Last Week: Real Estate: The Precursor to the Crisis
This Week: Employment, Wages, and Government Workers
Next Week: Social Attitudes and the Stock Market
Last week, the first part of this article speculated (good word, huh?) on what a “Greater Depression” would look like regarding real estate. This week, the second part of the article takes a closer look at unemployment and social attitudes during a “Greater Depression.”
Currently the unemployment rate is 10% in the US, and the underemployment rate is around 17%. During the Great Depression in the 1930s, according to Gene Smiley from www.econlib.org, “Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm workers were completely out of work.”
Therefore, in order for this to be considered the Greater Depression, a higher percentage of workers will have to be unemployed compared to the 1930s. Therefore, it would mean that 33% of all workers will be jobless and possibly 45% of all nonfarm workers won’t have a job. This is a very unlikely situation because so many things have changed since the Great Depression to offer greater economic stability.
A more likely scenario would be that underemployment could rival the actual unemployment numbers during the Great Depression. For instance, on average, 30% of US workers would be underemployed. Although 30% underemployment would be difficult for the US, it would not be nearly as devastating as having 30% unemployed. That means that many people, will still have a job, in some form.
Underemployment could be fewer hours in the workweek, which the US has already seen a drop in. In 2007, prior to the downturn and near the peaks in the markets, according to www.bls.gov, “In November [2007], the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.8 hours, seasonally adjusted. The manufacturing workweek increased by 0.1 hour to 41.3 hours, and factory overtime was unchanged at 4.1 hours.”
Currently the latest statics released from www.bls.gov say, “In December [2009], the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.2 hours. The manufacturing workweek, at 40.4 hours, and factory overtime, at 3.4 hours, were unchanged over the month.”
Those numbers show only slight declines on a weekly basis, but stretched out over the year, a 0.4% decrease in the number of hours per week equals 20 hours per year for nonsupervisory workers. A 0.9% decrease in the number of hours for the workweek for factory workers translates into 45 hours over the course of the year. That is a decline in a whole week of pay for those factory workers. These are significant numbers when calculated over a longer period of time.
The average workweek will probably fall more from these levels during a Greater Depression. The workweek may decrease to as little as 30 hours or fewer. That alone would be over a 10% loss in wages due to fewer hours worked.
Another possibility is to simply make the workweek shorter; maybe Monday through Thursday is the “new” workweek until the economy turns around. During the Great Depression, Saturday became an additional day-off during the workweek. During the Greater Depression, it will not be unreasonable to see the weekend extend even more to include Friday.
What about wages? Smiley said, “Thus, it was not until well into 1931 that the steadily deteriorating business conditions led the boards of directors of a number of larger firms to begin significant wage rate cuts, often over the protest of the firms’ top executives, who had pledged to maintain wage rates.” The US as a whole tried to keep wages even or even higher as the Great Depression was starting.
However, as deflation took hold, wages started to decline with the rest of the economy. Therefore, expecting a wage cut is certainly in the cards if the Greater Depression gets hold. It is hard to list a number because of so many specialized fields, but a pay cut of approximately 25% might be a possibility.
Examples of this behavior has already hit many working Americans in the past year. In Conor Doughery’s January 2009 article, “Big Firms Deepen Job, Wage Cuts” he said, “Heavy equipment maker Caterpillar Inc. announced in late December it would cut executive pay by half, and many salaried employees would see cuts of as much as 15%. Hutchinson Technology, a Hutchinson, Minn., maker of disk drive components, cut salaries 5% for employees who remained after a round of layoffs concluded this week. In Galveston, Texas, police and firefighters unions agreed to a 3% pay cut as the city grapples with the recession and the aftermath of Hurricane Ike.”
Expect more job cuts and pay cuts to come if we enter the Greater Depression. Expect a full-time job to be reduced to a part-time job as employers try to save on labor and insurance costs.
Finally, let’s look at the main employer during the Great Depression. If you were just thinking the US government, then you are ahead of the game. The largest shift in employment during the 1930s was the number of people employed by the government. Smiley said, “All of this required an increase in the size of the federal government. During the 1920s, there were, on average, about 553,000 paid civilian employees of the federal government. By 1939 there were 953,891 paid civilian employees, and there were 1,042,420 in 1940.”
The Great Depression Ahead by Harry S. Dent Jr. describes the employment situation in the Great Depression in the 1930s: “On March 31, 1933, Congress passed the Reforestation Relief Act, employing 250,000 men immediately and ultimately employing 2 million in total by 1941.” Among other programs that started during the Great Depression to employ people included the Tennessee Valley Authority, the Public Works Administration, and the Works Progress Administration.
If the Greater Depression hits, more employees of the federal government will become an inevitable fact. President Obama has already started programs to employ people in the Recovery and Reinvestment Act of 2009. Programs like this one and many others will expand to record numbers of employed people during this time. The US federal government as an employer will dwarf any other employer in the world as the government tries to fill the void of lack of jobs.
Evidence of this pattern has already emerged in the US, and it is sure to gain momentum in the Greater Depression. “Because the government’s size has increased so dramatically since 2000, the U.S. is now closer to socialism than capitalism. A February Newsweek cover hit on that sentiment with its title, “We’re All Socialists Now.” A socialist economy is inherently inefficient. Resources are taken from the private sector and redistributed to a wider group of citizens, which is costly, and those costs lead to a smaller economic pie for everyone,” commented Jason Farkas in his article, “U.S. Government: The New Growth Industry” for www.elliotwave.com.
Although the employment picture looks bleak if the Greater Depression hits, it won’t be the “end of the world” as we know it. After all, even in the 1930s, 70% of Americans still worked, and that number will probably be higher this time around. Looking ahead, now is the time to save so that if unemployment hits your business or sector, you’ll have a cushion.
