Just in Time Employment
There is a paradox in the American economic recovery. GDP is expanding at incredible rates, and yet the economy keeps shedding jobs. While the official unemployment figure stands around 10 percent, including worker who are underemployed pushes “the full measure of slack in the labor market closer to 20 percent“. While economists and policy analysts are mixed as to what this means, one certainty is that there will be few gains in employment for the foreseeable future.
Is the problem that there just too much supply in the US labor market, or is there a fundamental change in the way the U.S. handles employment?
Over the past year, I have done work as a temporary, or “contract”, attorney. The idea is simple: rather than keep full-time staff attorneys on hand for labor-intensive tasks, such as document review, large law firms will hire only the attorneys they need when they need them. This certainly saves the firm money, but it does little to help promote economic growth, especially now that there is a surplus on the market of qualified, talented attorneys.
Would this model extend to other sectors? In some sectors of the economy, this type of “just in time” employment, only hiring workers when you need them, is the norm. The retail sector hires massive numbers of sales clerks to handle the Christmas holiday traffic; construction is highly dependent on short-term labor to manage fluctuating demand; migrant farm labor has been around for generations.
Of course, the social contract between employer and employee has long been broken. Instead of 25-30 years of loyal, unbroken service, employees now can expect to change jobs seven to ten times during their working life. A lack of stability is only one contributing factor. Corporations, especially Fortune 500 companies, are expected to turn unrealistic growth year over year, instead of providing stable, consistent profits; this pressure to cut costs and “maximize productivity” puts pressure on employers to do more with fewer employees. And with no expectation of long-term stability, employees have little incentive to do more than the minimum effort to stay employed.
What about the more skilled sectors? Many professions, particularly the medical profession, have done an excellent job of keeping the labor supply low. Medical schools are few and far between, and only small numbers are admitted every year. Financial institutions, which require large sums of capital to operate, are also well suited to keep their fees high by keeping the labor pool small.
The question now comes what to do with all this supply? It has become very difficult for the United States to compete in labor-intensive sectors, especially heavy industry and manufacturing. Our costs are simply too high, and foreign companies are able to provide comparable products at a fraction of the cost. Even in the more skilled services sectors, developing countries such as South Korea and India are able to produce at rates far lower than in the U.S.
One solution for dealing with the surplus labor is for employees to be more entrepreneurial and work for themselves. Advances in communications and information technology allow almost anyone to become their own boss. This is not the only solution, however. Many people do not want to be self-employed, preferring instead to have work assigned to them. Others do not like the instability that can accompany freelance work, especially in the early stages of a career. More fundamental, the be-your-own-boss model does not translate to all sectors, especially heavy manufacturing or capital-intensive models.
Washington has been working to find ways to stimulate economic growth. Some of the proposals, including tax breaks for hiring new workers, are likely to fall flat because they don’t address the fundamental issues behind unemployment.
