different for the employed workers. An article I read recently went into all this detail about, relative to other low cost retail stores, Costco treats theire employees particularly well. So this "shift" could be mitigated, in a lot of ways. (Since service jobs like these, really can't be outsourced anyway).


posted by: JC on 02.05.04 at 03:53 PM [permalink]

"[Y]ou can divide the world into people who will say things like, 'We're losing all our good jobs to India!' on the one hand and people who believe in a simple general equilibrium model (the famous 2x2x2 model) of trade on the other. International trade always looks like a better deal from a general equilibrium perspective than it does to those who do not have that perspective." --arnold kling

posted by: gogol13 on 02.05.04 at 03:53 PM [permalink]

JC writes: "Costco treats theire employees particularly well. "

But apparently there are Wall Streeters who don't approve, and would be happier if Costco quit wasting that money on the peons.

posted by: Jon H on 02.05.04 at 03:53 PM [permalink]


Oldman? Are you completely off your nut? I was pretty sure I was agreeing with your assertion. So you've now succeeded in, what? - deflating your original assertion?

Seriously. Are you Bi-polar? Can you not read your own first post and see it for what it is - a well constructed argument? Now contrast that with your response to my agreement with your original post. I can't make heads or tails of it, can you?

You know what, chum, nevermind. Despite your inability to get over some imagined latter slight, I still think your original post is very good. So I guess I find myself in the 'bizarro-world' postion of defending your remarks from *you*.
I realize the Dean implosion is no doubt very distressing to you, considering the time and enery you've invested, but for the love of god man, try and relax a bit.

posted by: Art Wellesley on 02.05.04 at 03:53 PM [permalink]

Well 76,000 of these 112,000 jobs were for retail. Are we back to the days of "McJobs" or two-tier economy of the Reagan years?

Manufacturing jobs were down but the rate of decrease appears to be moderating in comparison to recent trends.

While the total number of new jobs is the best in a couple of years and the unemployment rate went down again, these are the kinds of stats which could be used against the administration in manufacturing-heavy states, where the argument is that the employment base is going from good-paying manufacturing jobs to lower-paying retail jobs.

The administration seems to be focusing on the unemployment number as their answer to "2 million jobs lost" charges by the Democrats. What's hard to sort out in all these raw numbers is whether the latest stats indicate net jobs gained or lost. The claims for unemployment rose but still remained far below 400,000. However, somewhere else, it was noted that total layoffs in January amounted to 117,000.

So were there net job gains or losses in January? And what of the claim that you need 150,000 jobs each month to account for new entrants into the work force? Also remember that in December, the Dept. of Labor said 200,000 people left the work force because they stopped looking for jobs. At some point, presumably they would go back looking for jobs again?

posted by: aghast on 02.05.04 at 03:53 PM [permalink]

Dear Wellesley,

No I'm not bi-polar. But even more than I like being right, I like being mischievious. I couldn't but help give your leg a pull, since you seemed so serious about the subject and you've shown so little humor about my antics in the past. ;-D

That's correct, your original post agreed with me. As you wrote:
"Here, again, the Oldman is spot-on regarding employment: It never occurred to me to attack the 'new' economy as *market inefficient*, but know that I mull it over, you've really hit on something there."

This is of course correct. It is market inefficient. There's also a diminishing yeild/return on investment on education too, which is going to depress the incentive value of education. This is not merely a problem about people who can't get jobs whining, this is a problem that anyone familiar with businesses as simple as fast food can relate to. If your employee turnover rate is too high, you are going to spend lots and lots of money training people and getting them up to speed. Expand this to the whole economy and ... bang! you got a problem.

Sorry about the startle there Wellesley, but I just couldn't resist the opportunity to yank your chain a bit ... Your response surely put a gleam in my eye! ;-)

posted by: Oldman on 02.05.04 at 03:53 PM [permalink]

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