I am trying to figure out how to position this post for you because I have a few things on my mind. Let me start off with the most salient point: from a macroeconomic and market perspective, it’s been quiet. There’s almost no real news flow. Yes, we had a historically low pandemic initial jobless claims number in the US today. And we have a blockbuster jobs number coming out of the US tomorrow. But, the reality is that there is nothing shockingly bad or shockingly good occurring in the developed economies. And that means volatility is dead in asset markets too.
What is the macro narrative?
Meanwhile, we are seeing the pandemic hit its hardest, with India and Latin America at the epicentre. And so while the US is making its way steadily toward a full (and potentially permanent) re-opening of its economy, the tales of human suffering are acute, particularly in India. So I am just trying to find a way to understand what all this means in a macro sense.
On the one hand, you have things swimming along toward a re-opening with low volatility as an upside surprise. On the other, you have severe global distress as the pandemic is infecting more people than at any other time. And yet, neither of those narratives are where I am focused.
Explaining it from the initial claims number
Take today’s initial claims number. We learned this morning that “in the week ending May 1, the advance figure for seasonally adjusted initial claims was 498,000, a decrease of 92,000 from the previous week’s revised level. This is the lowest level for initial claims since March 14, 2020.” Expectations are for nearly a million new jobs to have been added to payrolls in April.
All of that says we are coming back strong in the US. But I can’t help but look at headlines like and think about the soft underbelly of this recovery. Here it is in chart form from the Wall Street Journal.
So, yes, we’re getting a record number of new hires and job openings are going up and up. Still, we’re not just getting fewer applications for jobs in the US, we’re also getting a still high level of new claims for unemployment insurance. That means it will take longer for the shortfall in jobs to be made up.
The Wall Street Journal explains the situation this way:
The country had 8.4 million fewer jobs in March 2021 than before the pandemic began, but not all those who lost jobs are seeking new ones. By March, nearly 4 million fewer people were in the labor force—Americans who hold jobs or are seeking work. That means millions who were displaced during the pandemic remain on the sidelines of the job market.
[…]
Fueling the labor-market imbalance is the fact that many workers, particularly women, find it difficult to work outside the home. Only 60% of the 200 largest U.S. school districts were fully reopen the week of April 27, according to Georgetown University’s FutureEd think tank, and many child-care centers continue to operate at reduced capacity.
Some employers and economists cite enhanced unemployment benefits as another factor. More than 16.1 million people received unemployment benefits the week ended April 17, the Labor Department said Thursday. That includes gig workers and the self-employed who are typically not eligible for such payments.
Under relief bills passed by Congress, those receiving jobless benefits get an additional $300 a week on top of regular state benefits, which average $318 a week, according to the Labor Department. That means the average unemployment recipient earns better than the equivalent of working full time at $15 an hour. Those enhanced benefits are available until September, for a maximum of nearly 18 months—about three times longer than most states typically allow.
So you have child care problems and a still palpable fear of contracting COVID met with enhanced unemployment benefits that is allowing people to ride out the re-opening a little longer. Makes sense. If it weren’t for that confluence, we would see even more people employed.
But, then why are we still seeing nearly 500,000 people file initial jobless claims. It’s not because of lockdowns. It has to be because people are losing their job. And if people are still losing jobs in greater numbers than normal, it suggests that the US economy is still weak and is only being held up by net asset transfers from the public sector. Take those transfers away and suddenly you get a world of hurt for a lot of people.
The Old Normal is the New Normal for workers
Take a look at these paragraphs from a recent Pittsburgh Business Times article:
As March drew to a close, Klavon’s Ice Cream Parlor in the Strip District found itself without enough workers for the upcoming spring and summer rush, and it certainly did not have enough workers to open the shop to its desired seven days a week schedule.
Then, on March 30, the parlor announced it would more than double the starting wage for the roles, going from $7.25 an hour to $15 an hour, a scoop that seemed to captivate workers throughout the region and one that earned a significant amount of local media coverage.
“It was instant, overnight. We got thousands of applications that poured in,” Maya Johnson, general manager of Klavon’s, said. “It was very overwhelming, very. People were coming in by the next day that it broke on the news, they were coming in, filling out paper applications. I was doing on-the-spot interviews.”
[…]
“You’re going to get quality work from people when people know that they are going to make a good paycheck,” Johnson said. “They’re going to put their best foot forward in order to keep their position and they’re going to appreciate you.”
That’s the case for Marlea Pavlick, a 20-year-old part-time server and bartender at the recently opened The G.O.A.T. Sports Bar in Cranberry, which is guaranteeing all front-of-house workers, such as servers and bartenders, a $20 an hour minimum wage. If a front-of-house worker doesn’t average $20 an hour at the end of the week when factoring in their tips earned over the same period, The G.O.A.T. Sports Bar will pay the workers the difference. These workers will be paid the federal tipped minimum wage of $2.83 an hour by the sports bar if they make at least $20 an hour with their tips throughout the week, however.
According to Pavlick, that makes all the difference and especially during periods where restaurant activity can be slow.
“I feel way more motivated; I don’t dread going into work the way I did at other places,” Pavlick said. “The people are way more willing to do the work when they’re getting paid for it. They’re way more willing to help you out and run food for you and do all these extra things because they’re getting paid very well and they know they are, they know they’re going to walk away with at least $20 an hour.”
What they’re telling you is that the wages on offer for low wage workers are not sufficiently motivating in good times to fill positions. Why? I would posit it’s because you can’t feed a family on minimum wage employment.
If two people worked 2000 hours a year at $10 an hour, a wage rate more than a third higher than minimum wage, they would make a combined $40,000 a year. That’s not a lot when the average rent can be half of that amount.
Put simply, the average wage earner is not able to make ends meet on average wages. They have to live paycheck to paycheck. And what we see from these examples is that the new normal may not be that different than the old normal. This is bad for growth. It’s terrible for those living on minimum wage.
The Exponential Age
Right now, I am thinking about two things: technological advancement and technological displacement. That’s it.
We’re doing a campaign on the exponential age of technological advancement at Real Vision. So I am talking to people in the technology space and reading and thinking a lot more about technology. This exponential age stuff is the same phenomenon that brought us mRNA vaccines to stop Covid-19 in months rather than years. And while this has been life-altering for countries like the US that are re-opening, it will mean yet more pressure on wage earners in the years to come.
What I’m trying to wrap my head around is how we successfully manage all of this change from a political perspective. There are so many cross-currents – Exuberant markets, anti-vaxxers, supply chain inflation, mental health issues, chronic fear of post-Covid reintegration, and exponential technological advancement. The pace of change is extraordinary. And it may be too much for our systems and institutions to handle without some massive overhauls in how we think about social contracts.
I will have some more specifics in coming posts. But what is top of mind for me as I write this is the concept put forward by Dario Perkins of TS Lombard that MMT is ‘the new software’ for the social contract overhaul. What he told me is that governments will now step in more aggressively with fiscal relief when necessary. And I think this outcome results from the massive changes we are undergoing that make ‘displacement’ chronic, practically demanding fiscal transfers as a way to relieve un- and underemployment.
But, the reality is that we have to find a way for human beings to feel gainfully employed, useful and contributing members of society who have purpose and retain dignity in their day to day lives. For large swathes of the developed economy middle classes, work at one, two or three places in a lifetime used to fill that role. This is no longer the case. And just giving people fiscal transfers won’t give people’s lives meaning and purpose. We have a long way to go before we figure this out. But I think the post-re-opening world will make my point clear.