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It is better
to not be on
the web than
to be on and
not know why

John Sumser

is more
it seems.
John Gall


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(November 07, 2003) - At any point in time, there is a huge theoretical supply of workers in the American economy. Workforce participation, which measures the percentage of the population who currently work, typically hovers around 67%. The other third of us raise children, are retired, are too disabled to work, simply don't work or, in a minor number of cases, are too discouraged to get out of bed.

From a pure labor supply perspective, there are two categories of people worth thinking about. New entrants (young people when they've finished their particular brand of education) and the third of us who don't work are the possible sources of additional workers.

In yesterday's chart, we showed that a net of 6 Million people left the workforce over the past two years on a more or less permanent basis. That left open the question of  their replacement. If you think of the workforce as if it were a line for movie tickets, the question was "Do as many get in the back of the line as leave when they get tickets?"

The government statistics are pretty muddy in this regard, not designed to answer the specific question. Workforce participation has dropped since the peak of the boom while unemployment amongst the young is higher than other segments. We think this means that about 2 Million people who could have been absorbed into the workforce were not.

Although that certainly is a large number, we think it reflects the underlying strength of the economy. For all of the doom and gloom, the sputtering of the economy is happening at the margins. Real growth, however, is going to require a broad reframing of the issues.

As long as companies continue to place their focus on costs (the bottom line), employment growth will lag far behind historical norms. Even though today's news was interesting (125,000 net new jobs), a growing economy should be producing 2 to 3 times that volume. Things just feel too tentative. (Besides, the official number is going to be lowered, October had the highest number of layoffs -175,000- in history).

Unfortunately, a heavy cost cutting ethic lays a bad foundation for growth. At the more normal rate of job creation, we'll run smack into the issues of labor shortage. There simply aren't that many new entrants. In short, it's not going to get really positive until late in the second quarter next year. And then, attrition, defections and retirement will really take off.

John Sumser

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Materials written by John Sumser © TwoColorHat. All Rights Reserved.
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