A Tale of Two Job Markets
With the economic expansion in its eighth year, over 15 million jobs added since the post-recession low in employment, and a steady decline in the jobless rate from its recessionary high of 10% to under 5%, many mainstream economists were convinced that the U.S. economy was in good shape. That misconception, at least where jobs are concerned, is a key reason so many were stunned by this month’s election verdict.
Looking beneath the headlines, it is important to appreciate how unevenly distributed the job gains have been during the current business cycle. We pointed out nearly five years ago that, over the first two years of the jobs recovery, Whites accounted for less than 59% of the job gains, even though they made up over 81% of the labor force. Meanwhile, Blacks and Hispanics, who made up “about a quarter of the labor force, accounted for around five out of every eight jobs added” (USCO, February 2012).
Last month, we again emphasized the skewed nature of this jobs recovery, noting that, “for seven long years, the majority of less-educated non-Hispanic White adults has not been employed. No wonder there is such angst in the lead-up to this presidential election” (USCO Essentials, October 2016).
A striking picture of this lopsided reality is evident from the shares of the total job gains since the November 2007 pre-recession peak in employment. As the chart shows, of the five-million-plus net jobs added since that high-water mark nine years ago, some 56% went to Hispanics (rightmost green bar), about quadruple their 14% share of the labor force at the time (rightmost blue bar). Meanwhile, 29% of those job gains went to Asians, i.e., about six times their 5% share of the labor force (second set of bars from left). Moreover, 25% of those job gains went to Blacks, i.e., more than double their 11% share of the labor force (third set of bars from left).
In sharp contrast, Whites, who made up over 81% of the labor force in 2007 (leftmost blue bar) accounted for negative 9% of the net job gains (red bar). While the percentage shares for these four groups add up to more than 100% because White Hispanics are double-counted as both White and Hispanic, and Black Hispanics are double-counted as both Black and Hispanic, the reality is stark. Whites actually have fewer jobs than nine years ago, while Hispanics, Blacks and Asians together gained all of the net jobs added, and more.
Part of the reason may be that these jobs, predominantly in services, were created in metropolitan areas, rather than in rural areas and small towns where factories were shuttered as the manufacturing jobs disappeared. There is little reason to expect that those jobs will come back to those areas away from the urban centers.
Stepping back from the current outlook, as students of the business cycle, we are well-positioned to discern what is cyclical and, by elimination, what is not cyclical but structural. Digging deep into data that do not conform to cyclical patterns, we have been able to promptly highlight structural anomalies that economists wielding fancy macroeconomic models overlook for extended periods. The details of the data, properly scrutinized, have long revealed the sources of anger and despair with the way the 21st century has sorted winners and losers.
President-elect Trump’s proposed tax cuts, along with major infrastructure spending, could well invigorate business activity, but are unlikely to take effect for at least a year or so. Thus, they are unlikely to affect the economy’s prospects over the coming months. To that extent, our cyclical outlook remains unchanged.
Of course, a reduction in regulations could have a nearer-term impact. The President also has the power to make major changes with regard to trade and tariffs in relatively short order. All in all, these could have positive or negative effects, though it is too soon to tell. But in any case, we will keep a close eye on our cyclical leading indexes for early objective indications of a shift in the outlook.
In any event, it will be difficult to change the plight of Mr. Trump’s supporters from outside the metropolitan areas. They remain at the mercy of powerful winds of structural change that continue to sweep the globe.