New Employment Figures in the Shadow of a Fragile Economy

December 2, 2014

Economist Richard Wolff says workers are returning to jobs with lower wages, fewer benefits, and less job security than they had before the financial crisis hit

Economist Richard Wolff says workers are returning to jobs with lower wages, fewer benefits, and less job security than they had before the financial crisis hit



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Story Transcript

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

November employment numbers are out, and according to the Bureau of Labor Statistics, unemployment figures are at a six-month low of 5.8 percent. And in November, the economy reportedly achieved a record-breaking 15 months straight of payroll growth. It’s being widely celebrated in the business press, and U.S. Secretary of Labor Thomas Perez seemed to be doing his victory lap as well, saying on Friday, quote, by every measure, we are in better shape than when President Obama took office nearly six years ago.

Here to unpack these latest employment figures is our guest, Richard Wolff. Richard is a professor emeritus of economics at the University of Massachusetts Amherst, where he taught economics for 35 years. And he’s currently a visiting professor of the graduate program in international affairs at The New School university in New York. He’s also the host of The Economic Update, a weekly radio show on WBAI.

Thanks so much for joining us, Rick.

RICHARD D. WOLFF, PROF. ECONOMICS, NEW SCHOOL, NEW YORK: Thank you very much for inviting me.

DESVARIEUX: So, Rick, as I’ve already mentioned, the press has reported that the U.S. economy has seen some of the largest job gains in years. But how do you interpret the latest figures?

WOLFF: Well, I would always begin by saying it’s good news if there are more people working this month than last month, given the unemployment that has dogged this economy now for pretty much seven years and counting. But I would caution anyone to draw anything like the hyped conclusions coming out of the White House and the Department of Labor. One month, two months, three months–they’re not going to change the underlying reality, which is: we are in the worst economic downturn since the Great Depression. The promises that we learned lessons from the Great Depression that would prevent this kind of situation are now broken beyond repair.

In addition to the millions who still remain unemployed, we should point to the fact that the people returning to jobs are, in the large majority, returning to jobs with lower wages, fewer benefits, and less job security than they had before this crisis hits. A job is better than unemployment, but a poor job, unable to allow you to live properly, means that the underlying economic situation remains grim and there’s little to expect that to change very much.

So I would caution against getting caught up in the temporary realities, however pleasing they are to politicians. The bottom line is we remain in a very bad economic situation.

DESVARIEUX: And this temporary reality that you speak to, how much of sort of this holiday season and Black Friday, these retail positions that are now available during this time of year, how much of that is a factor in these numbers?

WOLFF: There’s certainly some of it. That’s typical at this time of year because of the holiday season. Folks who follow the retail business know that for many, many retail businesses, they do more businesses in the last couple of months of the year than in the rest of the year combined, which makes them dependent, if they’re going to survive, on what happens in this holiday season.

By the way, I might caution folks, as another sign of being skeptical about what all this means, that the reports of the Black Friday weekend after Thanksgiving were that it was down about 10 percent in terms of the amount of sales compared to last year, which is not a good sign going forward. That will show up after the first of the year in laying off a lot of the people hired now because it’s not justified given the poor sales, etc., etc.

But let me point out a couple of other things that also go into explaining why the jobs are looking a little bit better.

When people are unemployed, particularly for long periods of time–and I might mention that one of the problems this year and these last few years has been that unemployment is lasting longer on the average than it used to in past economic downturns. So when large numbers of people are unemployed for long periods of time, here’s what happens to them. First, they use up their savings. Then they up the savings of their loved ones and their neighbors and their friends. And when there’s no more left, they have no real option, especially now that unemployment benefits have been cut off by the government after a certain length of time. They’ve got to get a job, because there is no other choice. And at that point, human beings do what desperate people always do, namely, they offer to work at low wages at jobs with no benefits, no security, no stability, because it’s better than nothing. And so they go to the employer class as a group, and they’re desperate, and their employers cut them a tough deal. Sure, we’ll give you a job; we wouldn’t have before; but now that we can pay you so little and give you so few benefits, well, we’ll hire you, so that you have to see that the employment we’re having now is the employment of desperation, as well as the employment of a particular season. And it is way premature to think that we’re out of the woods that we’ve been in for the last seven years. That will take longer time and much more impressive numbers than anything we’re seeing now.

DESVARIEUX: Rick, but give us some context here. I mean, are workers doing that much worse now than they were doing even before this Great Recession?

WOLFF: No, they’re doing–as best we can tell, in terms of wages, they’re doing nothing. That is, it’s stagnant. The International Labour [Organization] issued a report on December 5 of this year, today, indicating that the stagnation of wages in the United States, Western Europe, and Japan is absolutely stunning. Wages are rising 5, 6, 7 percent in places like China. You know, we’re very critical of China, but the wages of working people have been rising much, much faster in those countries for years now than they have here. So we have wage stagnation.

But the situation of workers is worse, because with the wage stagnation, a flat wage and not going anywhere, the benefits that go with jobs have been slashed. The security attached to a job has been slashed. The regularity, knowing when you’re going to work, what hours, all of that has been taken away. So when you draw a conclusion about the condition of working people, in terms of their jobs, it has deteriorated, because the flat wages go together with a falling level of the other parts of the job. And, finally, when you add the cutback in public services that working people rely on, the flat wage, the reduced benefits, and the reduced public services add up to a declining standard of living for most people in the United States.

DESVARIEUX: Rick, the other big economic news recently was the drop in oil prices. And many economists, including Fed vice chair Stanley Fischer, say that we will see a boost in consumer spending, especially this holiday season, since there’ll be an increase in demand and more people have money in their pockets to spend more money. Will this likely have an impact on employment figures for the next month? What’s your take?

WOLFF: I don’t think so. And I think Mr. Fischer’s optimism was premature the minute it came out of his mouth. And the point of fact is the drop in oil prices began before the Thanksgiving weekend. So the Thanksgiving weekend, Black Friday, etc., would have been a perfect time to see whether the drop in oil prices, the extra money in folks’ pockets because the gas pump price has gone down, would translate into greater sales for gifts and so forth for the holidays. They didn’t do it. Sales fell in that weekend. They didn’t rise compared to the equivalent times a year ago.

So my guess is that what people are doing–which is not at all surprising given what I just said about the declining standard of living–what people are doing with the money they save from the oil and the gas they put in their cars is they’re using it to pay off the debts they still have. They’re using it to sock it away for the hard times they fear are just around the corner. They’re not about to blow them away on gifts at Christmastime, because this is not the time or the place or the moment in history to do that. And so I think I’m not surprised at all that the Black Friday weekend wasn’t good. I don’t expect much from the whole holiday season. And I think businesses will be very eager to shed workers the minute Christmas is over because they haven’t been able to get the sales that justify bringing on the extra work.

DESVARIEUX: There’s also talk in the business press about these new employment figures putting pressure on the Federal Reserve to actually increase interest rates. We’ve heard that from Janet Yellen, the chair of the Federal Reserve, that if unemployment goes down, interest rates will most likely go up.

Explain that relationship to us. What’s the connection between interest rates and employment, really?

WOLFF: Typically in the economics literature the argument goes like this. When unemployment goes down, when workers are a little bit harder to find and hire for employers, what employers typically have to do is raise the wages [snip] workers to come to work so even their job–to come to this one, you get them that way by raising wages and so on. Wage [incompr.] will try to cover the extra wages they have to pay by jacking up the prices of what they sell, and that therefore all prices will go up. That’s an inflation. And the Federal Reserve, to control that inflation, because it’s a dangerous problem, will raise interest rates to slow the economy down. That’s the conventional wisdom, and that sometimes happens.

But on other situations, in other conditions, like the ones I think we’re in now, it doesn’t happen. And let me cut to the chase and give you the single single biggest reason why I don’t think the Federal Reserve is raising interest rates any time soon.

The problem is our economy is too fragile. Our housing market is still depressed relative to before this crisis began. Our people can barely afford to buy automobiles, as well as houses. And both cars and houses depend on the interest rate, because they’re bought with [snip] loans. And it’ll be too dangerous in our economy to raise interest rates, because it’ll cut the number of cars the car companies can sell, and it’ll cut the number of loans that will be sold by those who want to sell them. And that means construction of housing will slow down. That means the building of cars will slow down. And our economy is way too fragile to tolerate anything like that.

So I don’t expect that the wages will go up, because I don’t think the conditions are really there for that. But even if they did, and even if that lasted for a while, our economy is far from out of the woods, and that will preclude any serious raising of interest rates. It’s simply too dangerous for the Federal Reserve to risk.

DESVARIEUX: Alright. Rick Wolff, joining us from New York.

Thank you so much for being with us.

WOLFF: My pleasure.

DESVARIEUX: And thank you for joining us on The Real News Network.

End

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