Published 9/15/2011

Why a Jobless Recovery?

Manufacturing hints at why business activity has been slow to raise employment.

Basics

Editorial Director, Modern Machine Shop

The phrase “jobless recovery” is a misnomer. During this latest period of upswing, jobs have certainly been involved. It’s just that current jobs have been stretched instead of new jobs created. Similarly, “recovery” is a questionable term. Is it really a recovery if people don’t return to work?

A recent Wall Street Journal article described how the very concept of “jobless recovery” actually represents a reversal. Through 2008 and 2009, U.S. output fell 4.5 percent, but employment fell 8.3 percent. That means the employees who remained must have been producing at a higher rate. Yet in the early 1970s, output fell 5 percent, but employment fell just 2.5 percent. Back then, employees were retained, even as their workloads shrank. Instead of a jobless recovery, we used to have recoveryless jobs.

Machining facilities might be an exception to the jobless recovery, with many adding staff and many others looking for candidates. Even so, as I look at the ways machining and manufacturing have changed, I think I see clues as to why this latest recovery was “jobless”—or why business activity is now slower to translate into employment gains. The following observations focus on manufacturing, but some variation on each of these statements applies to other enterprises as well. Why a jobless recovery? Here are some thoughts:

1. Businesses are more vulnerable now. In manufacturing, information technology has made it possible for production to be coordinated across a nimble supply chain rather than the OEM owning production internally. This has improved efficiency, but it also puts more of overall production into the hands of smaller businesses. While a big plant might wait out a downturn, a small business is more likely to close. Once this happens, employment growth involves more than just restaffing—it requires lost companies to be replaced.

2. Public-sector challenges give pause. The government’s effect on business confidence is a heated topic, but at the macro level, the problem can be stated plainly. Long-anticipated challenges related to federal spending loom close. Much of the challenge has to do with outlays owed to the growing number of retirees—a problem already fueling fiscal wrangling at the federal level. Until problems in this sphere come to a head and the response is seen, companies are cautious to hire. The matter is particularly significant for manufacturers, which often face a choice between staffing or making a new commitment to automation.

3. Employees are more capable. Many repetitive manufacturing tasks have been automated or sent away. As a result, manufacturing workforces over time have tended to be made up of a higher percentage of skilled employees. Recession-driven job cuts likely skewed the percentage higher, with employers holding onto the multifaceted key employees most difficult to replace.

This shift changes the nature of manufacturing staffing. In the past, discrete, well-defined job positions could be copied and filled as needed. Today, a small staff is likely to consist of individuals covering wide ranges of tasks. To increase output, the natural first approach is just to see whether these versatile people will find a way. As the output figures show, they very often do.