Viewing McJobs From the Flip Side

Burger-Flip Over.jpg

The headline read, “We Have Become a Nation of Hamburger Flippers: Dan Alpert Breaks Down the Jobs Report.” Seems that Alpert, the managing partner of New York investment bank Westwood Capital, LLC, was unhappy that most of the jobs created in July were for low-wage workers.

Albert wasn’t alone. Plenty of people have been complaining that most of the recently-created jobs have been for low-wage workers. These people have apparently forgotten who it was that lost jobs in the Great Recession: It was low-wage workers. College educated people were hardly impacted at all, especially those that headed households and had several years of work experience.

The recession hit less educated, and therefore low-wage, workers far more than it hit high-human-capital workers, and the discrepancy persists, even as analysts complain about hamburger-flipping jobs.

The July unemployment rate for college graduates was only 3.8 percent, down from 3.9 percent the previous month. By contrast, the unemployment rate for people with less than a high school diploma was 11 percent in July, up from 10.7 percent in June, even though more than 270,000 of these workers left the workforce.

The July unemployment rate for high school graduates without any years of college was unchanged from June at 7.6 percent, while unemployment for those with some college fell from 6.4 percent in June to 6.0 percent in July.

So, even though we are hearing some complaints about the composition of new jobs, college educated people and people with some college were apparently better off at the end of July than they were at the beginning of the month. The less educated were not better off. Indeed, it looks as if many were worse off.

The disparity is worse if you look at labor force participation rates. The rate for people with less than a high school education is only 45 percent. Over half don’t even try to find work.
The labor force participation rate climbs as education increases. It’s 59 percent for high school graduates, 67.3 percent for people with some college, and 75.5 percent for college graduates.
We need more hamburger-flipper jobs.

With an unemployment rate of only 3.8 percent for college graduates, it seems that it would be difficult to fill many more of these jobs. Given the relative unemployment rates, it’s unavoidable that hamburger-flipper jobs will continue to dominate new job numbers.

I calculated how many jobs it would take to create a three percent unemployment rate for everybody. We’d need 870,000 jobs for people with less than a high school education, 1,689,000 high-school-graduate jobs, 1,116,000 for people with some college, and only 417,000 college-graduate jobs.
That’s assuming no change in labor force participation rates. The numbers gets a lot larger if you want to improve labor force participation rates.

Suppose the target was a three percent unemployment rate, and labor force participation for everyone was at the 75.5 percent rate that it is for college graduates. In that scenario, we’d need to create 7,783,000 jobs for people without a high school diploma, 15,421,000 jobs for people with a high school diploma, 8,165,000 jobs for people with some college, and still only 417,000 jobs for college graduates.

A lot has been made of the increasing income inequality in America. Part of it is due to higher wages for higher education. Another major reason is that the percentage of those who are working is smaller among lower-educated people, and bigger among those with more education. We could go a long ways toward reducing American’s inequality by putting more of our least advantaged people to work.
I’d say we need a lot more hamburger flipping jobs, and I’m not about to complain because we are creating lots of them.

Flickr photo by Jeremy Brooks

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org. A slightly different version of this article ran in the Orange County Register.

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Albert or Alpert?

The headline read, “We Have Become a Nation of Hamburger Flippers: Dan Alpert Breaks Down the Jobs Report.” Seems that Alpert, the managing partner of New York investment bank Westwood Capital, LLC, was unhappy that most of the jobs created in July were for low-wage workers.

Albert wasn’t alone. Plenty of people have been complaining that most of the recently-created jobs have been for low-wage workers. These people have apparently forgotten who it was that lost jobs in the Great Recession: It was low-wage workers. College educated people were hardly impacted at all, especially those that headed households and had several years of work experience.

But burger flippers can't afford to buy burgers

The minimum wage jobs are replacing the unskilled jobs that paid twice to three times as much. At $20 an hour, $40,000 a year, you can afford to buy a small home in some places, maybe a condo, or rent a large apartment, and have a family. But on $15,000 a year, you can only afford to live with your parents.

Unfortunately, people who once earned $40,000 and had a family are finding only $15,000 year jobs and they are the parents.

How do you afford a car to get around on $15,000 a year, and provide food and housing just to survive?

Those burger flippers can't afford to buy burgers; they need food stamps and free school lunches and food banks and soup kitchens.

Henry Ford understood that his dreams for sales of Fords in high volume were impossible if only 10% or the 1% could afford his Fords. Workers needed to be paid enough to buy the goods they produced.

The economy today is split between putting lots of profits in the pockets of people who can't possible consume more, unless the consumption is to add to production capital assets to produce even more with the same labor, and the workers who are paid so little they can't possibly buy what they produce.

The solution used since this became the norm circa 1980 is workers to borrow cash from the capitalists to consume the stuff workers produce but can't afford. Individuals began buying cars with mortgages, and buying houses which were never to be paid off but were constantly 80%-90% in debt. Then after the tax cuts of 2001 onward, the capitalists had so much cash they drove up share prices and demanded higher profits driving worker pay down, but with corporations holding lots of cash, the workers borrowed money just to buy food and pay rent and fill the gas tank of the car that was worth less than the debt.

When the bubble burst and people lost jobs, their debt was written off by the banks, with the Fed printing money which was showered on the banks by sleight of hand (the US Treasury borrowed at 2% money the banks borrowed from the Fed at 1%), basically money laundering. But if the banks don't make highly profitable bad loans which the Fed makes good, what would the banks do with all the cash, other than lend it to the US Treasury.

Economics is zero sum: labor plus capital equals production equal labor consumption plus capital consumption equals consumption.

The economy today works only because the earning of capital are loaned to workers to enable them to consume what is produced. But the friction of 17%-25% consumer debt interest means growth is very poor and inequality increases.

To accept the low wages replacing middle wages requires accepting drastic cuts in consumption by workers over time, and with the 10% not being able to spend all their income on consumption, as seen by exponential growth is old assets, the economy just can't grow.