(What’s Left of) Our Economy: More Reopening, Not Endless Money, is Now the Best Jobs Strategy

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African Americans, American Rescue Plan, Biden, CCP Virus, coronavirus, COVID 19, Covid relief, education, Employment, Federal Reserve, Hispanics, hotels, Jerome Powell, Jobs, Latinos, leisure and hospitality, lockdowns, recovery, restaurants, shutdown, stay-at-home, stimulus package, unemployment, wages, Wuhan virus, {What's Left of) Our Economy

There’s no doubt that the American jobs market has suffered an out-and-out disaster since it got hit by the CCP Virus and the follow-on lockdowns and other restrictions. There’s also no doubt that many workers and their families are still suffering greatly, and will need government aid to make it to the Other Side, and the Biden administration’s American Rescue Plan legislation that the President will likely sign into law soon will help fill this gap.

Plenty of doubt remains, however, about whether all, or close to all, of the massive funds approved in this measure are actually needed to cure the economy’s remaining employment woes, and one of the main reasons is the nature of the jobs blow that’s been delivered. Because it’s been so heavily concentrated in the country’s leisure and hospitality industries (encompassing eateries and drinking places of all kinds, plus hotels and motels, and entertainment and cultural venues), it’s entirely possible that nowadays, the most effective way to fix the jobs market fastest would be to lift the lockdowns and other mandated curbs that have fallen so hard on sectors that depend on serving in-person customers.

The case for relying on a virus-relief/stimulus package this big, at this stage of the economy’s recovery from its pandemic-induced recession, has been eloquently stated by President Biden and by Federal Reserve Chair Jerome Powell. The former warned just before the legislation passed that the U.S. economy “still has 9.5 million fewer jobs than it had this time last year. And at that rate, it would take two years to get us back on track.”

The latter has stated that he won’t be satisfied that full employment has returned until he sees what one reporter has called “broad-based gains in employment, and not just in the aggregate or at the median.” As a result, the Fed Chair is paying particular attention to (the reporter’s words again) “Black unemployment, wage growth for low-wage workers and labor force participation for those without college degrees, categories that historically have taken longer to recover from downturns than broader metrics.”

But it’s precisely these less fortunate portions of the workforce that would be helped disproportionately – and then some – by focusing on reopening steps that would surely affect the leisure and hospitality industries just as disproportionately.

If you doubt the importance of leisure and hospitality job loss over the last year in terms of overall U.S. jobs loss, here’s what you need to know. Of the 8.068 million positions shed by the country’s private sector between last Februrary (the final month of pre-CCP Virus normality for the American economy), fully 3.451 million have come in the leisure and hospitality industries. That’s nearly 43 percent.

Put differently, during that final normal economic month, leisure and hospitality workers represented just 13.04 percent of all private sector workers. Yet their employment plunge was more than three times as great relatively speaking.

Moreover, leisure and hospitality’s progress in getting back to pre-pandemic square one has been slower than that of the private sector overall. Since the April employment trough, leisure and hospitality has regained 4.955 million of the 8.224 million jobs lost during the worst of the pandemic, or 60.25 percent. For the private sector in toto, 13.267 million of the 21.353 million jobs lost in March and April have come back since – 62.13 percent.

It’s also clear that many of the kinds of workers about which Fed Chair Powell has been most concerned are concentrated in leisure and hospitality. For example, in 2019, (America’s last pre-CCP Virus full year), 13.1 percent of these sectors’ workers were African American versus 12.3 percent for the entire U.S. economy (including government workers at all levels), and 24 percent were Hispanic or Latino versus 17.6 percent for the entire economy.

Leisure and hospitality companies tend to employ Americans with low levels of formal education, too. According to the Labor Department, in 2019, 79.9 percent of the nation’s “first-line supervisors of house-keeping and janitorial workers” 25 years and older lack even an associate’s degree, and 76 percent of their food preparation and service counterparts fall into this category. The shares are even higher for the workers they supervise. Meanwhile, only 51.5 percent of all U.S. workers haven’t taken their education beyond high school.

Not surprisingly, therefore, leisure and hositality jobs pay poorly. In February, 2020, just before the arrivals of the pandemic and the lockdowns, their average hourly wages were only 59.28 percent those of all private sector workers. Last month, this figure had fallen to 57.58 percent. (See Table B-3 here.) 

For most of the pandemic period, the U.S. government at all levels pursued a mitigation strategy that aimed mainly at curbing economic and other forms of human activity across-the-board. Now, even with vaccinations and growing population-wide immunity showing strong signs of bringing the pandemic under control, the Biden administration and the Democratic Congress are just as determined to stimulate the economy that’s still significantly shut down by with an American Rescue Plan that seems just as indiscriminate.

As I’ve been writing (see, e.g., here), it should have been clear since late last spring that the anti-virus fight would have much more effective (and less harmful to the economy and other dimensions of public health) had it targeted protecting especially vulnerable populations. I strongly suspect that, with the fullness of time, it will become just as clear that a stimulus and jobs strategy emphasizing accelerating reopening, and thus aiding sectors and workers hardest hit by the remaining shutdowns, will prove a much more effective employment cure than the indiscriminate spending approach on which Washington has just doubled down.

(What’s Left of) Our Economy: Blaming the Restaurant Crisis on…Trump’s Tariffs

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Europe, food, imports, productivity, restaurants, spirits, tariffs, The Washington Post, Trade, Trump, wine, {What's Left of) Our Economy

It’s like the Washington Post, and especially the folks who run its op-ed page, will do anything to slam President Trump’s tariff-centric trade policies. Example number 4,369,589? A piece not from an Offshoring Lobby mainstay, or one of this pressure group’s hired gun think tank hacks, or an academic economist with his or her head stuck in the clouds – but from two of America’s leading chefs and restaurateurs.

I’ll give Post editors and the authors – Kwame Onwuachi and Alice Waters – style points for creativity at least. The article contends that a great way for apparent President-elect Joe Biden to provide some desperately needed help for a national restaurant sector decimated by the CCP Virus would be to lift a set of tariffs imposed by Mr. Trump on European food products. The tariffs, they contend, are adding 25 percent to the costs of restaurants that use these products exactly at a time when few establishments in this usually low-margin sector can afford such burdens.

Unfortunately, all the piece makes clear is that chefs and restaurateurs should stick to cooking and serving and running their own businesses rather than advising the nation on trade, and that the folks at the Post should try requiring their authors to meet some minimal standards of credible argumentation.

After all, as Onwuachi and Waters themselves point out, these Trump tariffs were imposed last October 19. And the nation’s restaurants seemed to be doing just fine until…the pandemic and the lockdowns came along. So blaming the trade curbs for any significant contribution to the restaurant crisis seems a major stretch.

No doubt dining establishments that rely heavily on sales of products stressed by the authors like “wine from France, Spain and Germany, whiskey from Ireland and Scotland, and Spanish olives and olive oil, along with cheeses from all over the continent, pork, and much more” are now seeing their remaining (post-lockdowns) earnings suffering.

But nowhere in the piece are readers given the bigger picture. For example, what share of the nation’s restaurants even serve any of these foods or beverages? And what share of their total costs do such imports from Europe represent? Further, what percentage of these restaurants have closed for good, meaning that tariff elimination won’t provide them with a speck of relief at all? As RealityChek regulars know, presenting economic data in isolation is the first refuge of an intellectual scoundrel.

The authors – and their editors – also seem unaware that lots of domestic substitutes are available for these European products. For instance, on the eve of the pandemic, U.S.-produced wine accounted for about two-thirds of all the wine sold in the country both by value and by volume. I’m no oenophile, but I keep hearing that many measure up quite well against their foreign counterparts – and often better. In addition, not all the imports, or even the choice imports, come from Europe, as connoisseurs of Australian, South American, and South African wines can attest.

It’s a shame that the Trump tariffs won’t enable the restaurants that do maintain an extensive European wine menu to offer their customers exactly what they want, at exactly the prices to which they’re accustomed. But I strongly suspect that diners today are in a pretty supportive, accomodating mood. And if restaurateurs are indeed desperate – which so many clearly are – they won’t gripe excessively about switching to non-tariffed wines.

Moreover, any restaurateur worth his or her salt should have the marketing chops to encourage customers to expand their palates. Heaven knows they’ve succeeded extraordinarily in persuading Americans to sample all sorts of new, exotic, and often downright weird dishes and drinks containing equally new, exotic, and often downright weird ingredients and combinations thereof.

Since wine and other spirits play an outsized role in restaurant sales and profits, it’s that alcohol trade picture that counts most, and it’s enough to refute in large measure the case for saving or even meaningfully boosting the dining industry by rescinding the tariffs. But as opposed to my indifference to wine, I am a cheese lover, and can personally attest that many outstanding domestic varieties are available, too, for gourmet chefs to place on appetizer or dessert plates.

Finally, both the authors and the Post editors ignore the economics maxim holding that businesses facing cost increases can absorb them without raising prices by boosting their productivity. And although cooking, serving, and dining probably don’t strike many as an activities where efficiency can be greatly raised, the industry itself admits that its productivity growth is unacceptably low and needs to get on the stick.

Just as important, unless Unwuachi, Waters, any other spokes folks for their sector, or Post editors can come up with more convincing evidence that U.S. trade policy has decisively impacted their fortunes, focusing on improving productivity would sure be a better use of their time than whining about Mr. Trump’s tariffs.

(What’s Left of) Our Economy: Green Shoots of Recovery in New York City?

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(What's Left of) Our Economy, CCP Virus, consumer spending, coronavirus, COVID 19, election 2020, healthcare, Jobs, New York City, restaurants, stimulus package, subsidized private sector, The Partnership for New York City, Wuhan virus

Since I’m a New York City native, I’m a New York City fan. (At least I think that logically follows!) Therefore, one of the most disturbing trends I’ve followed in the CCP Virus era concerns the especially serious troubles the City has suffered this year, economically as well as medically.

I still haven’t made up my mind about whether New York has been pushed by the virus into a period of long-term decline, or whether we’ll see a return to normal once the pandemic has been brought under control (insert your own definition of this goal).

Yet for the last two months, whenever the case for pessimism seems to become conclusive (see, e.g., so much of the evidence in this recent New York Times piece), an email appears in my inbox from a friend who sends me the regular updates on the City’s economy from the Partnership for New York City.

The organization, comprised of hundreds of New York’s most prominent business leaders, says it seeks to “build bridges between the leaders of global industries and government, drawing on the resources and expertise of business to help solve public challenges, create jobs and strengthen neighborhoods throughout the five boroughs.”

Whatever you think of its sincerity or effectiveness or overall objectivity, the data it regularly releases tracks with statistics I monitor from other sources, so it seems reliable to me. And some of the figures it’s presented lately have been major stunners.

For example, as early as late July, the Partnership reported, consumer spending in the City had nearly returned to 2019 levels. In late March, it had plunged to 53 percent below them. Just as unexpected – the big laggards were New York’s wealthiest boroughs, Manhattan and Brooklyn (although maybe the Manhattan results weren’t so surprising, given its dependence on business from office workers, so many of whom weren’t commuting to their offices).

According to a late-September bulletin from the Partnership, not only had New York’s private sector employment increased on month, but “the city has outpaced U.S. private sector job growth for three consecutive months.” The leader here was the healthcare sector – which RealityChek regulars know are only partly private sector jobs, given the industry’s massive dependence on government subsidies. (See, e.g., here.) But the same problem distorts the national figures, so this finding still legitimately counts as a pleasant surprise.

Even more surprising: “209 business licenses were issued in September, up 11% from 189 licenses issued in August. The number of new business licenses has increased for four consecutive months and is up 260% since May.”

Of course, this number of businesses is less-than-tiny for such a gargantuan metropolis. But any signs of entrepreneurship these days are encouraging, and support the even more encouraging possibility that the City remains a powerful magnet for individuals with talent and drive.

No one can doubt that New York still faces massive challenges going forward, especially since the onset of winter, and the growth of lockdown fatigue, means that a second virus wave may hit. Moreover, the colder the weather gets, the greater the struggles of a hugely important restaurant sector that’s been able collectively to hang on with its fingernails thanks to regulatory reforms that helped eateries expand outdoor dining since late spring.

The fiscal situation seems dire as well – unless Democrats sweep to power in next week’s national elections and approve the kind of big aid package for cities and states that Republicans have generally resisted. (The continuing deadlock over a broader relief bill, which could drag on if Republicans retain the White House and/or Senate, obviously could remain a big problem, too.)

Even then, the City will be hard-pressed going forward to fund needed services adequately without the kinds of tax increases that tend to drive taxpayers away, cuts in more controversial outlays that tend to antagonize powerful constituencies like public employee unions, or some combination of both.

For now, however, these Partnership reports have been revealing impressive resilience in the New York City economy. And it bears remembering that, over any significant period of time, so far no one has ever made any serious money betting against it.

(What’s Left of) Our Economy: Restaurant Nation and its Consequences

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(What's Left of) Our Economy, CCP Virus, coronavirus, drinking places, food services, Jobs, Manhattan Institute, New York City, private sector, private sector jobs, recession, restaurants, The New York Daily News, wages, Wuhan virus

If you’re interested in New York City and its economy, and how it’s been affected by the CCP Virus, and major changes in the nation’s economy and family life, Howard Husock’s op-ed piece in The New York Daily News last month dealing with all these subjects is a must-read. In fact, it’s so interesting and important that it led me to investigate how the rise of the restaurant sector in the City – his prime focus – has played out nationally.

As shown by the author, a researcher at the Manhattan Institute, the restaurant industry has become nothing less than vital to the city’s economy. The wallop it’s taken from the virus and resulting shutdowns has thrown its full recovery – at least for the foreseeable future – into serious doubt. And therefore its sagging fortunes and seemingly gloomy prospects are strongly influencing the debate over how fast the City should return to business-as-usual.

At least as consequential, Husock argues convincingly that the burgeoning importance of the broad food service industry in recent decades reflects a major New York economic and social trend: Restaurants “can no longer be understood as the luxury it once was but, rather, as both a prerequisite for a successful economic recovery and an indicator that one is underway.”

When I looked into the national data (some of which Husock presents), I found that something like this conclusion is warranted for the country as a whole as well – and that it’s worrisome news at best economically.

Husock’s national data goes way back to the early 20^th century, and it looks at the U.S. labor market measured in terms of the types of occupations Americans hold. I’ve looked at the data measuring employment by sector of the economy, and although the restaurant figures only begin with 1990, they picture they draw looks comparable. (RealityChek regulars will note that I’m not using my usual method of comparing economic expansions to economic expansions, or recessions to recessions. My reason: the trends described here seem to hold during all kinds of economies – as I’ll indicate below.)

Chiefly, the numbers make clear that from 1990 to the end of 2019 (just before the virus struck), on a December-to-December basis, total U.S. employment in the private sector grew by 42.58 percent. But in the food services and drinking places category, the increase was 86.48 percent – more than twice as great. In food service businesses alone (excluding bars), the growth was 89.52 percent. That is, the workforces in these sectors, white- and blue-collar employees combined, nearly doubled during this period.

Particularly noteworthy – during the 2000s (which include the 2007-09 Great Recession), total private sector jobs fell by 2.99 percent. For the food service and drinking places, they increased by 14.44 percent, and for eating places alone, by 16.24 percent. So as I just stated, these trends seem to have unfolded during booms and bust alike.

Viewed through another statistical lens, in 1990, food services and drinking places employees represented 7.22 percent of all private sector workers. In December, 2019, this share was 9.44 percent. For eating places alone, the 1990-2019 rise was from 6.44 percent to 8.56 percent.

Also crucial to note: However, increasingly convenient dining or taking out has become for Americans, the rapid relative growth of restaurant-type jobs doesn’t look like a plus for their economy. The main reason? Restaurant industry jobs really do pay poorly.

In December, 2019, the average hourly wage in the private sector was $28.37 before adjusting for inflation. For food services and drinking places in toto, it was $15.34 (not much more than half the private sector average) and for eating places alone, only $15.09.

The only real bright spot in this picture: wages in restaurant-type jobs have been rising faster lately than those for the private sector overall. The data here only date from 2006, but during the 2010-2019 period examined above, on a December-to-December basis, pre-inflation-dollar hourly wages in the private sector advanced by 24.65 percent. For all food service and drinking places, the improvement was 32.12 percent, and for eating places, 31.68 percent.

So the wages gap is closing, but not dramatically.

Precisely because the U.S. workforce was steadily turning into Restaurant Nation until the CCP Virus arrived, as with the New York City economy (though not quite so heavily), the entire economy’s return to a pre-virus normal will depend on financing that will enable a critical mass of this sector to survive. But someone needs to ask whether whether Restaurant Nation is a healthy and sustainable structure for the national economy over the longer haul

Making News: New Daily Caller Piece On-Line on the CCP Virus and the Economy

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bankruptcies, CCP Virus, consumers, coronavirus, COVID 19, DailyCaller.com, deflation, economy, exports, Im-Politic, Jobs, manufacturing, public health, real estate, recession, recovery, rent, reopening, restart, restaurants, retail, small business, testing, travel, unemployment, vaccines, Wuhan virus

I’m pleased to announce that my latest freelance article has just been published on the popular DailyCaller.com news site.  The title pretty much says it all:  “Don’t Expect A V-Shaped Recovery From Coronavirus,” and you can read it at this link.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: A Respectable Case for Optimism?

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CCP Virus, China, consumer confidence, consumers, coronavirus, COVID 19, Federal Reserve, Jerome Powell, lockdown, recovery, reopening, restart, restaurants, retail, second wave, shutdown, social distancing, Sweden, testing, vaccines, Wuhan virus, {What's Left of) Our Economy

At the risk of being (undeservedly) tarred as a CCP Virus pollyanna, I can’t help but being struck by the some new evidence that the U.S. economy’s recovery from its pandemic-induced swoon will be faster than widely feared. In fact, I still share these fears to some degree. But I can’t ignore increasing signs to the contrary.

To be clear, this evidence has little to do with the subject of yesterday’s post. Just because data can be cited showing significant national progress in beating back the virus threat doesn’t necessarily mean that a more so-called “V-shaped” economic rebound is on the way. The same goes for the impact of this progress on the economy reopening decisions of individual U.S. states – even though the more decline seen in numbers of new cases (despite gains in testing that should be revealing much more infection), numbers of deaths, and numbers of virus-related hospitalizations, the more reopening obviously will be seen.

Nor are my views being shaped by the strong rebound seen in U.S. stock markets so far (including today so far), or by the newly bullish recovery views voiced last night on “Sixty Minutes” by Federal Reserve Chair Jerome Powell. And this post isn’t even driven by the latest news about vaccine progress (though such reports will clearly help as long as the results continue being validated).

The reason: I’ve been convinced that the key to the recovery’s strength will be Americans’ willingness to start patronizing businesses in an economy where most activity – and most income earning opportunities – depend on consumer spending. So I’ve put considerable stock in predictions that, even though all the objective conditions can show that a return to normality will be safe, too many Americans will remain too fearful to boost the economy significantly.

I also take seriously the idea that all the restrictions on visiting retail stores (including restaurants) and personal service businesses will limit their customer flow either simply by forcing them to operate substantially below capacity, or by dissuading many customers from visiting in the first place, and thereby sharply reducing impulse consuming. Further, I’m well aware that the much more modest shock administered to Americans by the Great Recession triggered by the 2007-08 financial crisis was painfully slow to wear off. (See here and here where I write about reasons for recovery pessimism.)

In addition, the experiences of other countries that started reopening earlier has reenforced consumer caution concerns. Sweden, for example, has imposed fewer economic restrictions than any other major country. But this survey by the consulting firm McKinsey & Co. reports that consumer spending has dropped significantly anyway, and may not recover for months. China claims that it’s beaten the virus and its regime has been easing factory lockdowns since February. But as of late April, retail sales were still way down.

Finally, there’s the second wave threat, which could kneecap the economy as temperatures start dropping in the fall even if summer does witness a decent bounce back toward pre-virus consuming.

So the case against a relatively quick recovery with real legs is still awfully strong.

But don’t overlook reasons for more optimism. One that’s nothing less than amazing: The piece in this morning’s Washington Post reporting that even though virus testing is now much more widely available in the United States than previously, Americans are far from rushing to capitalize on these opportunities. Even accepting the various reasons offered in this article (e.g., not enough Americans know that the situation has changed; there’s too much mistrust of medical providers in some U.S. communities, particularly African-Americans), it’s difficult at least for me to conclude anything else but that many in the United States simply aren’t concerned enough about the pandemic to take this precaution. After all, if they were panic-stricken, wouldn’t they be following every bit of news about the supply of tests with baited breath?

Perhaps more important, the more news that emerges that the CCP Virus is much less lethal than early reports suggested, the (understandably) less concerned about infection more and more Americans seem to be.    

Then there are all the reports of Americans, whether in states that have eased lockdowns more vigorously and those that haven’t, violating social distance guidelines, either by not wearing masks where they’re supposed to, or seemingly ignoring social distancing rules in public place – and indeed returning to restaurants and bars and beaches in pretty impressive numbers. These reports are anecdotal, and therefore should be viewed with lots of caution. Also, please don’t assume that I’m endorsing this behavior! But there sure seems to be a lot of it, these reports also seem related to growing evidence of the virus’ relatively modest death rates, and and as an old adage goes, when enough anecdotes appear, they become data. 

Finally are several indicators pointing to an actual, non-trivial comeback in economic activity, and for a variety of sectors. This account mentions encouraging signs from the tech sector to the automotive industry. This article presents evidence of bottoming even in hard-hit bricks and mortars retail stores and restaurants. And click here for information on the housing industry.

Of course, the references above to “bottoming” could still be entirely consistent with pessimistic predictions of a painfully slow climb back to pre-virus prosperity. But I still find myself wondering if, having seen the overpoweringly depressive effect of various official edicts literally to halt and outlaw much economic activity, Americans might experience a reasonably powerful growth effect from their withdrawal – not to mention declining fears that infection is a death sentence.

(What’s Left of) Our Economy: Industries Claiming Labor Shortages are Productivity as Well as Wage Laggards

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compensation, Labor Department, labor productivity, labor shortages, productivity, restaurants, trucking, wages, {What's Left of) Our Economy

The labor shortage claims from American businesses keep filling the media (even though wages, which are supposed to rise sharply in such circumstances, are improving only sluggishly). So it was more than a little interesting to look over the latest statistics on labor productivity released by the Department of Labor.

After all, companies and industries really facing dire labor shortages, and unwilling or unable to raise wages, are supposed to boost their productivity (generally by introducing labor-saving devices and practices). But the new Labor Department numbers show that they’re doing surprisingly little on this front, either.

Let’s examine two sectors of the economy that say with special vigor that they’re running out of workers: trucking and restaurants.

According to a typical account (from yesterday’s Washington Post), American trucking companies are facing “an extraordinary labor shortage” and their CEOs (including industry veterans) are saying things like “I’ve never seen it like this, ever….It doesn’t matter what the load even pays. There are just not drivers.”

The sector does appear to be raising pay. But not until the last two years have its overall employment costs been rising faster than those for the private sector overall – and the latter’s increases have hardly impressed. These data cover the entire transportation and warehousing sector, but after shooting up from a 2.1 percent annual pre-inflation pace to four percent (between the fourth quarters of 2011 and 2012), total compensation advances slowed to 2.3 percent annually during the next two years, and then to 2.2 percent in 2015 before accelerating.

Moreover, trucking industry productivity growth hasn’t been world-beating, either. The Labor Department reported last week that its overall gain in labor productivity (the narrower of two productivity growth measures tracked by Labor, but the one whose data is more up to date) in 2017 was 0.8 percent. A comparable figure for services industries in general isn’t available, but the Department does track labor productivity for non-farm businesses and for manufacturing.

Since labor productivity productivity for the former increased by 1.3 percent in 2017 and only 0.4 percent in manufacturing, it seems safe to conclude that services sector labor productivity grew by more than 1.3 percent – and therefore much more than trucking’s 0.8 percent. Nor does this picture change much going back to 2013.

Further, a remarkably similar pattern emerges upon examining the restaurant business. Labor shortages are widely claimed and reported, along with examples of the industry starting to improve compensation practices. New technologies are also apparently being tried to improve efficiency in the sector. But according to the data, these responses to the purported shortage of workers have been belated at best.

For example, as with trucking, annual total compensation gains in the accommodation and food services sectors (no restaurant-specific numbers are available) trailed those for the overall private sector for several years until 2016. And their owners and lobbyists have been making labor shortage claims for at least that long.

Data for restaurants (and bars) specifically are available for their labor productivity, and their performance here is only roughly comparable to the dreary results for non-manufacturing non-farm businesses.

Industries like trucking and restaurants may indeed not be able to choose their employees from as many applicants as they would like, or from numbers to which they’ve become accustomed. But if they haven’t been doing anything special, at least until recently either to hike pay, improve productivity, or both, then several explanations are possible. Maybe they’re waiting for another wave of wage-depressing legal and illegal immigrants to save their days without the need to fatten paychecks of invest in new plant and equipment. Maybe they’re don’t know how to improve productivity in particular, in which case, their businesses simply may not be viable, or they’re simply lousy managers.

But unless the Labor Department figures are completely off-base, one explanation we can rule out completely is that, as groups, they’re utterly desperate for workers.

(What’s Left of) Our Economy: Why Illegal Immigrants Look Like U.S. Productivity Killers

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automation, construction, illegal immigrants, immigrants, Immigration, labor shortage, Marketwatch.com, productivity, restaurants, Steve Goldstein, The Wall Street Journal, wages, {What's Left of) Our Economy

Steve Goldstein of Marketwatch.com (an excellent business and economics site for which I’ve been pleased to write) has just done a good job of indicating why you can’t trust everything you read – even when it comes from a fancy-dan economic consulting firm. Check out how he threw some cold water over a new report contending that illegal immigrants have been partly responsible for America’s recent productivity slowdown. As Goldstein notes, for example, this conclusion seems to proceed at least to some extent on a misunderstanding about whether illegals are counted in certain key government economic data.

At the same time, we’ve just gotten additional evidence from The Wall Street Journal suggesting that the notion that illegals exert a drag on productivity growth is on target after all.

The first comes from a Journal article that spotlights a study from another fancy consultancy. It found that heavy use of illegal immigrants is one factor that’s held back productivity growth in the American construction industry. In the words of the Journal piece:

“The sector’s fragmentation makes it hard to adopt industrywide standards. Much of the construction industry relies on volatile government contracting, which makes it difficult for firms to plan very far ahead. Regulatory requirements can also reduce incentives to invest in productivity-boosting improvements. And much of the construction sector relies on low-skilled workers—including undocumented immigrants—who tend to be lower-paid and less productive than their skilled counterparts.”

To be fair, the article notes that lagging productivity performance is a worldwide, not simply an American, phenomenon. And it’s not obvious that the construction sectors of other countries rely as heavily on illegal workers as does America’s.

Nonetheless, this analysis might also understate the productivity-killing role played by illegal construction workers in one important sense. It fails to mention that the availability of so much cheap labor greatly reduces construction firms’ incentives to buy labor-saving machinery, or figure out other ways to manage their operations more efficiently.

This article does note the sector’s sluggish adoption of automation – and attributes it to its characteristically tight profit margins, which supposedly make such expenditures inordinately risky. But I can’t help but wonder if the article has causation backward. Maybe its low degree of automation – and the resulting inefficiencies explain some of construction’s weak productivity growth.

The second Wall Street Journal example underscoring the connection between illegal immigrant employment and the productivity slowdown came in a report on a new trend in the restaurant industry: offsetting the impact on their bottom lines of mandated minimum wage hikes by adding “labor surcharges” to checks. Evidently, the idea is that customers will be more willing to pay this extra fee than higher prices for menu items.

I have no idea whether this is true. But I do know that restaurants rely heavily on illegal immigrant labor, that the abundance of these workers has helped keep the wages they pay very low, and that the sector has a long history of crying “Labor shortage!” to justify keeping the legal immigration floodgates wide open and the border porous – thereby ensuring that its potential workforce will in fact remain in surplus. I also know that restaurateurs like to insist that their sector’s profit margins generally are “razor thin,” which means that containing labor costs is especially important.

Add all of these factors and their influence up, and you have a classic portrait of an industry that’s skimped on productivity-enhancing, labor-saving devices because illegal immigration helped it keep labor costs at rock-bottom levels. Indeed, a senior executive at the National Restaurant Association has all but acknowledged this sorry situation: “Productivity growth in the restaurant industry has really been quite minimal over the past decade. Sales per employee in the industry is still low not only compared to other retailers, but it’s low compared with other industries.”

Finally, here’s more indirect confirmation for an illegal immigrant-productivity connection in these two sectors. For all its illegal immigrant usage, construction is a relatively high wage industry. Its average hourly wage ($28.52 according to the latest government data) exceeds that of the typical private sector job ($26 even). Therefore, it’s not vulnerable to the recent minimum wage hikes – and there’s no reason to think that its productivity-enhancing investments are on the rise.

Restaurants, on the other hand, are not only relatively low paying – with average wages of $13.69. They employ lots of minimum wage workers, and are very worried about the spreading movement in states and localities to raise minimum wages. So even though their major illegal immigrant employers, too, the prospect of higher payrolls is generating considerable new interest in automation.

Imagine how much more such investment would be made by both industries if their illegal immigrant crutch was removed, or greatly shrunk, as well. And since productivity growth is widely viewed as the most important key to raising American living standards on a sustainable (as opposed to bubble-ized) basis, imagine how welcome that development would be for the entire economy.

(What’s Left of) Our Economy: Links Between Low U.S. Pay and Low U.S. Productivity Growth

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compensation, construction, finance, government, healthcare, manufacturing, productivity growth, restaurants, retail, services, {What's Left of) Our Economy

It’s long been clear to me that one big reason that Americans give lousy grades to the current economic recovery is that it’s been dominated by employment gains in lousy jobs. So it was great late last week to see strong confirmation provided by the Financial Times‘ Matthew Klein – who in the process showed that the problem has much deeper roots than my work has suggested. Klein also makes clear that this discouraging job creation pattern deserves much blame for lagging American productivity growth – which is crucial for the sustainable improvement in the nation’s living standards.

In a September 8 post, Klein demonstrated that since 2000, 94 percent of the net new jobs created by the U.S. economy came in education, healthcare, social assistance, bars, restaurants, and retail stores. When you weight these industries by their sizes, you find that their hourly pay has averaged 30 percent lower than in the rest of the economy – as per this chart he provides:

But the low-pay story hardly stops there. To add insult to injury, since jobs in retail, restaurants and bars typically involve shorter hours than in other sectors, weekly pay in these parts of the economy is fully 40 percent lower than in other industries. And these low-pay industries have been become such important American job creators that their relative growth has depressed the entire workforce’s weekly pay by three percent since 2000.

Further, in case you’re wondering, the employment trends have accelerated during the current recovery.

Even worse for the U.S. economy, especially over the longer term, the sectors producing all these lousy jobs have been sectors with big productivity problems. According to Klein, 96 percent of the net new jobs created in America since 1990 have come in industries known for low productivity (like construction, retail, and bars) or where low productivity is simply suspected, but understandably so, since they don’t feature much competition. (Healthcare, education, government, and finance fall into this category).

And of course, this evidence demonstrates the converse proposition, too – job creation has lagged during both these periods (and nosedived since 1990) in manufacturing, historically the economy’s productivity growth leader. And since it rebounded strongly after a recessionary crash dive, manufacturing output has stagnated at best.

As I’ve written, productivity is the subject economists generally regard as the most difficult to study, especially because it’s so hard to measure in services (which comprise most of the economy on a standstill basis), and especially when those services and their development are based on emerging technologies.

But one aspect of the productivity growth slump does seem to be rendered much less mysterious by Klein’s analysis: When an economy lets so much of its most productive sector stagnate at best, that’s sure not going to help its productivity.

(What’s Left of) Our Economy: About that American Shopping Revolution….

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consumer spending, consumers, consumption, goods, Great Recession, holiday shopping, hotels, recreation, restaurants, services, shopping, spending, {What's Left of) Our Economy

The final figures for the last holiday shopping season are in, and they seem to confirm a trend that students of the retail industry – and lots of retailers themselves – claim is becoming dominant: Shoppers are spending more and more of their dollars on services – especially those that offer “experiences” – and fewer and fewer on goods.

This Washington Post article handily sums up the evidence – both the data and the views of various retail executives and consultants. Even more telling, it describes the very substantial store closings recently announced by like companies like Macys. Nonetheless, if you look at the U.S. government figures on how Americans spend their money (as opposed to what’s sold by stores), the only significant increase visible in that “experience” spending has come over the last year. And so far, there’s no sign that it’s come at the expense of goods purchases.

The spending figures are found on the Commerce Department’s Bureau of Economic Analysis website, and they’re not only broader than the retail sales numbers (which are kept at the separate Census.gov). They also come adjusted for inflation. They show that, through the third quarter of this year, spending on restaurants and hotels and other forms of accommodation rose by more in real terms (4.45 percent) than overall after-inflation personal consumption (3.15 percent). But spending on “recreation” was up only 1.49 percent. And purchases of goods increased a relatively healthy 3.91 percent – also considerably faster than purchases as a whole.

But maybe the shopping priorities shift only becomes apparent if you look at the entire economic recovery? Not according to these statistics. Since the last recession ended in mid-2009, restaurant and hotel spending has risen by 17.45 percent in real terms – faster than the advance in total personal consumption (14.85 percent). But recreation services spending has increased by only 12.76 percent. And real consumption of goods beat them both – up 23.21 percent.

Nor is there much reason to think that the Great Recession ushered in big change in American consuming away from goods. If anything, quite the opposite. Since it began, in December, 2007, all real personal spending has risen by 11.71 percent, with goods spending leading the way with an increase of 14.94 percent. Restaurant and hotel spending is higher by just 10.54 percent – barely better than the increase in after-inflation overall services spending of 10.17 percent. The figures for recreation services? A mere 7.28 percent improvement.

And revealingly, the growth disparity between goods and the other spending categories is wider still since the start of the century. Between 2000 and 2014 (the last full-year data available), adjusting for inflation, restaurant and hotel spending increased by 25.51 percent, recreation spending by 27.67 percent, while goods spending jumped by 44.16 percent. The goods rise was also much faster than that for services overall (27.60 percent).

These numbers, in fact, challenge not only the claims about changing shopping tastes in the United States. They challenge claims about the entire economy being dominated by services. It turns out that that’s mainly true on the production side – where measured by real value-added (a different but comparable gauge) inflation-adjusted services output was up 31.87 percent between 2000 and 2014. That’s nearly three times faster than the real goods production increase of 10.98 percent. That is, Americans still buy huge and smartly growing quantities of goods. But more and more of them come from abroad.