Capitalistic Renewal is Leading to Job Growth – RIGHT NOW!

Posted by Richard Jacobson

(3rd follow-up post to the 2010 Impact Survey results: U.S. Labor Market)

When I graduated college in 1994, the job market was in the early stages of a healing process that began in late 1992 or early 1993. There was significant apprehension among us graduates as all the media talk was about the ‘jobless recovery’ and how hard it was for new graduates to find work. Even in my field of mechanical engineering – which was considered somewhat immune from cyclical windstorms – there were widespread stories of mass joblessness. By the time graduation rolled around, virtually all of my fellow classmates who were seeking employment had found it. Our fears were unfounded.

Until the rumblings of Northern Rock awakened us to the shaking bedrock beneath our feet, we Gen-Xers had been extremely fortunate since we joined the workforce. There had been some hiccups – the early 90s and the early ought’s – but as children of the Great Moderation, our road for the most part had been paved smooth with the asphalt of ‘enlightened’ monetary policy. The shaking of Northern Rock turned out to be the harbinger of a major quake that has opened up a chasm at our feet and, in the process, changed our perceptions of the world.

If you open up a newspaper, magazine, Kindle, I-Pad, or website today, you will find the evidence of our new perspective. “Decades before we recover the lost jobs,” “a ‘New Normal’ of persistent low growth,” “the end of American pre-eminence,” “China is the future” – all predicted with the faith of fact. It is a wonder that we all decide to wake up in the morning.

I have three arguments with the seeming consensus of our greatly exaggerated demise and thus with the accepted view of the labor market.

First, I believe that the Austrian School’s process of creative destruction provides the fertilizer of capitalism. Innovators power the economy by bettering their larger, slower, more complacent dominant rivals. Today’s social mood is part of this endless process of renewal and innovation. The greatest motivation entrepreneurs possess is the desire for a better existence – and as faith in what we thought we knew has broken down, there are many more smart, motivated people now seeking a better existence. There is no question in my mind that the upheaval of the past three years has provided an elevated level of entrepreneurial risk taking.

Capitalistic Renewal is Leading to Job GrowthSecond, I believe that in today’s environment all economic performance is relative. As globalization has taken hold, the relative performance of economies has taken on greater and greater significance as products, labor, capital, and even knowledge can now flow relatively freely to the area of greatest demand. If you agree with this perspective, the most important determinant of the success of a country will be its infrastructure to support capitalistic endeavors. I would argue that this infrastructure must include strong personal property rights, intelligent regulation to protect the mission-critical systems (i.e. financial, transportation, etc.), and a commitment to the free market as the primary driver of wealth creation. Comparing the U.S. to any other country in these areas yields a pretty good result – for now.

Finally, I will give you my ‘main street’ view of labor demand. Things are changing and the pace of change is accelerating. In October, I provided a cautiously optimistic outlook for the labor market in the three insurance industries. Since that time, demand has continued to pick up for our temporary services, rather dramatically so since January. Beginning in January, we have also seen increased demand for our recruiting and search services. While demand in this area is only beginning to increase, the very strong historical relationship between temporary staffing and subsequent employment growth (3-6 months typically) seems to be holding. I will again caution that I can only speak to the experience of one company that serves only three related industries; but in my experience, it is fairly unusual for our industries to tell a very different story than the rest of the economy when it comes to labor demand. My cautious optimism is becoming less cautious.

In my next post, I’ll talk more about the labor market and the way the government measures it. In the meantime, I would love to hear about what you are seeing.