The Big W

Picture 2In the movie “It’s a mad, mad, mad, mad world” a bunch of people are trying to find a fortune buried under a “big W.” The movie ends badly for just about everyone, with no one getting the money — which had been stolen to begin with.

The parallels between that movie and the current jobs crisis are getting to be uncomfortably close. We may be heading for own version of the big W — a double-dip recession. That is, a brief recovery followed by another downturn.

The reasons are simple. Much of the current growth is fueled by government spending — which will dry up at some point. Unless the power behind the expansion switches to the private sector the economy cannot continue to grow. And that is far from certain.

The U.S. Bureau of Labor Statistics estimates that 8.6 million jobs have been lost since the recession began, and while layoffs are slowing, there’s no sign that hiring is growing at anything close to the levels needed to make up for the loss. About 1.3 million people enter the workforce each year, so that many more jobs need to be created annually — in addition to the ones lost.

History in the Making

We have not seen anything like this before. In past recessions the speed of the recovery equaled or exceeded the speed of the downturn. Based on past experience the economy should have been in overdrive by now, with unemployment in full retreat. Following the dot-com bust in 2001, the number of jobs lost had been made up in about two years. This time we’re seeing a sluggish recovery and no jobs growth.

The last time unemployment hit 10.2% was in 1981. Back then the government’s response was aggressive tax cutting and deregulation. This resulted in employment reaching its previous peak within two years. This time the size of employment decline has been nearly twice as large as in 1981 (5.3% vs. 3%) and the policy response so far has been the opposite — increased taxes and regulation.

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We’re in a spiral that’s getting hard to break out from. The simple fact is that much of the growth in jobs has to be driven by consumption, most of which is done by consumers. That cannot happen unless people have money to spend, and when people are not employed they don’t spend much money. Whatever benefits the stimulus packages have had, they cannot be the solution. And all the programs that have been the focus of the administration and Congress for the last year (cap and trade, healthcare) require spending money that must be borrowed and will eventually have to be paid back, i.e., taxes will have to rise, further reducing the money available to consumers for spending.

The Secret of Happiness

The secret of happiness is to lower your expectations to the point where they’re already met. That’s going to have to be the mantra for a long time. With so many unemployed workers employers have every incentive to underpay qualified workers. And with credit scarce and people increasingly focused on reducing their debt, there’s little chance that spending will recover. We may be in for European-style unemployment where 10% is the norm.

Recruiters looking for opportunities should look to service industries – retail, healthcare, government, and education. About half the jobs lost were in manufacturing, construction, and finance, and most are not coming back ever. But healthcare and education are growing. Geographically, opportunities will be the most in the states with the lowest tax burdens and most business-friendly, i.e., least regulated, environments: Texas, Oklahoma, Virginia.

It’s a mad, mad, mad, mad world starts out with the person who had the money driving off a cliff, after which everyone else comes up with wacky ideas to get it. They find the big W but end up without the money and badly hurt. I just hope we don’t see a documentary with the same title.

Raghav Singh, director of analytics at Korn Ferry Futurestep, has developed and launched multiple software products and held leadership positions at several major recruiting technology vendors. His career has included work as a consultant on enterprise HR systems and as a recruiting and HRIT leader at several Fortune 500 companies. Opinions expressed here are his own.


22 Comments on “The Big W

  1. Raghav, great read; two thoughts came to mind. I am glad that you are not an economist and I hope that you are incorrect in your assessment. But you certainly supported your points. Your movie analogy however, reminded me of another movie. “The Flight of the Phoenix” where a transport plane crash landed in the dessert. The survivors, after concluding that they would not be rescued were able to rebuild a smaller, more nimble airplane using parts from the crashed plane.

    If our economy has crash landed, and jobs lost will not return, maybe we need to focus on re-training, developing new skills or finding more efficient ways of doing things to pull us out of this mess.

    Yeah, lots of jobs (especially recruiters) were lost, home values declined, and savings wiped out, but it was probably mistakes that were made which placed us in a position where we felt secured.

  2. I agree….unfotunately. We may not be in a recession. This just might be the new economy where 1 in 10 is statistically unemployed and even more are underemployed. Job seekers are accepting much less in hourly and salary offers. Healthcare is even seeing it as well. Experienced clinical caregivers rates of pay are down….which was unheard of just 1-2 yrs ago.

  3. As we voted in a party who seem entirely ignorant of 800 years of economic history, we can be assured that there will be no relief, or hope of such until they are gone.

  4. Raghav, we have seen this exact syndrome before: spiral was the appropriate word. It’s known as a deflationary spiral. If that’s the case we are not looking at a W or even an M- rather a rightward downsloping zigzag that will continue until some environmental factor changes the dynamic.

    The generally accepted academic thesis regarding the causes of the great depression involve a reckless expansion of money and credit in the 1923 to 1927 period, without a corresponding increase in personal incomes, creating an imbalance between debt and the ability to service debt that led to a massive deleveraging, contraction in production, employment, capital expenditure, and borrowing. There’s not a lot of debate about that thesis.

    There remains plenty of debate about policy response of the Hoover and Roosevelt administrations, including the 1937 recession. It’s pretty well accepted that the environmental change that killed the depression was WW2.

    Somehow the nation managed “the golden years” 1945-1980 with communist, leftist, socialist, whatever flavor of ideology you wish to call it predominating, along with very high marginal tax rates for top incomes.

    Something happened around 1980 that sent us on our current trajectory……I wonder what that could be ? Bill, any ideas about that ?

    These days politics and polarized politics are infecting everything- not surprising when a society is under a lot of stress. It’s going to take a significant environmental change to break us out of the current depression, which is really been under way since at least late 1999. It’s been masked by financial shell games and funny accounting, but looking around the country and examining the trajectory of most American lives since that time tells the real story.

    I love to debate politics and produce polemics-if we are going to do it on ERE, people better come prepared because I don’t put up with untrammeled right wing B.S. any more than I tolerate hippie talk of disbanding the military or creating a command economy.

    My guess as to the changes that will ultimately turn things around will be strong international agreements regarding minimum wages, environmental conditions, debt, and subordinated multinationals to level the playing field among the world’s working people. As of now, if the price of human life is low or zero in some corner of the world, global wage arbitrage will drive jobs to that corner. We can’t allow that to continue untrammeled.

  5. Martin:

    Actually there is a good deal of debate, money supply in the 20’s was certainly a factor, though many would say that the corresponding contraction, along with the maintenance of too high interest rates was the actual cause, in other words, the medicine killed him.

    Others hold the Smoot-Hawley act to be the invisible hand. What made a recession a depression is also up for debate. My particular opinion is FDR’s admiration of Mussolini, who did in fact, look pretty good as a manager before Abyssinia; he did drain the Pontine marshes, a task that eluded even Augustus.

    That all being said and moving forward, I don’t remember a lot of golden years from 1966-to 1980 and I was a business owner in those years. No sour grapes, I did very well in those years because of the sector I was in but the newspapers would not have sustained the golden years idea at all. From 1945, well into the 50’s, we had a singular advantage as our usual economic competitors had rubble for infrastructure.
    Factories closing, Japan economically triumphant, rustbelts, Allentown, families living in cars–all that. Recessions and contractions, like mini-strokes, that went largely unnoticed.

    As to your tax rate–yes, we did have an incredibly high marginal tax rate—as published; however, there were so many deductions and they were so generous that it gave lie to the percentages. A better indicator would be to look at tax freedom days over those years. People, at all levels, except the very poor, paid less tax than they do now.

    You said something about “our current trajectory in 1980”
    I’m not sure what you mean, except perhaps that aside from a brief interlude within the Regan years, government has continued to grow at a fairly amazing rate. Other than that don’t see a direction at all. It’s incoherent as policy. I recently read an article that claimed 33 new laws were passed every day on average. That’s a lot to obey and a lot to pay for and I don’t see an end, do you?.

    And in conclusion I will leave off with the thought that leftist policies are like ice cream to some, poison to others,–in either case , a lot less than you think will kill you.

  6. So tax cuts and deregulation solved the 1981 recession. Part of the Republican fantasyland of economic history. The Regan era started the huge deficits that then continued under Bush I and Bush II. President Obama is using the government tools that work to mitigate a recession (and saved us from a new Great Depression). stick to recruiting and placing candidates as that’s what this forum is supposed to be about.

  7. Stacey
    And just what a brilliant illustration of feeble thinking you provide us all. Dodge the issue and attack the person. You are wrong about Dr. of Human Resources as well, as I suspect you are wrong about many things. I may not agree with Bill, but I admire his intellect and can understand his viewpoint. Perhaps you can find some handy quotes from Sarah Palin or Andre Bauer to put me in my place.

  8. Rich:

    I think you’ll find that the deficit numbers will correlate to who held the House and Senate, rather than the President.
    And now, with your permission, of course, I’ll point out that you seem to think that a Bush deficit is bad, but an Obama deficit, 10 times greater, is a fix.
    Feel free to flame away, this will be my last post on this subject because though roughly put, you are correct, this is no place for the discussion.

  9. See the trouble with politics on business sites ? Tom and Stacey have totally opposite worldviews….there likely can be no common ground because if you thing W was a war criminal and colossal failure (I do) its hard to deal with the other side (I try).

    Bill thats a strong response but tax ‘freedom’ day does not take into account economic benefits coming back from the government, which for many people have increased over the timeframe we are discussing. It also ignores demographic reality that there are far more non-working people as a total proportion of the population. That fact alone means more tax burden of one form or another.

    I think super high top rates on max earners have a strong social benefit because you cant make big money without public investments of one form or another, plus those rates discourage rent-seeking by management at the expense of shareholders, which has happened on a huge scale in the last 30 years.

    Since you obviously are a thinker, may I suggest these two highly regarded books:

    Murray Rothbard – The Great Depression
    Robert McElvaine – The Great Depression: America 1929-1941

    Smoot-Hawley is not prime in their views. People on the right pine for when things were better- I suggest 1900-1914 were the best years ever, at least for people in the CONUS, but 1945-1980 seem to hold sway with lots of others…..

  10. Raghav,

    While you have some interesting points in relation to this recovery and the bust & 1980’s recession, I think you are using the wrong recession. Rather than the 1980’s oil embargo recession (or bust), the current recession is closer to that of the 1st Gulf War(1993). The Gulf war recession was caused by a housing boom gone badly, and was notable for its jobless recovery. In fact, I remember people telling me as a college graduate that I would never reach their standard of living using a similar logic to which you use.

    I believe answer to the gulf war recession was the entrepreneurial spirit of so many unemployed mid-level executives. When this segment of the work force was faced with the obsolescence of their jobs, they became inventive and created the industry.

    I expect a similar result soon.

  11. Raghav –
    Great post per usual. The Bureau of Labor Stats said it best, in projecting 10 Mil. new jobs by 2018. Impressive until you realize it’s only 125k new jobs a month (2010 till end of 2017), mid-point of the estimates of 100-150k folks entering the workforce a month. And that assumes no reversal causing a surge in the increase of those entering illegally, of those who returned to Mexico due to our Recession.

  12. Gary,

    To say that the industry was created by “so many unemployed mid-level executives” strikes me as wildly wide of the mark. If that kind of thinking was correct, we’d be so far out of this recession by now that, as recruiters, we’d be having the time of our lives.

    I agree with Raghav and feel it’s time for the current administration (and their apologists) to stand up and take responsibility for the results of their programs/policies.

  13. Hi Raghav,

    Though provoking post. According to almost all analysts, a Double Dip Recession is becoming more likely.

    Though I agree with your conclusions, I don’t agree with your logic. We are in uncharted territory. What worked in the past is not likely to work again.

    Regarding the job lossess of 2001… we did NOT gain them back in 2 years. As a matter of fact, it was almost 6 years and much ink was used debating the lag. Honestly, we all know that if you have skills worth money, you will find a job. It’s jobs for all the working-class stiffs that have spent 10 years working in factory, clerical or other “non skilled” positions that have been idle for longer and longer terms.

    Maybe unemployment is high because we no longer make unskilled jobs in the USA. Instead we let China make all our goods and we outsource our repeatable administrative tasks to India. As that trend built, we found that fewer, and fewer mid-manager’s were needed in the USA… thus unemployment has begun to creep up the income scale.

    Unemployment will remain historically high until we put people on the bottom of the heap to work.

    Regarding previous comments on the old taxes/regulation arguments… isn’t it just as likely that the pendulum has swung too far the opposite direction? We don’t really know anymore, do we? We cannot trust corporate leaders and the government statistics.

    Finally, I’m disappointed in the partisanship of many of the comments. The economy and job situations are not fully tied to either right/left politics.

    Like most problems, these will get solved when we stop bickering about whose dogma is correct and take action to get jobs going… Think how many jobs would be created if we told corporations to limit off-shoring of production and reverse outsourcing!

    Don’t get me wrong… I don’t the crankies in the Tea party are WRONG about plenty… HOWEVER, I agree with them that it is NOW time to “THROW THE BUMS ALL OUT” EVERY LAST ONE (R) or (D)

  14. Excellent article.

    Stacey, shame on you! Making fun of a Dr of HR? It might be just the right moment for a timeout for you!

  15. Love Raghav’s writing style and fact based content…

    Every single person I know who 1) Loves there Vocation 2) Has Passion for there Vocation has thrived in this economy….

    When the employment/market place is given “choices” the “Lovers of there Vocation” ALWAYS WIN!

    Best, Brian-

  16. Thanks, Raghav. I liked your article and agree with it, except for the anti-Keynesian rhetoric.

    IMHO, much of ordinary Americans’ economic difficulties of the past 30 years can be attributed to the destruction of well-paying jobs and the creation of poor-paying ones to replace them.

    For a moment, let’s ignore how the following would be created, and just try to imagine what they would be: 10,000,000 new jobs paying $40-$100k 2010 dollars. Do any industries seem to have a chance of creating this number of this type of jobs in the forseeable future? (What happened to the tremendous demand for IT jobs we were supposed to have now? There’s still a demand, but it’s not tremendous….)

    Thank You,


  17. sure- just tax gasoline to $7 a gallon, coal 3.5 cents per KW produced, and use all of those tax funds to subsidize massive projects like:

    1) build and bring online 250,000 wind turbines

    2) 100 new passive-safe design nuclear plants, 100 solar concentrated plants, and a new national smart grid

    3) electric and hybrid auto infrastructure (2 car families would have one city car and one road car, the city car being all-elecric and the road car being hybrid with not more than 100 horsepower)

    4) implement self-driving vehicles both traffic controlled in high density areas and and self-controlled in the open.

    5) tax-break first movers in electic vehicles

    6) reduce defense spending by 40% due to drastically lower national security missions since we wont really care that much about middle east oil anymore

    7) design roll-on/ roll-off trains for intermodal truck and auto transport (taking the train is great if you arrive with your car)

    8) means-test medicare and social-security

    9) consolodate local police, fire, and school districts in all metro areas under state authority

    10) enjoy the fruits of these radical changes.


    keep doing what we have been doing and slide into second world status like Russia because no one nation can affort to outspend all others combined on defense and per capita fossil energy use.

  18. Martin makes some interesting suggestions, and some comparable measures have been tried elsewhere with less than successful results.

    The president has pointed to Spain as one example of these type programs. Due to massive government investments (i.e. $36,000,000,000 betweeen 2000-2008), Spain now has a world-leading quantity of both wind and solar electricity (both highly subsidized). One might think that Spain’s green-job creation should be second to none, right?

    A study by a Spanish economist found 2.2 conventional jobs were destroyed for each green job created. This finding is consistent with Spain’s overall employment situation. At 19.4 percent, Spain’s latest unemployment rate is nearly double that of not only the United States (10.0 percent) but it is also nearly double the rate for other countries in Spain’s region, France (10.0 percent) and Portugal (9.8 percent).

    Overall, Spain’s $36B investment has resulted in a cost of $758K+ per green job created.

    As recruiters, how many of us would look forward to an unemployment rate of 19%? At that level, I’d think that most of us would be in that 19%.

  19. David- The energy investments made are impossible to separate from the asset price bubble (extreme even by our standards), which creates a multi-variable problem.

    In addition, the United States economy is more focused on the heavy manufacturing and construction industries required for power plants, vehicles, railways, and infrastructure modernization than Spain ever was.

    My list of things to do to improve the economy is of course, politically impossible. But I was answering Keith’s question.

    I did not address corporate governance, tax policy relating to interest earned v. interest paid, serious education reform, or other social engineering that could also improve the economy- just direct industrial steps.

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