David Rosenberg is Chief economist with Gluskin Sheff + Associates Inc. and author of the daily economic newsletter Breakfast with Dave.
An important development took hold on Monday in that Canada embarked on its "Global Skills Strategy" – fast-tracking high-skilled immigrant labour into the country.
Meanwhile, the U.S. administration believes that immigrants are willing to accept low-paying jobs and, as such, are crowding out employment for locals. Then again, we are to believe from the White House that coal jobs will come back – a promise akin to pledging in the early 1900s that horse-and-buggy jobs are going to stage a return.
Anecdotal data show that H-1B work visas from India-based outsourcing firms are down 37 per cent this year, which cannot be good news for American information-technology firms struggling with a chronic shortage of skilled tech workers.
Let's face the facts – and not of the alternative variety, either: The biggest constraint on the U.S. economy is not taxation (a country that spends 3 per cent more than it takes in from revenues is hardly overtaxed; perhaps overspent), and it is not a lack of infrastructure (this is a motherhood issue during and after every election). Yes, health-care costs are out of control and some forms of deregulation will help, but our analysis shows this adds a few basis points to GDP growth over time – it's not the game changer the Libertarians claim.
A cursory glance at the NFIB Small Business Economic Trends data shows the top concerns for small business are no longer taxes or government regulation. The rising trend is in quality of labour. The dirty little secret that nobody talks about is that there are 23-million Americans in their prime working years not engaged in a labour search – they have given up. This is 25 per cent above normal levels and the most acute dead-weight drag on the U.S. economy.
Consider that the number of people who are in the prime 25 to 54 age cohort, who are not working but at least looking, amounts to less than four million. To put 23 million into perspective, it is more than the populations of either New York State or Florida; a huge segment that is becoming increasingly sclerotic in an era in which the small-business sector is complaining that what is standing in the way of its ability to grow is a chronic lack of available skilled labour.
Think about that. This is the age range when individuals are most productive, this is the part of the labour market where the creativity and income generation typically accelerates at the greatest pace and we have nearly six times as many not even engaged in a job search than those who are. A record level of people aged 25 to 54 not just out of work, but out of the labour force – at a time of record-high job openings and record-low perception of labour quality – is a national crisis that is receiving scant attention.
The number of job openings is at near-record highs, but small businesses see a limited pool of qualified workers.
The total pool of available labour shrank a further 341,000 in May and has contracted for four straight months by 952,000 people. This pool, which approached 22 million just seven years ago, is down to 12.4 million – the lowest since February, 2008. As a share of employment, it's at 8 per cent, which is where it was at the tail end of the late 1990s and mid-2000s economic expansions.
Within the ranks of the pool of labour that is actively engaged in a job search, there are twice as many people looking who have nothing more than a high-school diploma compared with those who have postsecondary education (though even here, there's a dearth of scientists, engineers and mathematicians and a surplus of MBAs, compliance officers and homeland-security specialists).
There is a serious issue here that transcends baby boomers, which is a red herring in any event because they are choosing to work far beyond their traditional retirement age and this is seen in the uptrend in the employment-to-population ratio for those 65 and older. The main reason for the diminished supply of labour is the unemployability of what is left in the idle work force – a skills shortage of historic proportions.
Nearly one-quarter of the ranks of the unemployed have been without work and seeking a job to no avail for at least half a year. Not only is this unprecedented for an economy celebrating the eighth anniversary of expansion, but it exceeds or matches the peaks of prior recessions. The reality is that the odds of getting a job after being unemployed for this long are no better than 16 per cent (for those unemployed for more than a year, the odds slide below 10 per cent).
There are six million Americans who are not officially in the labour market, but they want a job – and the fact they don't have one can be boiled down to the sad reality that they are not employable.
Little wonder why the business sector increasingly is turning to robots to fill its production needs. The question is whether this automation is going to rise fast enough to compensate for the ever-shrinking work force, and at a time when Fed rate hikes will act to curb demand, and whether the forces of receding labour supply and credit-sensitive spending will conspire to terminate the expansion by the time 2018 rolls around.