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Energy Technology Revolution: Executive Summary

Cover 18 June 2015

Energy Technology Revolution

www.Jobenomics.com

By: Chuck Vollmer

18 June 2015

Two global technology revolutions are occurring today— the Energy Technology Revolution (ETR) and the Network Technology Revolution (NTR).   Jobenomics addresses the NTR in a separate document (see http://jobenomicsblog.com/network-technology-revolution/).

The objective of this ETR report is to help decision-makers and opinion-leaders focus on the strategic value of the ETR with emphasis on the economics of business and job creation—the mission of Jobenomics.

This report addresses emerging ETR technologies, processes, systems and markets that can (1) provide affordable clean energy solutions, (2) achieve the climate change goal of limiting greenhouse emissions to a global temperature increase of 2°C over 2005 levels, and (3) improve national economies via implementing highly-scalable business initiatives that will create millions of new middle-class jobs.

Download complete report: Energy Technology Revolution 18 June 2015 (Reduced File Size)

Energy Technology Revolution Executive Summary

No one really knows how big the U.S. energy super-sector is in terms of economic impact and employment.  Jobenomics estimates $1.2 trillion per year and 12 million Americans.  Future U.S. energy employment will be determined by the churn of new businesses replacing old businesses, retrofitting/replacing old equipment, and exports of American goods and services.  The ETR deals with a mix of traditional and emerging technologies, processes and systems that will create tens of millions of new jobs.  Countries that have a national ETR strategy will claim the bulk of these jobs.

  • Germany, China, India and California have aggressive ETR strategies. They are the ones to watch.
  • U.S. energy consumption has largely peaked. However, global energy consumption is forecast to grow 33% by 2030—more than double the total U.S. consumption today.  Export potential is huge.
  • Cumulative global energy investment over the next two decades is projected to be $48 trillion which will not meet the climate change goal of limiting long-term temperature increase to 2° Instead, these investments (if realized) point to a 3.6°C increase.  An additional $18 trillion is needed.
  • Fiscally-driven government incentive programs have value. Politically-driven programs do not.  Only the private sector has the wherewithal to fund the $18 trillion needed to meet the 2°C objective.
  • Combating climate change solely with renewable energy will not work. To achieve climate change goals, a balance of renewables, cleaner fossil fuels, nuclear and energy efficiency is needed.
  • While U.S. renewable energy consumption is projected to grow significantly, it will supply only 9% of total U.S. energy needs in 2030 compared to 7% in 2013. Under current conditions, the U.S. renewable energy mix will not change much from 2013 to 2030: biomass/biofuel’s share was 40% in 2013 and is projected to be 38% in 2030, followed by hydro 28% to 25%, wind 18% to 21%, wood 7% to 3%, municipal waste 5% to 4%, geothermal 2% to 5%, and solar 1% to 3%.
  • A dozen sustainability issues (from hostile electric utilities, to low investor returns, to politicization and over expectations, to competing technologies and storage) challenge successful deployment of renewable technologies. Most challenges can be overcome expeditiously with technology maturation and consensus-building.   However, declining demand and over capacity will be more difficult.  Growth of U.S. electricity demand has slowed in each decade since the 1950s.   In 2017, U.S. electrical generation is projected to enter a 15-year depression that will depress utility-grade electricity generation projects.   This depression is likely to have a major negative impact on the high-flying renewable energy industry.   Reasons include:  (1) many federal and state incentive programs are scheduled to expire or drop-down after December 2016, (2) existing electricity generation sources provide adequate capacity to meet slow electrical demand growth and satisfy renewable requirements under current state standards, and (3) competing technologies, especially natural gas, will claim the majority of new electricity generation additions.
  • There are essentially three energetic architectures: (1) large, centralized, utility-grade designs, (2) medium-size utility-grade and grid-connected distributed generation designs, and (3) small-scale off-grid dispersed generation designs. If the U.S. utility-grade market drops precipitously as forecast, architectures (2) and (3) will offer the best way forward for the American energy industry.  However, the U.S. government cannot account for (3), which will hinder policy and decision making.
  • Net-zero communities could significantly reduce the $2.0 trillion needed by 2030 to modernize and protect the aging U.S. electrical grid that loses as much electrical energy as it delivers.

The U.S. fossil fuel versus renewable energy debate is politicized, acerbic and wrongheaded.  The U.S. is the only country with the disposition and resources to lead the global community against the potential ravages of greenhouse gas emissions.   The United Nations’ goal of limiting global temperature growth to a 2°C increase is highly doubtful without the U.S. fully engaged from a systems-of-systems energy super-sector perspective.   From a Jobenomics perspective, a combination of renewables, cleaner fossil fuels, nuclear, energy efficiency, and other ETR advancements is needed as outlined along the following lines.

  • Solar power is the smallest but fastest growing energy sector in the U.S. and internationally. There are essentially four solar technologies:  solar photovoltaic, concentrated solar power, solar thermal heating and cooling, and solar mobile.  2016 will be a peak year with 3.87GW of added U.S. solar capability.  From 2017 to 2030, solar is projected to add only 1.43GW.  On the other hand, small-scale solar photovoltaics (much of which is not accounted for in government projections) are likely to grow significantly, as the solar industry works out transition issues caused by the introduction of newer technology before older technologies are out of warranty.    Over the last five years, solar photovoltaics (PV) employment has grown by 86% adding 80,000 new workers with an additional 36,000 anticipated in 2015.  Today, out of 150 million U.S. homes and businesses, 600,000 now have gone solar, which leaves 99.6% of U.S. homes and businesses still available for solar energy service companies (ESCOs).  ESCOs are making dispersed solar generation increasingly affordable to individual homeowners and small businesses due to lower installation costs, lower operational costs, smarter information and network technologies, and innovative leasing, subscription and net-metering services.   Large-scale concentrating solar power (CSP) directs heat from the sun via mirrors to generate power.  19 countries have CSP projects that are operational or under development.   The CSP industry should not be viewed as a large jobs producer but an industry that will mature over time. More than 30,000 solar heating and cooling systems (SHC) are being installed annually in the U.S., employing more than 5,000 Americans.  78 million SHC are operational worldwide.  Solar mobile is a phrase that Jobenomics uses for portable and transportable solar applications that have the potential to create new industries (from aerospace to wearables), thousands of new businesses and millions of new jobs.   Jobenomics U.S. business and jobs creation outlook: very poor for concentrated solar, poor for large-scale utility-grade projects, excellent for small-scale residential and commercial PV, excellent for solar mobile, excellent export potential.
  • Onshore wind power generates 177 terawatt-hours today, but has the potential for producing 38,553TWh, enough to electrify America many times over. The total U.S. wind industry currently sustains about 85,000 jobs.  In 2013, the U.S. and China were running neck-and-neck as leading wind power nations.   2015 is projected to be a great year for the U.S. with 10.7GW of new capacity.  However, after 2016, the U.S. onshore wind power market is projected to drop precipitously, entering a 15-year depression, due to declining federal subsidies, ample generation capacity and slow demand growth.  From 2016 to 2030, wind is projected to add only 10.6GW, collectively less than 2015 alone.  As a result, a recent Wall Street publication rated the U.S. wind turbine installation industry as the third fastest dying U.S. industry. In comparison, China plans a 300% capacity increase by 2020 (85% onshore and 15% offshore).  Europe has 66 offshore wind farms operational today. By 2030, the U.S. projects only one.  With the decline in utility-grade projects, “small wind” may the future for the U.S. wind industry.  There are four main market areas for small wind generation: residential, agricultural, government/institutional and industrial/commercial.  In 2013, residential had the largest number of projects (40%) but the smallest amount of capacity (3%),  followed by agriculture (26% projects, 7% capacity), government/institutional (14% projects, 37% capacity) and industrial/commercial (20% projects, 53% capacity).   Jobenomics U.S. business and jobs creation outlook: poor for large-scale utility-grade projects, poor for U.S. offshore projects, good for residential distributed and dispersed generation development projects, excellent export potential.
  • Biomass and biofuels comprise the largest segment of renewables but are likely to decline significantly if the U.S. Renewable Fuel Standard (RFS) is repealed as expected after the 2016 elections. Corn-based ethanol is a $30 billion/year industry that is supported largely by federal government RFS mandates.  Non-food-based cellulosic biofuels are not economical without the RFS.  On the other hand, biogas and wood have upside potential.  60% of Sweden’s natural gas vehicles use biogas.  Ideal locations for U.S. biogas plants include 17,000 waste water facilities, 8,000 farms and 1,750 landfills. Wood and mulch are increasingly being used as a heating feedstock, not only for home but for waste-to-energy plants.  12 million U.S. homes use wood biomass for heating. The U.S. is now the largest wood pellet exporter accounting for $500 million in trade.  Jobenomics U.S. business and jobs creation outlook: poor for biofuels, good for biogas, and good for wood.
  • Hydroelectric is the most proven energy efficient energy source with significant upside potential internationally and domestically for distributed and dispersed power generation. Hydroelectrics include proven hydropower technology (conventional hydro, pumped storage, micro-hydro, run-of-river and high-head/low-head) and developing hydrokinetic ocean technologies (tidal, wave, current, and gradient power). The regular nature of river and tidal currents provides an advantage for hydropower compared to wind and solar.  Since water is 835 times denser than air, hydroelectrics is an untapped, powerful, clean, renewable energy source.  While there is limited potential for large-scale U.S. conventional hydro developments, there is significant U.S. potential for energy efficient upgrades to current facilities, adding power generation capability to a portion of 80,000 U.S. non-powered dams utilizing new low-impact designs and technologies, developing a percentage of the 5,400 identified sites for small hydro plants, and developing a percentage of the 130,000 identified low-head micro-hydropower sites for both power generation and community storage.  Oceans have unmatched hydrokinetic potential via tidal, wave, current, and gradient power.  South Korea’s Incheon Tidal Power Station will be operational in 2017 and is expected to generate 2.4 trillion watt hours of electricity annually—the amount equivalent to 3.5 million barrels of crude oil.   Russia is designing a tidal power plant 10 times bigger than Incheon.  Jobenomics U.S. business and jobs creation outlook: poor for large-scale domestic projects, excellent for distributed and dispersed applications, excellent for international ocean hydrokinetic joint endeavors.
  • Geothermal has the lowest life-cycle emission of any renewable technology besides hydropower. While initial capital costs are high, overall life-cycle costs are significantly lower than many competing technologies.  Geothermal energy consumption is expected to more than triple in the U.S. by 2030, largely due to the advent of new enhanced geothermal system (EGS) technology.  EGS consists of engineered underground reservoirs that are drilled into hot rock formations to produce energy from geothermal resources that are otherwise not economical due to lack of water and/or permeability.  EGS offers the prospect of geothermal energy across the entire U.S. and a potential 40-fold increase over current geothermal systems.  Due to its small footprint, geothermal facilities can be located in downtown areas of major metropolitan areas where power density (the amount of power that can be generated in a given area) is an issue for other renewable technologies like wind and solar.  As part of Salton Sea Restoration and Renewable Energy Initiative, California has announced plans to promote development of a 1.7GW geothermal facility that will double U.S. nameplate geothermal capacity.  The Salton Sea project is also significant as a potential source of precious metal extraction including lithium, zinc and manganese.  Lithium is used in batteries and crucial to the emerging electric vehicle industry.  Near-term geothermal potential could support 75,000 new U.S. jobs, not including an additional 90,000 construction and manufacturing jobs.  Globally, there are over 700 geothermal projects in 76 countries in development, proving excellent export potential for U.S. geothermal technology.  The geothermal market also includes geothermal heat pumps (GHPs).   GHPs are typically used in off-grid residential and commercial applications and are popular in the green-building movement, net-zero buildings and other forms of high efficiency sustainable building practices that are becoming mainstream concepts for new eco-friendly communities.  Jobenomics U.S. business and jobs creation outlook: good for all geothermal sectors.
  • Municipal waste is the least understood renewable technology from an energy conservation, emissions mitigation and jobs creation perspective. If the U.S. recycling rate is increased from 33% today to 75% by 2030, 515 million tons of CO2 would be saved—equal to closing 72 coal power plants or taking 50 million cars off the road.  The municipal waste and recycling industry reached an all-time high of 383,300 jobs in 2014.  An additional 2.3 million new American jobs could be created if the U.S. could achieve a 75% recycling rate.   Municipal solid waste recycling converts organic waste into energy and inorganic waste into commodities.  The U.S. has 86 waste-to-energy (WtE) plants.  While there are no new large ($200+ million) waste-to-energy projects on the horizon, there is a burgeoning industry of micro-WtE plants and advanced technology material recovery facilities (MRFs).   Micro-WtE plants use waste to generate on-site electricity and heat for businesses and remote operations (e.g., deployed military units).   MRFs currently make major energy conservation contributions in single stream recycling of discarded paper, plastics, cans and glass.   For example, recycling aluminum cans saves 95% of the energy required to make the same can from its virgin bauxite material.  Advanced technology MRFs, already in operation in Europe and recently in China, reclaim valuable raw minerals (plastics), common metals (copper, aluminum, ferrous) and precious metals (gold, platinum, silver) in discarded consumer electronics and appliances.  In 2014, China became the leading urban mining nation by establishing a number of major ($1 billion level) urban mining centers with super-MRFs that reclaim raw materials, metals and minerals from every conceivable type of manufactured item that contains reclaimable raw materials. Urban mining is defined as a process of reclaiming raw materials and metals from products, buildings and waste from towns, cities and metropolitan areas.  The goal of urban mining is to monetize urban waste streams including municipal solid waste, construction and demolition material, electronic waste, and tires and rubber products.   A mid-sized American community typically landfills or exports approximately $30 million dollars’ worth of high-value minerals and metals that could be used to fund local projects and create jobs.  Jobenomics U.S. business and jobs creation outlook: excellent if a national urban mining initiative is advanced.
  • Nuclear power is projected to grow substantially over the next decade. The U.S. nuclear power industry is the largest in the world, with 100 operating commercial nuclear fission reactors at 62 locations in 31 states, with 99GW capacity that is projected to grow slightly to 102GW by 2030, a 3% increase.   56 countries operate nuclear reactors commercially, in research facilities, or in military applications.  About 80% of global nuclear capacity is in OECD countries, but non-OECD countries are set to account for the bulk of future nuclear growth.  Over 45 countries that currently do not have nuclear power have started nuclear programs or are actively embarking on starting a nuclear power program.  China has 22 operational nuclear power reactors, 26 under construction and hundreds more about to start construction or planned.  By 2030, China’s planned capacity is forecasted to be 150GW—790% increase over the 18GW today. By 2050, China has announced a goal of 400GW— a 2100% increase. China’s nuclear program got a big jump start from American nuclear technology transfer (largely a one-way effort with non-proliferation and climate change caveats) including sale of state-of-the-art reactors, components and materials, as well as next generation technology such as thorium-fuel reactors.    Small modular reactors (ranging from tens to a few hundred megawatts) are gaining traction in Canada, the United States and Russia.   Lockheed Martin, a U.S. defense contractor, claims that they may be able to field a nuclear fusion reactor within a decade.  Their program is called, “Compact Fusion.”  If successful, Compact Fusion would be a ground-breaking ETR advancement.     Jobenomics U.S. business and jobs creation outlook: stable for the domestic U.S. and outstanding if Compact Fusion is successful, excellent for export potential for U.S. nuclear technology and services.
  • Coal supplies approximately one-fifth of total U.S. energy consumption needs. S. coal consumption will increase 8% and world consumption by 34% by 2030.   Over the last five years, U.S. coal exports have increased from 1 billion to 1.4 billion short tons, a 40% increase.  Modern “ultra-supercritical” coal-fired power plants are much cleaner than older dirtier models that represent 75% of the world’s operational plants.  Older plants burn coal more inefficiently at lower temperatures than modern plants that use powdered coal laced with additives that absorb toxic emissions.   Coal and natural gas cogeneration power plants are much cleaner and cheaper to operate.  Another way to make coal cleaner is to gasify it.  Integrated Gasification Combined Cycle (IGCC) systems are being introduced to convert synthetic gas into electrical power.   Another exciting coal-to-gas technology involves underground coal gasification that turns unworked underground coal (in-situ) into an easily extractable gas.  While still in the research phase, producing hydrogen from coal has significant potential. Of the seven technologies that can produce hydrogen, coal gasification with sequestration is forecast to be the dominant method by 2035.  This could be extremely important consideration to the coal industry if hydrogen-powered vehicles and stationary hydrogen fuel cells become commonplace.  Notwithstanding these achievements and opportunities, the U.S. coal outlook is poor due to four factors:  harsh new Administration air quality standards that are being contested at the Supreme Court, low natural gas prices, increasingly competitive renewable energy technologies, and plummeting investor and market confidence—the Dow Jones U.S. Coal Index is down 85% since 2011.  In 2015, the Obama Administration cancelled America’s leading clean air initiative, called FutureGen, and is aggressively pursuing carbon cap-and-trade and emission restrictions targeted at coal-fired power plants.  This is both unfortunate and politically-driven.  Most of the world relies on coal as a primary energy source.  If the U.S. abandons the notion of clean or cleaner coal, the rest of the world may do so, as well.   Jobenomics U.S. business and jobs creation outlook: domestic poor, U.S. coal employment has dropped 60% in the last three decades, exports good, at least in the near-term.
  • Oil and natural gas industry is a booming business that will continue to be outstanding in the foreseeable future with exports replacing decreasing U.S. demand. S. oil production growth in 2014 was the largest in more than 100 years.  U.S. petroleum product exports increased for the 13th consecutive year with 2014 being a record year.  To a large degree, the oil and natural gas boom is due to horizontal drilling and hydraulic fracturing that has provided access to large volumes of oil and natural gas that were previously uneconomic to produce from low permeability (tight) shale and sandstone geological formations.   Over the past decade, dry shale gas production has grown from 2.8 billion cubic feet per day (Bcf/d) to 40.6 Bcf/d, a growth rate of 1258%, and tight oil production has grown from 0.4 million barrels per day (bbl/d) to 4.6 million bbl/d, a growth rate of 1129%. The U.S. has approximately 610 trillion cubic feet (40 years’ worth at current production rates) of technically recoverable shale natural gas resources (ranked fourth after China, Argentina and Algeria) and 59 billion barrels (35 years’ worth) of technically recoverable tight oil resources (ranked second after Russia).  In 1990, shale gas provided only 1% of U.S. natural gas production; by 2013 it was over 39%, and by 2040, 53% of America’s natural gas supply will come from shale gas.  According to the American Petroleum Institute, as of 2011, the oil and natural gas industry supported 9.8 million full-time and part-time U.S. jobs and 8% of the U.S. economy.  Due to excess natural gas supplies, new export industries could be created, including liquefied natural gas (LNG), gas-to-liquid (GTL), and shipbuilding that could potentially employ several million new workers. However, the unconventional oil and gas industry may have an Achilles heel in spite of its overall strength.  This weakness is called “induced seismicity,” also known as man-made earthquakes.   Legal and regulatory challenges against induced seismicity could cripple the unconventional oil and gas industry, especially in communities that advocate anti-fossil fuel policies.  The unconventional oil and gas industry also faces challenges with capitalization due to dropping oil prices.  Despite these challenges, the industry, especially the gas sector, looks bright—perhaps extremely bright if methane hydrate production comes to fruition.  Jobenomics U.S. business and jobs creation outlook: good for oil (excellent if Congress lifts the crude oil export ban), excellent for natural gas, excellent for liquid natural gas export, poor for U.S produced LNG shipbuilding.
  • Net-zero communities consist of decentralized micro-grids that eliminate or reduce the need for centralized, vulnerable and expensive utility-grade grid energy and services. Burlington, Vermont, the state’s largest city, is the first U.S. net-zero community that produces “100%” of their residential electrical power needs from renewables.  Several dozen other U.S. communities are planning to be net-zero.  A “net-zero building” is a building that produces and consumes equal amounts of energy.  Since there are 132 million residential units versus 5 million commercial/industrial buildings, the residential sector is the likely place to focus on a national net-zero initiative.   132,802,859 U.S. households spend approximately $800 billion/year on energy-related expenditures.   If 5% of these expenditures were allocated to net-zero technologies and services, approximately 800,000 direct middle-class ($50,000/year) jobs could be created.  Jobenomics U.S. business and jobs creation outlook: good in a business-as-usual scenario, outstanding if a national net-zero initiative is created.
  • Alternative fuels and advanced vehicles have the potential to transform and disrupt the transportation sector and national economics. Worldwide, the automotive industry supports over 50 million jobs.  In 2014, the U.S. motor vehicle industry directly employed 1,553,000 Americans, with a total direct/indirect/induced employment of 7,250,000 jobs.    There are six primary alternative fuels (biodiesel, electric, propane, natural gas, hydrogen and ethanol), and six emerging fuels (biobutanol, drop-in biofuels, methanol, P-Series fuels, renewable natural gas and Fischer-Tropsch xTL fuels).  Advanced vehicles include biodiesel vehicles, hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), all-electric vehicles (EVs), flexible fuel vehicles (FFVs), natural gas vehicles, propane vehicles, and fuel cell electric vehicles (FCEVs).  The key to making electric vehicles more marketable involves better batteries.   Advanced battery development is one of the most important technological battlegrounds of the next two decades.  Every advanced economy has a national advanced battery program.  Advanced batteries will boost national economies, perhaps rivaling the economic impact of the personal computer.  Global electric vehicle has gone multi-modal totaling 235 million EV-two-wheelers, 665,000 EV-cars (up from 180,000 in two years) and 46,000 EV-buses.  Hydrogen-powered transportation has truly revolutionary potential as well as a major disruptive effect on the petroleum-based internal combustion engine industry.  Hydrogen fuel cells also have the potential to provide energy efficient and environmentally clean electrical power in stationary and portable power applications.  A major technological breakthrough in alternative fuels and advanced vehicles has huge implications for national economies.    Jobenomics U.S. business and jobs creation outlook: to be determined, a 2nd place finish could result in the loss of millions of jobs. 
  • Energy services are the most stable high-growth sector within the energy super-sector.

Energy efficiency moved from the “hidden fuel” to the “first fuel” exceeding any supply-side fuel.   Energy efficiency employs almost 1 million Americans and is expected to add another 1.3 million by 2030.  Energy efficiency and energy conservation are needed in combination to reduce consumption and emissions.   Energy efficiency means using energy more effectively and is often associated with a technological change.  Energy conservation means using less energy and usually requires a behavioral change.  Without energy conservation, energy efficiency is likely to lead to a “Jevons paradox ” that postulates that resource savings often leads to increased consumption of that resource, which further leads to economic expansion and further energy consumption.  This is especially true in rapidly growing emerging economies.

Energy-as-a-Service (EaaS) service models are modelled after cloud computing service models (i.e., Software-as-a-Service, Platform-as-a-Service, and Infrastructure-as-a-Service) and will soon emerge as a substantial energy sector industry with the ultimate potential of creating millions of jobs.   It will also enable intelligent and micro-energy applications in tomorrow’s “Internet of Things” world.  When it comes to fruition, the EaaS will function as intelligence middle layer to manage large and complex energy assets in an interactive, integrated and seamless way.  EaaS providers will strategically position (and consequently reposition) their clients within a dynamically changing energy ecosystem, by offering integrated, secure, low-cost, and portable service solutions in both centralized and decentralized energy environments.

Energy assurance involves providing a steady supply of clean affordable fuels without major disruption.  Energy security involves ecosystem protection including people, sources, infrastructure, and information systems.  Due to increasing terrorist, criminal and cyber threats, energy assurance and energy security services are burgeoning markets.  General Keith Alexander (former Director of the US National Security Agency) says “the greatest risk (from terrorists) is a catastrophic attack on the energy infrastructure” including high-tech attacks on refineries, power stations and the electric grid.  The U.S. private security market boomed after 9/11.  Today, there are nearly 2 million full-time security jobs.   Many more are needed, especially for energy security services.  In regard to energy assurance, the crisis in Ukraine has created an energy assurance crisis in Europe which is dependent on Russian natural gas and petroleum.  Blockage of any of the six major maritime oil trade route chokepoints, as well as disruption of 1.5 million miles of U.S. pipelines would have global repercussions.  Energy security and energy assurance businesses and job opportunities depend a lot on international events, crises and conflicts and how proactive governments plan to be.

Disaster preparedness and recovery services expect growth, considering the “catastrophic” consequences of not achieving UNFCC climate change goals and man-made disasters. Each year organizations like the American Red Cross respond to 70,000 natural and man-made disasters in the United States.  The world will likely witness more extreme weather events as global temperatures rise.  Superstorm Sandy caused an estimated $50 billion worth of damage resulting in approximately 750,000 insurance claims and a $48 billion federal government recovery effort.  The threat of man-made disasters in the US is also increasing.  9/11 was just a start.  Cyber warfare and biological warfare portend catastrophic-level consequences.   Jobenomics U.S. business and jobs creation outlook: excellent if government and industry are proactive.

  • Exotic and yet unknown technologies Exotic technologies, such as energy harvesting, spray-on solar cells, gravity motors, cold fusion and vortex technologies, are in development. The Department of Energy has started down this path with its Advanced Research Projects Agency-Energy (ARPA-E), which is modelled after the highly successful Department of Defense’s Defense Advanced Research Projects Agency (DARPA).   Whether any of these exotic technologies will result in a major energy breakthrough is unknown.  Perhaps the next profound discovery won’t happen in a high-tech laboratory but in a remote third-world village where a highly scalable energy invention is yet to be disseminated worldwide.

This report concludes with two recommendations.  First, U.S. government needs to institute a labor force statistical system dedicated to the energy workforce and an Energy Industry Classification Standard like the one used by investors and the S&P 500. Second, the 2016 Presidential elections offer an ideal opportunity to debate new energy architectures and America’s role in leading the world in the Energy Technology Revolution, not only to clean up our planet, but to enhance national economies via the production of clean fuels and the creation of millions of new businesses and tens of millions of new jobs.

 

Jobenomics Employment Report: Q1 2015

Jobenomics Employment Report: Q1 2015

http://Jobenomics.com

By: Chuck Vollmer

1 April 2015

Jobenomics tracks both unemployment (Jobenomics Unemployment Scoreboard: Q1 2015) and employment (Jobenomics Employment Scoreboard: Q1 2015).   Download PDF versions: Jobenomics Unemployment Report – Q1 2015 & Jobenomics Employment Report – Q1 2015 (This Posting)

Total New US Jobs By Decade

The US consistently produced tens of millions of new jobs for six consecutive decades.   Then the bottom fell out in the decade of the ‘00s with a loss of 1.2 million jobs. Consequently, it is critical that significant numbers of jobs are created this decade (’10s) for the US economy to prosper.  20 million new jobs by year 2020 is a reasonable goal that is supported by the Jobenomics National Grassroots Movement.  Not only has 20 million been historically achieved, but is the number needed to accommodate 16 million new labor force entrants per decade and to reduce unemployment to achieve the so-called “full employment” rate of 5%.  Based on a goal of 20 million jobs by 2020, the US economy is progressing steadily upward, producing 11.5 million new jobs by the end of Q1 2015—53% through the decade producing 58% of the 20 million jobs.  Based on this statistic, the US economy is well on the way to recovery.  However, this is not the full story.  Economic fundamentals are still largely unsustainable.

Today, America’s work force is characterized by (1) a historically-high number of able-bodied citizens who voluntarily left the labor force, (2) a historically-high number of people that work part-time, and (3) historically-low employment-to-population ratios and labor force participation rates.

321 Million

34% of all Americans financially support the rest of the country.   As of the end of Q1 2015, out of a total population of 321 million Americans, 109 million private sector workers support 32 million government workers and government contractors, 17 million unemployed (U6 rate), 93 million able-bodied people who can work but chose not to work, and 69 million who cannot work.   Of the 109 million, approximately 67 million individuals work full-time, 27 million are part-timers (less than 35 hours per week) and 15 million are self-employed.  The US economy cannot be sustained by 34% supporting an overhead of 66%.   More people must be productively engaged in the private sector labor force for the US economy to flourish.

Labor Force Gaines-Losses

According to Bureau of Labor Statistics (BLS)[1] data, last month (March 2015) 151,000 more people departed than entered the US labor force reversing the positive trend earlier in Q1 2015. During Q1 2015 (January, February and March), a total of 579,000 people entered the US labor force and 270,000 voluntarily departed, for a net gain of 302,000—a positive trend that has followed similar employment gains of 2,136,000 jobs since the being of this decade.   However, employment gains still have a long way to go.   Since the beginning of the Obama Administration, 6,410,000 entered the labor force as compared to 12,795,000 who departed for a net loss of 6,385,000.    Since year 2000, 10,405,000 people entered compared to 24,520,000 people who departed—many to a netherworld of perpetual unemployment and welfare—for a net loss of 14,115,000 jobs.

As discussed herein, jobs creation involves business creation, especially small business creation.  In this decade, US small businesses (less than 500 employees) created 78.0% of all new jobs.  During March 2015, US small businesses created an astounding 90% of all new jobs.  Today, small businesses employ 77.8% of all private sector Americans with a total of 92.7 million employees—almost 5 times the amount of large corporations (1000+).  Very small businesses with less than 19 employees employ 68% more than all large corporations combined (30.7M versus 18.3M).    Contrary to popular opinion, 50% of all small business startups last five years and 30% remain in business over ten years.  In addition, small business growth has outperformed medium and large businesses during the recovery from the Great Recession.

Recent US Employment History

Peak US employment occurred in January 2008 with 138.1 million employed.  The Great Recession low occurred in February 2010. Today, US employment reached a new peak of 141.2 million.  The good news is that the 8.7 million jobs lost during the Great Recession have been recovered.  While this is very positive news, employment growth has been anemic and much more needs to be done to ensure economic sustainment.

Total US Employment

Of the 141.2 million employed Americans, 70.6% work in seven private sector service-providing industries.  The seven service industries are: Professional and Business Services, Education and Health Services, Financial Activities, Trade/Transport/Utilities, Leisure and Hospitality, Financial Activities, Information, and Other Services.   13.9% are employed in private sector goods-producing industries that include Manufacturing, Construction and Mining/Logging (including Oil and Gas).  15.5% Americans work for government at the federal, state and local levels.

Total Jobs Creation In The ‘10s

While the US economy has enjoyed employment growth as of Q1 2015, America produced only 73% (27% shortfall) as measured against the traditional benchmark of 250,000 jobs per month advocated by most economists.  Note: Jobenomics goal of 20 million new jobs per decade only requires 167,000 jobs per month.

Since the beginning of this decade, the US private sector created 12,080,000 jobs compared to government agencies (federal, state and local) that lost 584,000 jobs, for a net gain of 11,496,000 jobs.

Within the private sector, service-providing industries created 10,327,000 jobs (85.5%) compared to the goods-producing industries with 1,753,000 jobs (14.5%).

Within the government sector, local government lost the majority of jobs (405,000 or 69.3%), mostly teachers, firefighters and police.  Federal and state governments lost 104,000 (17.8%) ad 75,000 (12.8%) respectively.

30-Year US Employment Trends

The 30-year trend in US employment gain has overwhelmingly been in the service-providing industries with a 30-year growth rate of 76%.  Government employment has also grown significantly at a rate of 37%.  However, as discussed in this posting, government employment has decreased in the last several years and is likely to continue to do so.  US goods-producing industries have declined 14% during the last thirty years.

Industry Employment Growth This Decade ('10s)

As of the end of the Q1 2015, all US private sector industries created jobs, where all levels of government (federal, state and local) government lost jobs.   80.1% of all net new jobs this decade were produced by four service-providing industries (Professional and Business Services; Trade, Transportation, Utilities; Education and Health Services; and Leisure and Hospitality).  Manufacturing and Construction contributed 7.0% and 5.7% to US employment growth, respectively.

Private Sector Businesses by Company Size.  The following charts examine private sector businesses by size.  As reported by the ADP National Employment Report (published monthly by the ADP Research Institute in close collaboration with Moody’s Analytics), small business is the dominant American economic force in terms of employment and job creation.  The ADP report is obtained by surveying 400,000 US businesses.

US Private Sector Employment by Company Size

Today, small businesses (those companies with less than 500 employees as defined by the US Small Business Association, whereas ADP generally identifies small business as companies with 1-49 employees) employ 77.8% of all private sector Americans with a total of 92,673,000 million employees—over 5 times the amount of large corporations (1000+).  Very small businesses with less than 19 employees employ 68% more than all large corporations combined (30.7M versus 18.3M).

US Jobs Created This Decade by Company Size

 

US Jobs Created Last Month by Company SizeSince the beginning of this decade, small business produced 78.0% of all new American jobs.  Last month’s small business jobs creation performance produced an astounding 90.0% of all new jobs.   These are amazing statistics considering the adverse lending environment by financial institutions, mounting government regulation, and the pittance of federal government spending on small business creation.

Very small and startup businesses have traditionally been the primary source of employment for entry-level workers and the long-term unemployed.  Had the US government paid more attention to this category of employers during its generous handouts of $17 trillion worth of federal government stimuli, bailouts and buyouts to financial institutions and large corporations since the Great Recession, as many as ten million more Americans would be employed today as estimated by Jobenomics.

According the US Small Business Administration[2], there are 28.4 million small businesses compared to 17,700 large businesses (over 500 employees).  Of the 28.4 million small businesses, 5.7 million had employees and 22.7 million were nonemployers (incorporated and unincorporated self-employed, sole proprietorships, etc.).   Small business startups, minus closures, create about 63% of American net new jobs.  About half of all new small businesses survive five years or more and about one-third of these start-ups survive 10 years or more.  In 2014, 79% of all startups survived the first year.  The top three small business industries with the most jobs include Healthcare and Social Assistance, Accommodation and Food Services, and Retail Trade.   Note: the SBA calculates the number of people employed by small businesses a 56.1 million, whereas ADP calculates at 97.6 million (1-499 employees) and 49.9 million (1-49 employees).

Post Recession Employment by Company Size

It is a common misconception that small businesses, especially very small (1-19 employees), are the most fragile.  The above ADP graphic indicates that very small businesses have been the most resilient of the five business categories following the Great Recession.  This fact cannot be understated in an environment where small businesses have been starved for investment capital and meaningful government support.

Industry Employment by Company Size

It is also a common misconception that small businesses are only involved service-providing industries whereas large major corporations dominate goods-producing industries.  The above chart indicates that small businesses play a major role in both goods-producing (manufacturing, construction, and mining) as well as the service-providing industries.

Thomson Reuters/PayNet Indices provide valuable insight into the health of small business.  The Thomson Reuters/PayNet Small Business Lending Index (SBLI)[3] measures the volume of new commercial loans and leases to small businesses.  To create the SBLI, PayNet tracks the new borrowing activity by millions of US businesses as reported by the largest lenders.  The Thomson Reuters/PayNet Small Business Delinquency Index (SBDI)[4] measures small business financial stress and provides early warning of future insolvency.  The most recent SBLI and SBDI are shown.

Thomson Reuters-PayNet

The SBLI (lending) indicates that new loan originations to small businesses have increased slowly since the end of the recession and may now be at the point of significant small business expansion.  The SBDI (delinquencies) shows that loan delinquencies (31 to 90 days past due) are close to their lowest points since 2005.  This is very good news for future economic growth.  Small business creditworthiness is critical to business expansion and jobs creation.

Service-Providing Sector.  The US service-providing sector has grown 76% over the last three decades.

US Service-Providing Industry Sector Growth

Today, the US service-providing sector employs a total of 99,738,000 people across seven industries. Since year 2010, the US service-providing sector created 10,327,000 new jobs, which equates to 85.5% of all new jobs created by the private sector.

US Service-Providing Industry Sector Employment

Employment statistics for industries in the service-providing sector are ranked by the number of new jobs created between 1 January 2010 and 1 April 2015 (63 months):

  • Professional and Business Services: 3,066,000 new jobs
  • Trade, Transportation, Utilities: 2,324,000 new jobs
  • Education and Health Services: 2,143,000 new jobs
  • Leisure and Hospitality: 2,111,000 new jobs
  • Financial Activities: 340,000 new jobs
  • Other Services: 305,000 new jobs
  • Information (non-internet, like publishing): 38,000 jobs lost

US Service-Providing Industry Employment Growth

Of the seven service-providing industries, all seven have now gained jobs since the Great Recession ended and the start of the new decade on 1 January 2010.  The four three industries are Professional and Business Services (18.6%), Leisure and Hospitality (16.3%), Education and Health Services (10.9%) and Trade, Transportation & Utilities (9.5%).

Goods-Producing Sector.  The US goods-producing sector includes Manufacturing, Construction and Mining/Logging industries and has declined 21% since its peak in March 2000.

US Goods-Producing Industry Sector Growth

Today, the goods-producing sector employs a total of 19,547,000 people across the three industries: manufacturing, construction and mining/logging.  Since year 2010, the US goods-producing sector created 1,755,000 new jobs, which equates to 14.5% of all new jobs created by the private sector.

US Goods-Producing Industry Sector Employment

Employment statistics for industries in this sector are ranked by the number of jobs created between 1 January 2010 and 1 April 2015 (63 months):

  • Manufacturing: 844,000 new jobs
  • Construction: 690,000 new jobs
  • Mining and Logging: 221,000 new jobs

US Goods-Producing Industry Employment Growth

The fastest growing industry in the goods-producing sector is Mining/Logging (33.3%), followed by Construction (12.2%) and Manufacturing (7.4%).  The explosive growth in the Mining/Logging industry is largely due to oil and natural gas extraction (via new technologies of fracking and horizonal drilling), and related exploration and support activities.

US Manufacturing Assessment.  While manufacturing has added 844,000 new jobs since the beginning of this decade, it has a long way to go to achieve peak its peak level of 19.6 million in June 1979 after sustaining a consistent growth rate from its post-World War II low of 12.5 million in September 1945.   Since its peak in 1979, the US manufacturing industry has declined by 37%.

US Manufacturing Employment Since WWII

Manufacturing currently employs 12,319,000 people, which is not statistically significant from manufacturing’s all time low of 11,462,000 in January 2010.  Manufacturing is still in the doldrums from a historical perspective.  Over the last 12 months, manufacturing has had 11 up-months and 1 down-month in terms of employment with a net increase of 188,000 jobs in the last year out of a total of approximately 3.1 million new jobs across all private sector industries.

Manufacturing Employment Last 12 Months

Notwithstanding  the political rhetoric  about increasing US exports, re-shoring of US manufacturing jobs and increased US productivity, Jobenomics forecasts limited upside jobs potential in manufacturing due to excessive government regulation, improved automation, competitive foreign labor rates, and a lack of high-tech manufacturing skills in our civilian labor force (see Jobenomics’ Manufacturing Industry Forecast posting).  The advent of new technologies (like 3D printing of manufactured parts and advanced robotics) reduce the need for non-skilled labor as well as automating many higher level positions in marketing, accounting, machinists and administration.  As of the most recent BLS Job Openings and Labor Survey, US manufacturers have 297,000 open high-tech jobs that currently are unfilled out of a total of 4.9 million unfilled jobs across all industries.  Jobenomics is also concerned by the amount political and public  emphasis on the manufacturing growth as the primary engine for jobs creation.  While manufacturing is vitally important to our nation, political emphasis needs to be on the high growth industries in the service sector.  Manufacturing emphasis should be on protecting our gains and focusing on next-generation manufacturing technology, processes and recapitalization.

US Construction Industry Assessment.  Even though the construction industry is showing signs of growth, the construction sector continues to struggle after a rapid rise (69%) during the go-go years in the 1990s and the housing bubble in the early 2000s.

US Construction Industry Employment

In the 2006-07 time period, peak construction employment was 7.73 million.  Today, it is 6.34 million, a loss of 18%.  The good news is that construction employment stopped its decline and has increased from its post-recession low of 5.44 million in January 2011.  Over the last 12 months, construction has had 11 up-months and only one down-month in terms of employment with a net increase of 282,000 jobs in the last year out of a total of approximately 3.1 million new jobs across all private sector industries.

Construction Employment Last 12 Months

The US construction industry recovery from the Great Recession is still a work very much in progress.

US Construction Industry Recovery

Residential construction employment has been the hardest hit segment with a 42% decrease from its pre-recession peak (3.45 million) to its post-recession low (1.98 million). Today, residential construction employment is still down from its peak by 30% with a total employment of 2.42 million.   Nonresidential construction fared slightly better with losses of  -24% from peak and -13% today with 2.99 million employed.  The heavy and civil engineering sector fared the best (largely due to federal stimulus programs) loosing -19% from peak and now down only -8% with a total of 934,000 employed.   As of the most recent BLS Job Openings and Labor Survey, US construction companies have 156,000 open jobs (mainly higher skilled jobs) that currently are unfilled out of a total of 4.9 million unfilled US jobs.

New US Residential Construction

Robust residential construction usually leads economic recoveries.  However, this recovery is different.  As shown above, according to US Census Bureau Data, new residential starts dropped from a peak 2,273,000 in 2006 to a low 478,000 in April 2009.  As of the latest US Census Bureau data available[5], new residential construction starts were 1,081,000 in December 2014, which represents an improvement from a 80% decrease in April 2009 to a 52% decrease today from the January 2006 peak.

The Census Bureau also reports[6] that US home ownership rates have dropped to its lowest level since 1977 and down 5.2% from its high in 2004, 69.2% versus 64.0% respectively.   This drop is due to less affordable housing, more restrictive lending, fewer first-time buyers who are renting rather than buying, and people who have dropped out of the housing market.

Jobenomics forecasts that the residential construction industry will not produce a significant number of jobs for the remainder of this decade due to foreclosures, underwater mortgages, unemployment as well as changing attitudes to the value of homeownership.  Due to the stagnant economy and government deficits, commercial and heavy construction is also unlikely to produce a significant number of new domestic jobs.  Jobenomics does see potential in major foreign construction projects, green construction and renovation of older homes, and reconstruction of disaster areas.

US Mining/Logging Industry Assessment.  Mining (oil & gas extraction, coal and minerals) and logging goods-producing sector continues to be a bright area for employment growth.  From the beginning of this decade, mining increased employment by 221,000 jobs, with an impressive growth rate of 33.3%.  With proper private and public sector support, this industry has significant upside potential.

US Mining (Oil, Gas, Minerals, Coal)

Mining exploration and support employment has more than doubled in the last decade and likely to double again with exploration for domestic energy sources.  Oil and gas extraction is also likely to double with new natural gas, oil shale, oil sands and offshore oil resources are exploited via new  technology, like horizontal drilling and hydraulic fracturing (fracking).  Minerals mining employment has been stagnant over the decade, but this may change as commodity prices (gold, silver, copper) increase as well as worldwide demand for these commodities increase.  Coal mining and logging are not likely to increase anytime soon mainly due to environmental pressure and the emphasis on clean renewable technology.

The Government Employment Sector.  Total government sector employment currently is 21,898,000.  Since 1 January 2010, government has lost 584,000 jobs, a negative 2.6% growth rate.  Employment statistics in this sector is shown in the following chart.

Government Employment This Decade

 

The government sector continued to lose jobs with 69.3% of all job losses occurring with local government (mainly teachers, police and firefighters), 12.8% at the state level, and 17.8% in the federal government (not including military, which is also downsizing).  Jobenomics predicts that government job losses will continue to decline due the effects of sequestration as well as debt and deficit spending.  In addition, if the US economy suffers an economic disruption due to either domestic or foreign events, government spending will likely decrease further.

In conclusion, business and jobs creation is the number one issue facing US economic recovery.  While some would argue that debt/deficits or entitlement/welfare are the biggest issues, it takes businesses to create lasting jobs that generate tax revenue to run government as well as supporting the less fortunate.   The following chart is about as simple as Jobenomics can make it.

321 Million

34% of all Americans financially support the rest of the country.   As of the end of Q1 2015, out of a total population of 321 million Americans, 109 million private sector workers support 32 million government workers and government contractors, 17 million unemployed (U6 rate), 93 million able-bodied people who can work but chose not to work, and 69 million who cannot work.   Of the 109 million, approximately 67 million individuals work full-time, 27 million are part-timers (less than 35 hours per week) and 15 million are self-employed.  The US economy cannot be sustained by 34% supporting an overhead of 66%.   More people must be productively engaged in the private sector labor force for the US economy to flourish.

The solution to growing America’s economic base involves engaging our small business engine.  Even though severely constrained by limited financing and restrictive government policies, small businesses created 78% of all new jobs in the US since the end of Great Recession.

Jobenomics believes that new small, emerging and self-employed businesses could create 20 million new jobs within a decade, if properly incentivized and supported.  Consequently, Jobenomics is focused on four demographics with high growth potential that include Generation Y (via monetizing social networks), Women-Owned Businesses (via direct care business creation), Minority-Owned and Veteran-Owned Businesses.  Jobenomics is also working on urban mining of high-value electronic waste and tires to fund Jobenomics Community-Based Business Generators that are designed to mass produce small and self-employed businesses as well as accelerating extant small and medium-sized businesses.   If Jobenomics can help create thousands of highly-scalable small businesses, America writ-large can facilitate the creation of millions of small businesses that would transform our economy.

[1] US Bureau of Labor Statistics, Employment Situation Summary, http://www.bls.gov/news.release/empsit.nr0.htm

[2] US Small Business Association (SBA), Office of Advocacy, Frequently Asked Questions, https://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf & Small Business Profiles Offer Valuable Insight into States’ Economies, February 2015, https://www.sba.gov/sites/default/files/Small_Business_Advocate_Feb_2015.pdf

[3] Thomson Reuters/PayNet Small Business Lending Index, http://paynetonline.com/SmallBusinessInsights/ThomsonReutersPayNetSmallBusinessLendingInde.aspx

[4] Thomson Reuters/PayNet Small Business Delinquency Index, http://paynetonline.com/SmallBusinessInsights/ThomsonReutersPayNetSmallBusinessDelinquency.aspx

[5] US Census Bureau, Business and Industry, Time Series/Trend Charts, New Residential Construction, Annual Rate for Housing Units Started, http://www.census.gov/construction/nrc/historical_data/

[6] US Census Bureau, Table 14. Homeownership Rates for the US and Regions:  1965 to Present, http://www.census.gov/housing/hvs/data/histtabs.html

Jobenomics Unemployment Report: Q1 2015

Jobenomics Unemployment Report: Q1 2015

http://Jobenomics.com

By: Chuck Vollmer

1 April 2015

Jobenomics tracks both unemployment (Jobenomics Unemployment Scoreboard: Q1 2015) and employment (Jobenomics Employment Scoreboard: Q1 2015).   Download PDF versions: Jobenomics Employment Report – Q1 2015 & Jobenomics Unemployment Report – Q1 2015.

Executive Summary.  US labor force has three statistical categories: Employed, Unemployed and Not-in-Labor Force.   Understanding dynamics between these categories is needed to understand the current American unemployment situation.   Too much attention is placed on the official unemployment rate—a rate that is seriously flawed and politicized.  Sooner or later, the American people will figure out that it is theoretically possible for the US to have a zero rate of unemployment while simultaneously having zero people employed in the labor force.  From a Jobenomics perspective, the true unemployment rate is much higher than advertised.

Understanding Employment and Unemployment Statistics. According to US Bureau of Labor Statistics (BLS), the basic concepts involved in identifying the employed and unemployed are quite simple:

  • People with jobs are Employed.
  • People who are jobless, looking for jobs, and available for work are Unemployed. Those who are marginally employed, and looking for jobs, are deemed underemployed.  The underemployed are reported as a subset of the Unemployed category.
  • People who are neither employed nor unemployed are not in the labor force. Those who have no job and are not looking for a job are counted in the BLS’ Not-in-Labor-Force When a discouraged worker stops looking for work, that person is no longer considered unemployed by the BLS, they are moved into the NiLF category.

US Work Force Demographics

Therefore, as shown:

  • Civilian Labor Force = Employed + Underemployed + Unemployed = 158.3 million.
  • Not Looking for Work = Not-in-Labor-Force + All Others = 162.4 million.

The Civilian Labor Force is defined as citizens, who are either employed or unemployed looking for a job, are at least 16 years old, are not serving in the US armed forces and are not institutionalized.

  • The US government and private sector currently employs 141.2 million people. The four major subcategories are: (1) 22 million federal, state and local government employees and an estimated 10 million contractors who work for the government, (2) 67 million full-time private sector employees, (3) 27 million part-time private sector employees (27 million), (4) 15 million self-employed workers.
  • There are 17.1 million unemployed people who have a marginal job, no job, and are looking for work.

The Not Looking For Work group includes those Not-in-Labor-Force and All Others in the US population.

  • Not-in-Labor-Force includes people (over 16 years old) such as discouraged workers, citizens who choose not to work, welfare recipients, students, retired, stay-at-home caregivers, etc. There are 93.2 million Not-in-Labor-Force people who are considered “marginally attached” to the labor force.
  • The remaining citizens not included in the previous three categories are classified generally as All Others by Jobenomics (the BLS does not survey and report on these citizens). Jobenomics calculates that this All Others category includes 69.2 million citizens that cannot work (e.g., children, elderly, disabled), are institutionalized, and are serving in the US armed forces.

Unemployment Rate Categories.   Every month, the BLS publishes unemployment and employment statistics for economic, policy and public decision-making.  Unfortunately, few policy-makers, opinion-leaders, or American citizens truly understand these statistics.  More importantly, Americans tend to focus on only one statistic—the U3 rate or “official” unemployment rate—which is deleterious to good decision making.  The chart below highlights the U3 rate against a backdrop of other BLS unemployment (can work and are looking) and Not-in-Labor-Force (can work but are not looking) categories.

U Rates

The BLS calculates six unemployment categories (U1 through U6[1]) every month for those that can work and are looking for work.  The three most often reported categories are the so called Long-Term U1 Rate, the Official Unemployment U3 Rate, and the Total Unemployment U6 Rate.   These rates and numbers are calculated as a percentage of the US Civilian Labor Force, which is less than half of the total US population of 320.6 million[2].   The BLS also calculated those discouraged workers would voluntarily left the work force (some for viable reasons, such as education, and some simply for welfare benefits) to join those in the Not-in-Labor-Force category, which currently stands at 93,175,000—over five times the U6 total unemployed number.

Functionally Unemployed

From a Jobenomics perspective, Not-in-Labor-Force citizens should be classified as unemployed.  If all underemployed, unemployed and Not-in-Labor-Force people were calculated as unemployed, the total unemployment rate would be an astounding 34% as opposed to the “official unemployment rate” of 5.5%, or 8.6 million versus 110.3 million able-bodied citizens who can work.  The determination a person is unemployed should not depend on the subjective, and often whimsical, survey questions if people are looking or not-looking for work.  These questions[3] include “(1) Do you currently want a job, either full or part time?, (2) What is the main reason you were not looking for work during the last 4 weeks?, (3) Did you look for work at any time during the last 12 months?, and (4) Last week, could you have started a job if one had been offered?”  The bolded words are emphasized when read by the interviewers, according to the BLS.

Able-Bodied People Without A Job

Since the peak of the Great Recession, the official unemployment rate dropped from 10.0% in October 2009 to 5.5% today.  Correspondingly, the number of officially unemployed dropped from 15.4 million to 8.6 million, a decrease of 6.8 million people.   During the same time period, the number of people who voluntarily dropped out of the work force—many to the netherworld of perpetual unemployment and welfare—increased from 82.8 million to 93.2 million, an increase of 10.4 million.  While America reduced its number of it “officially” unemployed, it increased the number of its able-bodied adults without a job by 3.6 million citizens.

Consequently, the official unemployment rate is a relatively poor indicator of the overall employment situation in the United States.   In comparison to those employed and those that can work but don’t (Not-in-Labor-Force), the official unemployment rate is a relatively small number, undeserving of the amount of attention it receives.   As shown below, since the beginning of year 2000 to today, the U3 has increased by 2.9 million people compared to employment growth of 13.8 million and Not-in-Labor-Force growth of 24.5 million.

Labor Force Trends Since Year 2000

Sooner or later, the American people will figure out that the current way our government calculates unemployment is seriously flawed.  Under the current system, it is theoretically possible for the US to have a zero rate of unemployment while simultaneously having zero people employed in the labor force.  Stated another way, since Not-in-Labor-Force workers are not counted as unemployed, the official unemployment rate could theoretically be zero if all the current unemployed people simply quit looking for work and joined those in the Not-in-Labor-Force.   Americans need to focus on increasing employment and reducing the vast exodus of people leaving our labor force.  By shifting focus to business creation, especially small business creation, the number of the unemployed would decrease correspondingly.

The “Not-in-Labor-Force” Category.  The downward trends in the US working population and the upward trend in the US non-working population pose serious challenges to America’s economy and way-of-life.  These trends are shown in the following charts.

Not-in-Labor-Force Growth

 

According to BLS data[4], those in the Not-in-Labor-Force category (those that can work but don’t) has surged consistently since year 2000 by 24.5 million people.  Since 2009, the start of the Obama Administration, it grew by 12.8 million.  Since 2010, the beginning of the decade, it grew by 9.4 million people.  In the last 12 months, it grew by 1.9 million.   Last quarter and last month, 277 thousand people departed the US labor force and joined the Not-in-Labor-Force category.

A major reason for Not-in-Labor-Force category growth is due to the growing attractiveness of welfare and entitlement benefits.  While there is no evidence that people on welfare are lazy or do not wish to work, there is evidence that many welfare recipients lack the skills and attachment to the job market necessary to obtain the types of jobs that pay above-average wages, which makes welfare an attractive option.   According to a CATO study[5], the federal government currently funds 126 separate programs targeted toward low-income people.   State, county, and municipal governments operate additional welfare programs. Consequently, welfare pays more than minimum wage jobs in 33 states—in many cases, significantly more.  For example, according to the CATO study, one would have to make more than $60,000 in Hawaii and more than $50,000 in Washington DC and Massachusetts to beat the level of welfare payments.

US Welfare Recipients

According to the latest US Census Bureau data[6], 153,323,310 American received benefits from one or more programs, which equates to 50% of the US population on some form of social or “means-tested” welfare—not including other benefits like the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), Alternative Minimum Tax (AMT) rebates and Education and Tuition Assistance programs.  At the end of Q4 2012, 309.0 million individual payments were made to US welfare receipts out of total US population of 309.5 million Americans.  This massive amount of disbursements has created an unemployment-welfare industry characterized by hundreds of thousands[7] of public charities, private foundations and nonprofit organizations dedicated to maximizing welfare and entitlement benefits.  These nonprofit organizations yield tremendous social and political power that will continue to fuel the growth of entitlement and means-tested welfare programs as well as growth in the Not-in-Labor-Force category.

A second major reason for Not-in-Labor-Force category growth is due to the growing number of postsecondary school students.  According to the US Department of Education[8], total undergraduate enrollment in degree-granting postsecondary institutions was 17.7 million in fall 2012, an increase of 48% from 1990. By 2023, undergraduate enrollment is projected to increase 14% to 20.2 million. Total enrollment in post-baccalaureate degree programs was 2.9 million in 2012, an increase of 57% since 1990. Post-baccalaureate enrollment is projected to increase 24% to 3.6 million by 2023.  While Jobenomics endorses post-secondary education, Jobenomics fears that many students attend college for wrong reasons, such as, parental or peer pressure, getting a higher paying job, enjoying the college scene, or delaying the drudgery of the labor force.   According The Center for College Affordability and Productivity[9], about half of employed US college graduates are in jobs that the Bureau of Labor Statistics suggests requires less than a four-year college education.   Not all degrees are created equal.   According to a Georgetown study[10], the risk of unemployment among recent college graduates depends largely on their major.  Unemployment/earnings figures for recent health, engineering and arts graduates are 5.4%/$43,000, 7.5%/$55,000 and 11.1%/$30,000 respectively.  The Georgetown study cautions students to seriously weigh the benefits verses the costs.  In 2013, the average student loan debt was $30,000, but with rising tuitions, $50,000 is a more reasonable figure for future graduates.  Many students have a laissez-faire attitude about paying off loans or expecting loan forgiveness.  In essence, these students use college loans as a form of social welfare.   Unfortunately, the phenomenon of compound interest works on student loans.  Unpaid $30,000 loans can compound to double or triple the original amount.  For those expecting a federal government loan forgiveness program, they should be more realistic.  Outstanding student loans now top $1.2 trillion.  Given the $18 trillion national debt, fiscally conservative lawmakers are unlikely to forgive much, regardless of the debt-forgiveness rhetoric of more liberal politicians.

Not-in-Labor-Force Demographics

In terms of demographics, the Not-in-Labor-Force includes 52 million people 55 years or older (55.2%), 24 million 25-to-54 year olds (25.5%), and 18 million 16-to-24 year olds (19.3%).  In terms of gender, Not-in-Labor-Force includes 56 million women (60.0%) and 38 million men (40.0%).  Recent trends have been most unfavorable to those over 55 years old, who once out of work tend to stay permanently out of work.

Not-in-Labor-Force versus Labor Force Trends

From January 2000 until today, the Not-in-Labor-Force has grown 36% compared to 8% growth in the private sector work force.  At the current rate of Not-in-Labor-Force growth, those than can work but choose not to work will outnumber those working sometime in 2023.

Labor Force Participation.   Another way to look at the unemployment situation is via the BLS Labor Force Participation Rate and the BLS Employment-Population Ratio.

Labor Force Participation Rate

 

The labor force participation rate is the percentage of working-age persons who are employed or unemployed but looking for a job.   Since year 2000, the US working population suffered a serious decline from a high of 67.3% to 62.7% today—a net 6.8% decline from peak and rate that was last seen in February 1978—37 years ago.   Today’s labor force participation rate would be much lower if not for working women who did not participate in the US labor force in 1978 as they do today.  The primary reason for the dramatic drop in the labor force participation rate is largely due to those that simply have quit looking for work and are now categorized as Not-in-Labor-Force.  Alarmingly, the BLS reports that 94% of the people in the Not-in-Labor-Force category currently do not want a job now.

Labor Force Participation By Age

The American workforce is getting grayer.  Economic uncertainty is keeping older Americans on the job and delaying retirement.    As shown above, the BLS projects that the percentage of older Americans in the US civilian labor force will increase 40% from 1990 to 2020 while the percentage of younger Americans, aged 16 to 24, will shrink by 25%.  BLS data also shows that once older workers are out of work, they have a much harder time finding employment than a younger worker.

The BLS’s Employment-Population Ratio[11] is another statistic that is not widely used, but is very useful in a strategic context.   This ratio answers the question, “what portion of the working-age population is employed?” and is useful in understanding how our economy is performing.  The BLS defines this ratio as the proportion of the civilian noninstitutional population aged 16 years and over that is employed.  The civilian noninstitutional population includes the Employed, Unemployed (U6) and Not-in-Labor-Force categories.  It does not count the All Others group who cannot work, are institutionalized or serving in the US armed forces.

Employment-Population Ratio

Today, the total US population is 320 million with a civilian noninstitutional population of 250,080,000[12] of which 148,331,000 are employed for an Employment-Population Ratio of 59.3% as shown.   From an Employment-Population Ratio perspective, since the peak on 1 April 2000, 8.3% fewer Americans are engaged in the US work force as a percentage of the total working age population.  Unless this trend is reversed, America will increasingly be a nation of haves and have-nots due to an eroding middle-class and a growing welfare population.

Labor Force Gaines-Losses

From an unemployment perspective, what really matters is how many people are entering the US labor force as opposed to leaving.   According to Bureau of Labor Statistics (BLS)[13] data, last month (March 2015) 151,000 more people departed than entered the US labor force reversing the positive trend earlier in Q1 2015. During Q1 2015 (January, February and March), a total of 579,000 people entered the US labor force and 270,000 voluntarily departed, for a net gain of 302,000—a positive trend that has followed similar employment gains of 2,136,000 jobs since the being of this decade.   However, employment gains still have a long way to go.   Since the beginning of the Obama Administration, 6,410,000 entered the labor force as compared to 12,795,000 who departed for a net loss of 6,385,000.    Since year 2000, 10,405,000 people entered compared to 24,520,000 people who departed—many to a netherworld of perpetual unemployment and welfare—for a net loss of 14,115,000 jobs.

Job Openings By Industry

According to the most recent BLS Job Openings and Labor Turnover Survey (JOLTS)[14], there were 4,879,000 job openings.  JOLTS includes estimates of the number and rate of job openings, hires, and separations for the nonfarm sector by industry and geographic region.   As shown above, the four occupations that had the largest number of openings are: Professional & Business Services (917,000), Healthcare (779,000), Accommodation & Food Services (688,000) and Retail & Wholesale Trade (626,000). State and local government had 391,000 openings.    The primary reason for the large number of job openings is due to the lack of job skills.  From a Jobenomics perspective this skills gaps is unlikely to be closed in the near-term, which will increase the level of discouraged workers as well as accelerating the flow of people into the Not-in-Labor-Force category.

Small Business Creation Solution.  The only true way to reduce unemployment is to create new jobs.  Jobs creation involves business creation, especially small business creation.  In this decade, US small businesses (less than 500 employees) created 78.0% of all new jobs (note: see Jobenomics Employment Report: Q1 2015).  During March 2015, US small businesses created an astounding 90% of all new jobs.  Today, small businesses employ 77.8% of all private sector Americans with a total of 92.7 million employees—almost 5 times the amount of large corporations (1000+).  Very small businesses with less than 19 employees employ 68% more than all large corporations combined (30.7M versus 18.3M).    Contrary to popular opinion, 50% of all small business startups last five years and 30% remain in business over ten years.  In addition, small business growth has outperformed medium and large businesses during the recovery from the Great Recession.

Small businesses are important from a long-term unemployed and part-time worker point-of-view, both of whom face employment challenges.  Small businesses tend to hire these demographics at a far greater rate than large businesses that are choosy about whom they hire and often give short-shift to those that maybe perceived as employment-challenged.  According to ADP data[15], large business (greater than 500 employees) have downsized by 351,000 employees over the last decade, whereas small business (less than 500 employees) have increased employment by 8,051,000.  It is a well-established fact that the 500 largest US corporations (Fortune 500) do not hire unemployed personnel regardless of reason.

Jobenomics asserts that the solution to growing America’s economy involves putting our small business engine into over-drive.  Energizing existing small businesses and creating new small and self-employed businesses could create millions of new jobs within a decade.  To prove the validity of this assertion, Jobenomics is working with a number of US cities to implement Jobenomics Community-Based Business Generators to create thousands of new-start businesses.  The objective of a Jobenomics Business Generator is to increase “birth rates” of start-up businesses, extend the “life span” of small businesses, and increase the number of employees per business, which has decreased by approximately 30% since the Great Recession.

Number of Self-Employed Americans

Jobenomics is focused on four demographics with high startup business potential:  Generation Y-, Women-, Minority-, and Veteran-Owned Businesses.   Approximately 15 million Americans, or 1 out of every 8 people in the private sector labor force, are self-employed in either incorporated or unincorporated businesses.  This number has remained relatively stable since the year 2000.  With a little encouragement, training and financial support, this number could easily double or triple in the next decade.

Part-Time Workers

The number of US part-time workers has grown 19% since year 2000 to 27,301,000 in April 2015, which is near the all-time high of 28,134,000 in July 2013.  Part-time workers are a large component of a much larger group of workers, called contingency workers.

Contingency workers (self-employed and contract workers) currently represent approximately 31% of the US workforce and are projected to increase substantially.  According a recent Bloomberg Businessweek article[16], contingency workers could represent 40% of the US labor force in 2020. Given current trends in productivity, technology and necessity, contingent work (part-time workers, consultants, independent contractors, independent professionals, temporary contract workers, seasonal workers, freelancers, etc.) could quickly become the dominant form of labor in the US work force.

Contingent work is called “nonstandard work arrangements” by the federal government, which will be a misnomer if contingent work becomes the dominant form of employment.  Government will try to keep this from happening to keep the onus on big business to produce payroll taxes and provide social benefits.  In the end, government will fail to keep the US labor force from rationalizing.  During the rationalization process, contingency workers will organize in ways that maximizes earnings, benefits and retirement.  Jobenomics predicts that micro-businesses will be created to service this need.

Micro-business will likely play a much larger role than ever before.   Jobs will increasingly be dissected into discrete tasks, which, in turn, will be addressed by temporary collectives and virtual organizations.  Collaborative and management tools will create “contextual” work environments that rapidly form, perform, and then reform to address subsequent tasks.  More and more brick and mortar edifices will give way to hoteling and mobile computing.  Contingency workers will continue to replace full-time employees.

If Jobenomics can help create thousands of highly-scalable small businesses, America writ-large can facilitate creation of millions of small businesses that would transform our economy.  2015 could be a break-out year for small and self-employed businesses that traditionally have been the primary source of employment for entry-level workers and the long-term unemployed.

In conclusion, business and jobs creation is the number one issue facing US economic recovery.  Jobenomics believes that new small, emerging and self-employed businesses could create 20 million new jobs within a decade, if properly incentivized and supported.  Consequently, Jobenomics is focused on four demographics with high growth potential that include Generation Y (via monetizing social networks), Women-Owned Businesses (via direct care business creation), Minority-Owned and Veteran-Owned Businesses.  Jobenomics is also working on urban mining of high-value electronic waste and tires to fund Jobenomics Community-Based Business Generators that are designed to mass produce small and self-employed businesses as well as accelerating extant small and medium-sized businesses.   It takes businesses to create lasting jobs that generate tax revenue to run government as well as supporting the less fortunate.

The following chart is about as simple as Jobenomics can make it.

321 Million

34% of all Americans are financially supporting the rest of the country.  As of the end of Q1 2015, out of a total population of 321 million Americans, the US has 109 million private sector workers that support 32 million government workers and contractors, 17 million total unemployed (U6 rate), 93 million able-bodied people who can work but chose not to work, and 69 million who cannot work.   Of the 109 million, approximately 67 million works full-time, 27 million works part-time and 15 million are self-employed.  The US economy cannot be sustained by 34% supporting an overhead of 66%.   More people must be productively engaged in the private sector labor force for the US economy to flourish.

[1] BLS, Table A-15, Alternative measures of labor utilization, http://www.bls.gov/news.release/empsit.t15.htm

[2] US Census Bureau, US & World Population Clocks, http://www.census.gov/main/www/popclock.html

[3] BLS, Who is not in the labor force?, http://www.bls.gov/cps/cps_htgm.htm#nilf

[4] BLS,  Table A-16, Persons not in the labor force and multiple jobholders by sex, not seasonally adjusted, http://www.bls.gov/webapps/legacy/cpsatab16.htm

[5] CATO Institute, The Work Versus Welfare Trade-Off:2013, http://object.cato.org/sites/cato.org/files/pubs/pdf/the_work_versus_welfare_trade-off_2013_wp.pdf

[6] US Census Bureau, Economic Characteristics of Households in the United States, Table 2: People by Receipt of Benefits from Selected Programs: Monthly Averages: 4th Quarter 2012 (retrieved 13 April 2015), http://www.census.gov/programs-surveys/sipp/publications/tables/hsehld-char.html

[7] Note: As of 2013, the US has 1,492,186 registered nonprofit organizations.  For a complete list see the National Center for Charitable Statistics, http://nccsweb.urban.org/PubApps/profile1.php?state=US

[8] US Department of Education, National Center for Education Statistics, The Condition of Education 2014, Page 58 & 64, http://nces.ed.gov/pubs2014/2014083.pdf

[9] The Center for College Affordability and Productivity, Underemployment of College Graduates, January 2013, http://centerforcollegeaffordability.org/research/studies/underemployment-of-college-graduates/

[10] Georgetown Center on Education and the Workforce,  Hard Times: College Majors, Unemployment and Earnings: Not All College Degrees Are Created Equal, http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/Unemployment.Final.pdf

[11] BLS, http://data.bls.gov/timeseries/LNS12300000

[12] BLS, Table A-1, Employment Status, http://www.bls.gov/news.release/empsit.t01.htm

[13] US Bureau of Labor Statistics, Employment Situation Summary, http://www.bls.gov/news.release/empsit.nr0.htm

[14] BLS, Job Openings and Labor Turnover Survey (JOLTS), http://www.bls.gov/news.release/jolts.htm

[15] ADP Research Institute, Historical Data, http://www.adpemploymentreport.com/2015/March/NER/NER-March-2015.aspx

[16] Bloomberg Businessweek, 20-25 October 2014 Edition, Companies/Industries, Page 20

Network Technology Revolution

NTR Cover 7 Nov 2014

Network Technology Revolution

www.Jobenomics.com

By: Chuck Vollmer

7 November 2014

Download PDF:  Network Technology Revolution -7 Nov 2014

The Network Technology Revolution (NTR) could produce tens of millions of net new US jobs.  On the other hand, a recent Oxford University study estimates that the NTR could eliminate tens of millions of US jobs due to computerization.  Jobenomics believes that both predictions are correct.  If so, we should maximize the former and mitigate the latter.   To do so, the US needs a strategic framework that is accepted and promulgated by the major NTR corporations, political decision-makers and leading opinion-leaders.

In order for the NTR to produce the maximum number of net new jobs, America needs a strategic framework that maximizes business creation and growth, while simultaneously mitigating business failures.   Unfortunately, this framework currently does not exist.  American decision-makers and opinion-leaders talk a lot about the importance of small businesses—the engine of the US economy— but their approach to small business creation is laisse faire.  Small businesses (<500 employees) employ 77% of all private sector Americans for a total of 91 million employees—almost 5 times the amount of large corporations (1000+ employees each).

If property orchestrated, the NTR could significantly boost business startups, as well as keeping them in business longer.  A recent Kauffman Foundation Study[1] finds that net job growth occurs in the US economy only through startup firms. The NTR could create millions of US small businesses if leading American NTR corporations focus on helping our tech-savvy generation monetize social networks and start NTR-related goods-producing and service-providing businesses.  Unfortunately, America’s current social media focus is more on entertainment than e-commerce.  While the former is nice-to-have, the latter is in the need-to-have category in order increase employment, build business, and grow the economy.

American companies are currently the NTR world leaders.  However, this is changing.  Chinese companies are rapidly assuming global NTR leadership.  Started in 1999 by Jack Ma, a former Chinese English teacher in Hangzhou, Alibaba’s rise has been historic and now is positioned to be the world’s leading NTR Company that specializes in consumer-to-consumer and business-to-consumer e-commerce.   Alibaba’s global leadership has been largely underwritten by Americans, starting with a major investment by Yahoo and recently by Wall Street’s largest initial public offering ever.  On its first day of trading on 20 September 2014, Alibaba easily surpassed CISCO and Facebook by market capitalization valuation of more than $231 billion, trailing only Google, Microsoft and Apple in value in the highly prized technology sector.

According to Jack Ma, Alibaba was founded[2] “to champion small businesses, in the belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies.” Alibaba’s vision to champion small business creation via the NTR will facilitate prosperity and full employment to a far greater extent than Google, Microsoft, CISCO, Facebook, IBM or Apple’s narrower product and services-oriented mission/value statements.  Ma’s strategic vision fits within China’s strategic framework to become the world’s leading economic power, which was accomplished just this year.

Gross Domestic Product Comparison

China has now overtaken the USA in GDP based on purchasing power parity (i.e., relative value of the US dollar compared to the Chinese yuan) to become the world’s most powerful economy.  Over the last two decades, the Chinese have been able to lift 200 million people from poverty into their work force, whereas in the same time period, 15 million more Americans departed the work force than entered it.   As the Chinese have proven, small business creation provides for income opportunity and wealth creation for the maximum amount of people in a society.

From a Jobenomics perspective, more American companies need to champion small businesses that would be enabled by NTR technologies, processes and procedures.  The NTR can raise all economies around the world.  It does not have to be a zero-sum game.

The Technologies

Technology Revolutions & the Enabling Technologies of the NTR.  In the 19th century, the Industrial Revolution (IR) transformed America from an agricultural-based society to an industrial-based society.  The Military Technology Revolution (MTR) was one of the deciding factors in winning the Cold War and underpinned the creation of the largest and most competitive economic superpower on the planet.  In the latter part of the 20th century, the Information Technology Revolution (ITR) ushered in a new era of prosperity and international commerce built largely on the Internet, which evolved from the US military’s ARPA-Net and creative genius of the co-founders of the personal computer, Bill Gates and Steve Jobs.  Today, the emerging Network Technology Revolution (NTR) has the potential to reshape the global economy.  Like the IR, MTR and ITR, the NTR could lead to the creation of tens of millions of new productive jobs, as well as countless economic and social benefits.

The Network Technology Revolution is defined by Jobenomics as the next generation in digital technology that will transform society and economies.  The NTR is characterized by a perfect storm of highly advanced technologies, processes and systems, including  big data (zettabytes of data stored in “clouds”), semantic webs (thinking websites), machine learning (systems that can learn from data), mobile robotics (automated machines capable of movement), ubiquitous computing (embedding microprocessors in everyday objects to communicate information without requiring human interaction), national broadband system (bringing high-speed networks to everyone ), and the “Internet of Things” (a world where more things are connected to the Internet than people).

Big Data is the term for a collection of data pools so large and so complex that it becomes difficult to process and access the data using traditional methods.  For most people who casually use the Internet, their digital world is expressed in terms of kilobytes (103) and megabytes (106).  For IT professionals, the digital world is now represented by zettabytes (1021).  The World Wide Web has now passed the zettabyte threshold, which is the estimated data storage required to record every written word in the history of mankind.   So what does the zetta-flood mean to America’s digital future?  Managing gargantuan levels of data is increasingly frustrating due to the complexities and costs of maintaining internal information technology environments.   By 2020, the number of data files is projected to grow as much as 75 times, compared to 1.5 times growth of the available pool of IT professionals.  As a result, organizations look to the promises of cloud computing to help solve issues related to ever-increasing amounts of big data.

Cloud Computing is as big a paradigm shift away from personal computers (PCs) as PCs were from mainframes in the 1990s. Cloud computing is the practice of using a network of remote servers hosted in data centers to store, manage, and process data, rather than a local server or personal computer.  To most people, cloud computing is as amorphous as its name suggests.  It is not hard to comprehend that most zetta-data will be stored in the “cloud” due to economies of scale and the decreasing cost of virtualized mega-servers in super data centers.  However, the “cloud” is much more than storage alone.  It also entails security, connectivity, portability, access, and other issues including privacy, legal and regulatory.

The Semantic Web enables machines to interpret “meaning” much in the way humans do.  In the beginning, the World Wide Web (WWW) consisted of non-semantic, read-only websites that focused only on data retrieval.   Today’s WWW 2.0 websites are semi-semantic, read-write websites that facilitate data sharing as evidenced by social media (Facebook, Twitter, etc.) and blogging.   WWW 3.0 will introduce fully semantic, read-write-execute websites.  WWW 3.0 browsers will perform functions for humans in merged virtual/physical worlds, and will act like personal assistants that learn the interests of users based on their previous activities, avatars that will represent the user’s alter ego in the virtual world, and virtually enhanced 3D worlds that will assist users in their physical world to educate, train, as well as entertain.   Technologies in the virtual world are advancing rapidly, especially in the realm of augmented reality (AR) where icons are overlaid (via holographic projections) on your real world view.  The US military’s AR awareness and visualization systems, and commercial systems, like Google Glass, will connect the semantic web to humans on the move, providing people with information tailored to their geo-located position and annotated with personalized items of interest via the “thinking” web.

Mobile Robotics involves automated machines capable of movement in multiple environments including factories (movable industrial robots), homes (automated cleaning devices and domestic entertainment robots), infrastructure (pipe and electrical conduit video inspections), surveillance (cameras and other detectors), land (unmanned ground vehicles), sea (autonomous water and underwater vehicles), and aerospace (unmanned aerial and space vehicles).  Mobile robotics is a major focus of current research in university, military and security, and medical environments.   Nanorobotic technology, which is largely in the research and development stage, will revolutionize medicine, with nanomachines and nanobots one billionth the size of a meter.  These devices could be used to attack cancer, dislodge clots and blockages, and perform surgery at the cellular level.   Mobile robotics is poised to make a major leap forward with the advent of atomic global positioning that replaces GPS satellites with highly accurate miniature devices that use atomic physics for positioning relative to the earth’s magnetic field.   This technology could equip systems with geo-location capability networked with the semantic web and the Internet of Things.

Ubiquitous Computing is also referred to as everywhere computing, pervasive computing and ambient intelligence.  Ubiquitous computing is an advanced computing concept that integrates computation into an environment via a myriad of embedded microprocessors in everyday objects (from clothes to animals to inanimate objects) that would be able to communicate information without requiring human interaction.  Ubiquitous computing represents the third wave of computing that evolved from the first generation mainframes (each shared by many people), to second generation personal computers (one computer, one person) and third generation ubiquitous computing (many devices communicating to one person).  The ultimate goal of ubiquitous computing is to make thinking things to interact with humans anywhere and everywhere.

Machine Learning involves a field of study that gives computers the ability to learn without constant human interaction.  Machine learning is a powerful artificial intelligence tool that can make sense of zettabytes of information.  For example, machine learning algorithms help email-providers identify spam, and cloud computing-providers eliminate malware.   Other applications include automating employee access control, reducing consumer wait times, predicting medical emergencies, self-driving cars and biometric recognition applications.  Machine learning and data mining have much in common, where the former is more predictive and the latter more discovery.  Data mining finds patterns for humans to understand and machine learning uses those patterns to improve its own program and understanding.

National Broadband.  Like electricity was to mankind in the 20th century, broadband will be in the  21st century.  National broadband systems will bring high-speed Internet connections to every home and business as part of a national digital infrastructure, which will make individuals and communities more competitive globally.  The next generation national digital infrastructure will likely feature a combination of fixed line and wireless broadband connections that will offer affordable, open-access data networks.  Currently, only 2/3 of all Americans have access to broadband.   The US National Broadband Plan envisions the fastest and most extensive wireless networks of any nation with affordable access for every American.  The plan will promote robust competition, reform antiquated standards, policies and laws and reallocate spectrum use, which is vitally important to mobile computing traffic (smart phones, pads and tablets) that is growing at a rate of 300% per year.

The Internet of Things/Everything will make many of the familiar devices and objects in our lives readily Internet-connected, smart phone-accessible and responsive in a world where more things are connected to the Internet than people.  The number of devices in the Internet of Things is projected to reach 50 billion by 2020, which equates to more than six devices for every person on earth.  To help access big data stored in clouds with billions of personal digital assistants, service providers are developing a myriad of NTR technologies, processes and systems.  Closely associated with the Internet of Things is The Internet of Everything.  Cisco defines the Internet of Everything as bringing together people, process, data, and things to make networked connections more relevant and valuable than ever before—turning information into actions that create new capabilities, richer experiences, and unprecedented economic opportunity for businesses, individuals and countries.

The Disruption

The NTR Will Be Both Brilliantly Innovative and Creatively Disruptive.  Brilliant innovation and creative disruption go hand-in-hand.  Brilliant innovation disrupts the status quo by producing something new, more efficient or more worthwhile. The technological combination of big data, cloud computing, semantic webs, mobile robotics, ubiquitous computing, machine learning, national broadband and the Internet of Things will disrupt, displace, or even destroy, existing markets, occupations and the labor force.  America is likely to be the first country to deal with NTR disruption since it has the dominant players and the largest free-market economy.

Disruptive Effects of Computerization to the Labor Force.  From an employment perspective, the NTR is likely to significantly disrupt the US labor force.   According to a recent Oxford University study on computerization[3] “about 47% of total US employment is at risk” over the next two decades.  Total US employment is 145 million.  If true, up to 69 million jobs could be at risk.

The Oxford University study on the effects of computerization on the American labor force is the first major effort to quantify what recent technological advances may mean for future US employment.  Their analysis was mainly from a technological point-of-view to determine what problems engineers need to solve for specific occupations to be automated.

US Occupations Subject to Computerization

702 occupations from the US Department of Labor were analyzed.  The above chart was created by Jobenomics from the Oxford University data to show the probability of computerization of approximately 100 occupations arranged from 0% (not computerizable) to 100% fully computerizable.   The study acknowledges that sociological forces will likely restrict many of these jobs from actually being computerized.

Over the last hundred years, technological innovation initially had a destructive effect as technology substituted for labor but, eventually, as new industries and processes became more established, employment expanded along with wages.  Many believe that the NRT will be much different in a world of fierce international competition and America’s growing unskilled workforce.

Job Openings By Industry

According to the most recent US Bureau of Labor Statistics (BLS) Job Openings and Labor Survey[4], there were approximately 5 million unfilled job openings. This survey includes estimates of the number and rate of job openings, hires, and separations for the nonfarm sector by industry and by geographic region.   As shown above, every major industry and government had job openings.  The primary reason for the large number of job openings is lack of job skills.   The lack of qualified workers will encourage increased emphasis on computerization of the workforce, elimination of jobs, and lower employment.

As John Maynard Keynes predicted in 1933, technological innovations pose the threat of economizing the labor force to the degree that it will outrun new uses for dislocated and unemployed laborers.   Jobenomics believes that the threat of technological innovation is now accelerating at a higher rate than ever before in US history.  Since year 2000, almost 3 times as many Americans departed the US labor force as entered it, with 8,657,000 people entering the US labor force as opposed to 23,929,000 who departed[5].  This is happening on both sides of the U-shaped skills level.  Greater and greater numbers of the under-educated and long-term unemployed are losing skills necessary to compete in the new labor force.  On the other side of the U-shape, college-educated graduates are finding that their degrees do not meet the needs of the labor market.  Unfortunately, American sociological and political forces are not helping.  Educational initiatives are not specific enough to adequately qualify new workers for the NTR marketplace.  The credo that education is the great equalizer may no longer be true if not focused.

The bottom line is that the NTR will be both brilliantly innovative and creatively destructive.  It would be tragic if the US-lead NTR produced millions of new jobs that are fulfilled overseas, thereby forcing many more Americans into unemployment or as wards of the state.  American decision-makers and opinion-leaders need to strategically plan to optimize the business and jobs creation capacity of the NTR and the important role that the NTR-providers have to play.   As discussed later, Jobenomics believes that this is very doable if the US implements a plan to mitigate losses incurred by NTR disruption by mass-producing small and self-employed businesses that are enabled by NTR technology, processes and systems.

Disruption of the Existing Marketplace Providers.   Handheld NTR devices (smart phones/pads/tablets connected to cloud-based data centers) are rapidly replacing personal computers and their related peripherals.  According to CISCO[6], in 2013, only 33% of total IP traffic originated with non-PC devices, but by 2018 the non-PC share of total IP traffic will grow to 57%.  PC-originated traffic will grow at a combined average growth rate of 10%, while TVs, tablets, smartphones, and machine-to-machine modules will have traffic growth rates of 35%, 74%, 64%, and 84%, respectively.  In addition, in 2013, wired devices (mostly PCs) accounted for 56% of IP traffic, but are forecast to decrease to 39% by 2018 as mobile computing devices become prevalent.

The ITR was dominated by goods-producing industries that sold hardware and software to consumers.   The NTR will be dominated by service-providing industries that will own and operate the hardware/software and will provide tailored services to consumers via subscriptions.  Personal digital devices cost hundreds of dollars versus thousands of dollars for personal computers and related peripherals.  The billions of dollars that are lost in personal computer sales should be offset by billions of dollars made in subscription services by cloud and content providers.  It is not inconceivable that competition will drive the cost of handheld devices to near zero as an incentive for long-term contracts for services, much in the same way telephone companies do today with cell phone services.

Worldwide IT Spending

Gartner (a leading IT research and advisory company) forecasts that worldwide IT spending (telecom and IT services, devices, data center systems, software) will grow from $3.7 trillion today to $4.3 trillion in 2017[7].  Gartner breaks down the worldwide market into three segments: emerging (e.g., China), emerged (e.g., New Zealand) and mature (e.g., the US).  Emerging and emerged markets spend heavily on devices (mainly mobile phones) and telecom services (mainly mobile voice and data services).  Mature markets also spend heavily on devices and telecom services, but, compared to the emerging and emerged markets, are overwhelmingly investing on data center systems (servers, storage, and network equipment), software (enterprise and infrastructure), and IT services (business and IT product support).  Consequently, the US is likely to dominate the NTR in the near-future vis-à-vis their investment in core technology and systems (networks, data centers, cloud computing, machine learning, software, services, etc.) whereas most of the rest of the world is spending on NTR devices and subscription services.

In 2013, information technology market spending was 70% services-related and 30% goods-related (devices, data centers and software).   Jobenomics believes that services-providing industries will become even more dominant as the NTR matures.  Jobenomics also forecasts that subscription-based revenues will be preferable to consumers than sales of individual products and traditional service fees because the transition from the ITR to the NTR will be dynamic and complicated.  Consumers will likely be attracted to the NTR provider with the best brand who will manage the consumer’s network-centric architecture at the lowest cost.   For individual consumers, their network will largely consist of integrated personal devices (from smart phones, to PDAs, to entertainment devices) and their connectivity to highly reliable networks and content providers.   For government and corporate consumers, their net architecture will likely consist of a complex combination of public, private and hybrid enterprise-wide networks.  Today’s service providers are categorized as software, platform or infrastructure as a service (SaaS, PaaS, IaaS, respectively) providers.  The future NTR-service provider of choice will be the one that unifies all three categories, is able to strategically position and rapidly reposition their clients in a dynamic digital ecosystem, and offers the most integrated, secure, low-cost, and digitally portable subscription service.

The NTR will present huge revenue opportunities for collaborating NTR institutions.  Joint ventures, mergers and acquisition will be the norm as the NTR marketplace rationalizes itself into winners and losers.  Dominant NTR companies will have an initial advantage, but the field of exciting new NTR providers and vendors is growing exponentially.  NTR competition will be fierce between content providers, equipment manufacturers, software providers, social-networking giants, service providers, niche and emerging players.

Competition for new markets has just begun.  Relatively unknown new network-centric companies  are likely to displace today’s information service providers in the same way the information service providers replaced telecommunications companies that dominated the information marketplace twenty years ago.  In the last 18 months, over a dozen niche players have gone public, fetching tens of billions of dollars’ worth of investment capital.  If subscription services become the norm as forecast, content providers may emerge as dominant players in the NTR, especially considering the fact that video traffic (TV, video on demand, etc.) constitutes the majority of all consumer Internet traffic.   International competition cannot be understated.  US hegemony in the NTR marketplace could be upended as well-financed, foreign innovative solutions enter the competition for IP traffic (Internet Protocol where data is sent from one IP address to another).

Network Traffic by Region

In terms of network IP traffic, North America will only consume 31% of the total traffic in 2018[8].  Asia Pacific will be the largest consumer and MidEast/Africa will be the fastest growing.   In Asia, China is the dominant player.   China is currently dominated by Alibaba that controls 90% of the consumer-to-consumer and 51% of the business-to-consumer e-commerce.  More importantly to international e-commerce, with the Chinese government’s permission, Alibaba locks out competitors (like Amazon) by allowing global consumers to only search Alibaba’s content from within Alibaba’s websites.  As Jack Ma says, “Today is cruel.  Tomorrow is crueler.  And the day after tomorrow is beautiful.”  International competition is likely to be as cruel as it is innovative.

Disruptiveness of Connectivity.   The NTR will be significantly more disruptive—technologically, economically and sociologically—than its ITR predecessor.  The ITR started in the 1960s with the first commercial uses of mainframe computers, followed by the Internet, personal computers, word processing, e-commerce, industrial robots, self-service technology, bar-code scanners, RFID sensors, personal digital assistants, and the like.   The 20th century ITR was more oriented to “sustaining innovation” that created tens of millions of net new jobs by evolving existing industries and introducing new industries with products that consumers wanted.  In contrast, the NTR is likely to be more oriented to “creative destruction” that will upend existing markets and value networks.

Soon everyone will be connected to every significant thing and person anywhere.  In contrast to the physical world, the virtual world frees us from physical limitations of birth, class and geography.  This sense of freedom empowers the individual over the organization, which makes state and institutional governance more problematic.   Consumers, activists and entrepreneurs will be able to create products and ideas that could challenge the status quo and usher in a new era of globalization based on new communities-of-interest and non-traditional ideas.

It is unclear if the freedom of movement through the virtual world and freedom of information in a relatively unstructured, unbounded ecosystem will be ordered or chaotic.  Innovation and new ideas generally originate from outside traditional institutional bulwarks.  Within a matter of a decade, five billion new minds, mostly from the developing world, will join the NTR.  Without doubt, their notion of fairness and equity will be far different from that of the developed world.  Depending on the scalability of new global initiatives or experiments, the consequences could be revolutionary as tens of millions join cause célèbres that challenge tradition.  Consequently, the NTR is likely to be more chaotic than ordered, and driven more by international rather than domestic consumers.

Disruptive Effects of Cybercrime & Cyberterrorism.  The NTR will usher in an era of cybercrime that could literally facilitate the largest negative transfer of wealth in history.  A landmark study conducted by CSIS and McAfee[9] estimates that the annual cost of global cybercrime is between $300 billion and $1 trillion with more than half this amount focused on four major countries: United States, China, Japan and Germany.  The study also calculates that cybercrime cost the USA over 200,000 jobs last year and predicts that the number of job losses will grow steadily as more businesses and individuals move online globally.  The most important cost of cybercrime is the damage it does to national economies due to the theft of intellectual property, the negative effect it has on innovators and investors, and the additional costs of securing networks, recovering from cyber-attacks and fixing damaged reputations.

The difference between cyberterrorism and cybercrime is subtle, but powerful.  The former is largely motivated by ideology and the latter by greed.    As bad as cybercrime may be, cyberterrorism could be much worse, especially if conducted by well-financed state-sponsored organizations with the intent to disrupt the stability of countries or destabilize the global balance of power.   In a world defined by different ideologies, cyberterrorism could become the weapon of choice that can be deployed directly or as a clandestine element of indirect warfare via surrogates who can provide plausible deniability for the originator.   As a superpower, the US tends to prefer direct warfare.  America’s less-resourced enemies tend to prefer the asymmetric advantages of indirect warfare to exploit America’s largest vulnerability—its openness.   Since the NTR is a global revolution, NTR technology, processes and systems will be available to a wide array of American adversaries.  Properly orchestrated, NTR could be used as a weapon of mass disruption by cyberterrorists.

Cybercrime and cyberterrorism will be growth industries for the foreseeable future.  Consequently, it is imperative that government and major civilian institutions collect and publish data on adversaries and establish policies that will mitigate risk to the constituents they serve.  Today, the advantage is on the side of hackers and attackers as opposed to defenders.  Consequently, the US will need much more than an effective cyber-defense.  State-of-the-art cyber-offence weapons and cyber-ISR (intelligence, surveillance and reconnaissance) assets will be needed as well.   Without cyber-offence and cyber-ISR, major state-sponsored cyber-terror organizations cannot be held at bay.   For countries like Iran, Russia and China, a form of cyber-MAD (mutually assured destruction) could hold enemies at bay as was done during the Cold War.  For non-state actors like ISIS and Al Qaeda, MAD probably will not be effective.  However, cyber-ISR would be effective in identifying terrorists and their supporters, and the cyber-offense could take down their web-based command, control, recruiting and financial systems.

Until major policy changes are made and actions implemented, cybercrime and cyberterrorism are likely to be deleterious to the US economy and employment to the tune of hundreds of billions of dollars and millions of jobs.  NTR corporations should play a major role in counter-cybercrime and counter-cyberterrorism, since they are the ones who are building the very systems that could lead to their demise.

Disruption to Privacy.  Not all disruptions to privacy are unwanted.  Many have practical uses.   Geofencing is one such example.  Geofencing is a location-based application that lets administrators send messages to recipients entering a defined geographic area.  Ankle bracelets use geofencing.  Fleet managers use geofencing to keep drivers on route and on schedule.  Via geofencing, security managers are alerted if employees enter unauthorized areas or if RFID-tagged equipment is not where it should be.  Shopping malls use geofencing to send coupons to customer cellphones when near a participating store.

On the other hand, many disruptions to privacy are unwanted.  Resolving right-to-privacy against the right-of-the-public to obtain relevant information will prove to be a difficult and complex process.   In the physical world, the right-to-privacy is part of most legal traditions that restrains government and institutional actions that threaten a person’s right to seclusion, confidentiality and personal autonomy.  The virtual world is not yet limited to such traditions and may be largely immune to such limitations.

The Internet is the world’s largest ungoverned space not bound by territory and largely immune to political, legal and institutional forces.  The era of the cyber-paparazzi is just beginning.   Damaging information will be very hard to delete once it goes viral.  The “Celebgate” scandal—the hacking of approximately 200 nude celebrity photos in August 2014—shows that even stored cloud data may not be secure from invasions of privacy.  As evidenced by the hacker attacks to millions of big-box store customer accounts and the Assange/Snowden leaks of classified government data, intrusion of highly secured data is, and will continue, to be an issue.   Consequently, traditional privacy rights will be extremely difficult to preserve in tomorrow’s ultra-networked Internet-of-Everything world where everything of significance is recorded, cataloged and stored.  The NTR will make the delete button largely obsolete, especially for those with the intent and resources to retrieve even the most secure or supposedly destroyed digital data.

Big Data has already spawned a billion dollar a year data-brokering industry that lacks transparency and accountability.  Data-brokering involves the collection of information from the zettabytes of data within the realm of Big Data to produce detailed portraits of individual Americans and their buying habits.  According to a Federal Trade Commission report[10], data brokers collect personal information about consumers from a wide range of legal sources (public and private records, online activities, social media, credit card purchases, loyalty programs, magazine subscriptions, etc.) and provide it for a variety of purposes, including consumer profiling, identity management, marketing, political campaigns and fraud detection.   Profiles are often used to measure creditworthiness, insurance, employability, as well as inclusion or exclusion from social groups.   Profiles are often sold without the individual’s knowledge or ability to correct false or misleading information.   It is a sad aspect of today’s society that data brokers often know more about individuals than do their family and friends.

With the exception of politicians and celebrities, most people’s personal identity outweighs their online identity.  With the advent of the NTR, this is likely to change, especially for the millennial generation that was born into the digital age and have invested significant time and energy posting intimate details of their lives in social media.  Most of this online information is captured in some data center and ripe for harvesting.  A person’s online identity is becoming more and more important as people’s lives are correlated, cataloged and assigned to various economic, social, demographic, religious, political, cultural, geographic, educational and splinter groups.   It is conceivable that an online identity rating could be as important as today’s credit rating.  Identity managers will be needed to help individuals manage their online identity as well as correct or redact incorrect, misleading or malevolent content.

The European Court of Justice’s decision to introduce a mechanism for individuals to delete private information from Google will be a bellwether case that will be closely watched.  Even if the European Court is successful, it only addresses the tip of a very big data-storage iceberg.   Redaction of data that may reside in multiple locations with zettabytes of other data will be challenging to entirely identify, retrieve, redact and verify.

The Solution

Network Technology Revolution and Micro-Business Creation.   Jobenomics defines micro-businesses as very small (1-19 employees) and self-employed (0 employees other than the owner) businesses.   While the vast majority of micro-businesses stay small, some do not.  Bill Gates and Steve Jobs started a micro-business in 1975/76 and became the pioneers of the Internet Technology Revolution.  Today, Gates’ Microsoft and Jobs’ Apple are worth over $1 trillion, employ 225,000 people, and have facilitated the creation of millions of micro-businesses and tens of millions of other jobs.  The NTR has the same potential as its ITR predecessor if today’s pioneers enable the creation of millions of micro-businesses.

In the same way that the industrial age upended the agricultural age, the NTR will enable the information age to upend the industrial age and transform the American labor force as well as the very nature of work.  Micro-business will likely play a much larger role than ever before.   Jobs will increasingly be dissected into discrete tasks, which, in turn, will be addressed by temporary collectives and virtual organizations.  Team collaborative and management tools (such as SharePoint) will further create “contextual” work environments that rapidly form, perform, and then reform to address subsequent tasks.  More and more brick and mortar edifices will give way to hoteling and mobile computing.   Contingency workers (consultants, independent contractors, independent professionals, temporary contract workers, part-time workers, seasonal workers, freelancers, etc.) will continue to replace full-time employees.   Contingent work will significantly boost micro-business growth as contingency workers become the norm, up from 31% of the US labor force in 2008 to an estimated 40% in 2020[11].

NTR-enabled temporary alliances that can rapidly respond to short-term tasks are ideally suited for micro-businesses that tend to be more eager and entrepreneurial than big business.   Either by nature or by necessity, contingency workers are entrepreneurial, are a reasonable response to today’s changing marketplace, and offer firms workforce flexibility during seasonal or uncertain times.  On the negative side, firms can take advantage of contingency workers who often receive lower wages than permanent workers.   Since many contingency workers are not employees, they are not subject to labor and employment laws, nor does the firm has to pay employee-related benefits and taxes.  The way to mitigate many of these negatives is to encourage contingency workers to incorporate their own micro-businesses that will provide tax revenues, labor and employment.

Jobenomics believes that an American NTR Micro-Business Initiative could boost American employment by over 20 million people within a decade.  Most government and big business pundits consider this wishful thinking.  But ask any small business owner or serial entrepreneur if this is doable and they would say “Absolutely!”   If the CEOs of America’s leading NTR corporations collaborated to monetize the social networks that they control, millions of new US micro-businesses could emerge.  Jobenomics invites CEO participation to build local business generators that mass-produce micro-businesses at the base of America’s economic pyramid.  The objective of the Jobenomics Community-Based Business Generator initiative is to increase birth rates of startup businesses, extend the life span of existing businesses, and increase the number of employees per business.

Jobenomics predicts that the NTR could enable the mass production of millions of micro-businesses.   The NTR could be the great business equalizer that allows home-based, self-employed businesses to compete globally with much larger firms.  Today, WWW 2.0 social networks focus mainly on media, entertainment and shopping.  Tomorrow’s WWW 3.0 social networks may be able to monetize the World Wide Web, creating tens of millions of new jobs.   eBay, a WWW 2.0 startup in 1995, is now a multi-billion dollar enterprise located in over 30 countries, with 31,500 employees that enable millions of global micro-businesses.   If properly supported, WWW 3.0 could create dozens of eBay 3.0-like enterprises.

As mentioned earlier, Alibaba defines its role as a small business champion and is aggressively supporting millions of business startups and existing business expansion in China.  In 2013, two of Alibaba’s web stores (Taobao’s consumer-to-consumer store and Tmall’s business-to-consumer store) handled $240 billion in sales, more than eBay and Amazon combined, and are on track to handle $1 trillion per year[12] in transactions with emphasis on small business.  Alibaba provides free startup services and micro-business loans as part of their network services.  According to Alibaba, their micro-business loan book is over $2 billion/year with a non-performing-loan ratio below 2%.  With an average loan of $8,000, Alibaba underwrites approximately 250,000 micro-businesses per year.

If Mark Zuckerberg used Facebook to monetize social networks, millions of new jobs could be created.  If John Chambers spent as much time developing the Internet of Business as opposed to CISCO’s Internet of Things, millions of new businesses could be created.  If Tim Cook turned Apple’s creative energy to creating NTR-optimized iBusiness devices, billions of people around the world could be given the opportunity to conduct or build a business.   The same is true of Jeff Bezos and Amazon, Satya Nadella and Microsoft, Larry Page and Google, Ginni Rometty and IBM, as well as the rest of the American CEOs involved in the NTR.

Small business is the engine of the US economy.  According to the US Small Business Administration[13]  there are 17,700 big businesses and 28.2 million small businesses with fewer than 500 employees.  Of the 28.2 million small businesses, approximately 5 million are employers and 23 million are self-employed.   As reported by the ADP National Employment Report[14], small businesses employ 77% of all private sector Americans with a total of 88.7 million employees—5 times the amount of large corporations (1000+ employees).  Very small businesses with fewer than 19 employees employ 65% more than all large corporations combined (29.7M versus 18.0M).  Since the beginning of this decade, small business has produced 73% of all new American jobs.  This is an amazing statistic, considering the adverse lending environment, mounting regulation, and the pittance of government funds allocated to small businesses.

Jobenomics believes the four US micro-business sectors with the highest growth potential are Generation Y-owned, Women-owned, Minority-owned, and Veteran-owned businesses.  In this regard, Jobenomics has been collaborating with experts on how to enable micro-business creation in these four sectors.  Their recommendation was to create a holistic web-based platform with back office and subscription services for startups.  This platform would provide a turnkey solution including e-commerce, secure cloud computing, semantic webs, financing, loans and mentoring.  These services would initially be free to encourage the participation of aspiring entrepreneurs and contingency workers who would like to be business owners.

If Jobenomics can help create thousands of highly-scalable micro-businesses, via the Network Technology Revolution, America writ-large can facilitate creation of millions of micro-businesses that would transform the US economy.  With the leadership and commitment of the leading NTR corporations, 2015 could be a break-out year for small businesses that traditionally have been the primary source of employment for entry-level workers and the long-term unemployed.

Conclusion

In conclusion, the Network Technology Revolution can be either a blessing or a curse depending on how it is managed.  If managed properly, it can generate millions of new businesses and tens of millions of new jobs.  If poorly managed, the effects of computerization could potentially eliminate tens of millions of current US jobs, as well as disrupt the US economy.  From a Jobenomics perspective, the onus is on the leading NTR corporations—the pioneers of the 21st century digital age.  It is within their capability, and self-interest, to maximize the benefit of the emerging NTR technologies, processes and systems that they are developing.  If they don’t, others around the world will, as history attests.

The phrase “Nation of Shopkeepers” first appeared in The Wealth of Nations by Adam Smith in 1776. Smith believed that when individuals pursue their self-interest, they indirectly promote the greater good of society. Smith argued that merchants, seeking their own self-interests, contribute significantly to the commonwealth by producing vital goods, services and tax revenues. Without this “invisible hand,” societies would be incapable of effectively pursuing self-sufficiency, prosperity and wealth creation.  Jobenomics agrees and believes that the United States is likely to further evolve into a “Nation of Small Businesses” as we exploit economic opportunities enabled by the Network Technology Revolution.


[1] Kauffman Foundation, The Importance of Startups in Job Creation and Job Destruction, 9 Sep 2010, http://www.kauffman.org/what-we-do/research/firm-formation-and-growth-series/the-importance-of-startups-in-job-creation-and-job-destruction

[2] Ibid 1, last paragraph

3 Oxford University, The Future of Employment: How Susceptible Are Jobs To Computerization?, 17 Sep 2013, http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdfhttp://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf

[4] S Bureau of Labor Statistics, Job Openings and Labor Survey, http://www.bls.gov/news.release/jolts.htm

[5] US Bureau of Labor Statistics, Employment Situation Summary, http://www.bls.gov/news.release/empsit.nr0.htm

[6] CISCO, Cisco Visual Networking Index: Forecast and Methodology, 2013–2018 by Device Type, http://www.cisco.com/c/en/us/solutions/collateral/service-provider/ip-ngn-ip-next-generation-network/white_paper_c11-481360.pdf

[7] Gartner Worldwide IT Spending Forecast, http://www.gartner.com/technology/research/it-spending-forecast/

[8] Ibid 12

[9] Center for Strategic and International Studies and McAfee study: Net Losses: Estimating the Global Cost of Cybercrime, June 2014, http://csis.org/files/attachments/140609_rp_economic_impact_cybercrime_report.pdf

[10] Federal Trade Commission, Data Brokers, May 2014,  http://www.ftc.gov/system/files/documents/reports/data-brokers-call-transparency-accountability-report-federal-trade-commission-may-2014/140527databrokerreport.pdf

[11] Bloomberg Business Week, 20-25 October 2014 Edition, Companies/Industries, Page20

[12] International Business Times, Alibaba IPO: 5 Reasons Why The Stock Is Not Overvalued, 19 Sep 2014, Gordon Orr, Chairman of McKinsey Asia, http://www.ibtimes.com/alibaba-ipo-5-reasons-why-stock-not-overvalued-1692191

[13] US Small Business Administration, Office of Advocacy, http://www.sba.gov/sites/default/files/advocacy/FAQ_March_2014_0.pdf

[14] ADP National Employment Report, http://www.adpemploymentreport.com/

Fastest Growing Occupations

Download PDF Version: Fastest Growing Occupations – 22 Oct 2013

22 October 2013

As discussed in the latest monthly Jobenomics Employment Report, 84.3% of all new jobs this decade have been created in four of the thirteen US industry groups.  The fastest growing industry is Professional and Business Services with 2.131 million new jobs followed by Trade, Transportation and Utilities with 1.498 million; Education and Health Services with 1.385 million; and Leisure and Hospitality with 1.278 million for a grand total of 6.292 million new jobs.  This report examines these four industry groups for the fastest growing occupations in terms of jobs added and growth rate this decade.  This data is offered as a guide for those entering the labor force or planning a career.

Industry Employment Growth This Decade (10s)

Professional and Business Services.  According to the BLS, Professional and Business Services supersector is part of the service-providing industries group and consists of these sectors: Professional, Scientific, and Technical Services (NAICS 54), Management of Companies and Enterprises (NAICS 55), and Administrative and Support and Waste Management and Remediation Services (NAICS 56).  NAICS (pronounced “nakes”) is the North American Industry Classification System that is used by business and government to classify business establishments according to type of economic activity in the United States, Canada and Mexico.  The following two charts show the number of jobs added and growth rate this decade for major occupations within the Professional and Business Services.

Professional and Business Services Jobs

Professional and Business Services Growth

 

Trade, Transportation, and Utilities.  According to the BLS, the Trade, Transportation, and Utilities  supersector is part of the service-providing industries group and consists of these sectors: Wholesale Trade (NAICS 42), Retail Trade (NAICS 44-45), Transportation and Warehousing (NAICS 48-49), and Utilities (NAICS 22).  The following four charts show the number of jobs added and growth rate this decade for major occupations within Trade, Transportation, and Utilities.

Wholesale and Retail Trade Jobs

Wholesale and Retail Trade Growth

Transportation and Utilities Jobs

Transportation and Utilities Growth

Leisure and Hospitality.  According to the BLS, the Leisure and Hospitality supersector is part of the service-providing industries group and consists of these sectors: Arts, Entertainment, and Recreation (NAICS 71) and Accommodation and Food Services (NAICS 72).  The following two charts show the number of jobs added and growth rate this decade for major occupations within Leisure and Hospitality.

Leisure and Hospitality Jobs

 Leisure and Hospitality Growth

Education and Health Services.  According to the BLS, the Education and Health Services supersector is part of the service-providing industries group and consists of these sectors: Educational Services (NAICS 61) and Health Care and Social Assistance (NAICS 62).  The following two charts show the number of jobs added and growth rate this decade for major occupations within the Education and Health Services.

Education and Health Services Jobs

Education and Health Services Growth

Consumption-Based Economy

Download PDF Version: Consumption-Based Economy 2 Sep 2013

2 September 2013

The USA is a consumption-based economy and America is a consumption-driven society.  Neither fact is necessarily good or bad.  It is the way America has operated for a century.  The issues at hand are (1) whether America can sustain high rates of consumption in an ever changing geo-political/economic environment, and (2) what are the consequences of a reduced consumption-based economy?

Consumption is an economic function that is defined as the value of all goods and services bought by people.   Leading economists determine the performance of a country in terms of consumption level and consumer dynamics.  The underlying theory of a consumption-based economy is that progressively greater consumption of goods is economically beneficial.   Jobenomics believes that this theory is only partly true.  Production, not consumption, is the true source of wealth.  Production uses resources to create goods and services that are suitable for use or exchange in a market economy.   If America wants a healthy economy, we need to create the conditions under which producers (businesses as opposed to governments) can accelerate the process of creating wealth for others to consume and finance future production.

To better understand the dynamics of our consumption-based economy, let’s first examine US consumption statistics, and then address consumption-based economy sustainability, potential consequences of reduced consumption, and Jobenomics recommendations.

 

US Consumption Statistics.   The US is consumption-based society where spending and consumption of goods and services are essential to economic health.   In America’s pre-consumer era, the US economy was based on agriculture and cottage industries where citizens produced what they needed and traded the rest.  Non essential consumption was largely the privilege of an elite few.  Over the last century, consumerism was introduced to the masses as part of the American economic equation.  Today, consumption is no longer a privilege but a necessity.  Increased consumption is necessary to keep the economy growing.  Without increased consumption, the economy would falter.

To sustain a growing economy, government, financial institutions and corporations must motivate citizens to keep consuming to preserve our way of life.  Modern-day Americans are programmed to be good consumers.    It is estimated[1] that an average American child watches 20,000 TV commercials per year.  By age 65, the average American watches 2 million commercials.  We are programmed for mega-consumption for special occasions, like Christmas that evokes $80 billion worth of gift-giving.  When an event, like 9/11 or the Great Recession of 2008-09, happens the federal government steps in to encourage consumption.  The Monday following the 9/11 Trade Tower attacks, the White House encouraged American’s to continue shopping due to fears that Wall Street would falter if consumer confidence plummeted.  At the advent of the Great Recession, the federal government implemented a series of bailouts, buyouts and stimuli to keep financial institutions and corporations afloat in order to stimulate our consumption-based economy.  These federal stimuli continue today to the tune of $16.6 trillion (see http://jobenomicsblog.com/stock-markets-and-the-fed), which is in addition to the $3.5 trillion spent annually for federal goods and services.

 International Comparison of Consumption as a Percent of GDP

According to The World Bank[2], the United States is the largest and most conspicuous consumption-based economy in the world.   As shown, the US leads the world with 71% consumption as a percent of US gross domestic product (GDP, the sum of all goods and services produced in the US by Americans).  Other Western economies average about 60%.  Emerging economies average around 35%.

China, as true with many developing countries, depends on government-funded investment to encourage economic expansion.    Chinese household consumption expenditure is 34% where government investment is approximately 54%.  Most of this government investment comes from the Chinese government to large state-owned corporations that are granted easy access to capital for development of factories, real estate and infrastructure.

 Personal Consumption Expenditures as a Percent of US GDP-3

The overwhelming percentage of GDP is generated by personal consumption and expenditures as shown above.  The US Federal Reserve System (the central bank of the United States) reports monthly[3] on the various components US GDP.  For 2013, personal consumption and expenditures amounts to $11.4 trillion out of a total GDP of $16.0 trillion, or 71% of the total.  Government consumption, expenditures and investments amount to $3.0 trillion, or 20% of the total.  Private domestic investment (mainly businesses and real estate investments) accounts for $2.2 trillion, or 13%.  The final component is net US imports/exports, which is a negative $500 billion (-4%) since foreign imports exceed US overseas exports in our consumption-based economy.

 Personal Consumption Expenditures as a Percent of US GDP by Decade

US personal consumption rose over the last seven decades as a percentage of US GDP—ranging from a low of 62% to a high of 71% today.   It is interesting to note that the two recessions in the decade of the 2000s did not decrease the ever growing amount of consumer spending.

 Personal Consumption Expenditures by Major Product Type

As estimated by the US Bureau of Economic Analysis[4], personal consumer spending has reached an all time high of $11.4 trillion in year 2013.  From 1959 (earliest BEA records) to 1970, consumption of goods exceeded services.   After 1970, services rapidly exceeded goods.  Today, the US consumes $7.5 trillion worth of services and $3.9 trillion worth of goods.   In other words, the US is a services-oriented, consumption-based society by a factor of almost 2 to 1.

 What Americans Buy and Consume

Americans consume a vast variety of goods and services[5] with healthcare (21.0%), housing (18.8%) and recreation/entertainment (10.2%) topping the list.   Surprisingly, Americans spend more on entertaining themselves (recreation and entertainment, 8.9%) than they do on groceries (food and beverages, 8%)—a sign of “conspicuous consumption”.

Conspicuous consumption is generally defined as spending on goods and services mainly for the purpose of displaying income, wealth or social status.  Consumers naturally want the latest gizmos and to keep up with the “Jones”.  However, advertising, easy money (credit) and federal stimuli encourage consumption practices that far outstrip our ability to pay.  It is this inability to pay—both in government and the private sectors—that puts the American economy at risk.

America has a consumption conundrum.   On one hand, the US economy is dominated by consumption (71%) that must be maintained in order for the economy to prosper.  On the other hand, conspicuous, unneeded or unessential consumption without the ability to repay spiraling indebtedness risks defaults, ever higher interest rates, and bankruptcy.  Approximately 50,000 businesses and 1 million individuals file for bankruptcy each year[6].  Bankruptcies in major cities, like Stockton, Harrisburg and Detroit, indicate that something is amiss.

 

Consumption-Based Economy Sustainability.  Is our consumption-based economy sustainable?  Jobenomics assesses the short-term outlook as favorable and the long-term outlook as unfavorable.  However, the long-term outlook could be favorable if the American populace and their elected leaders exploit the advantages of the US labor force and solve a number of significant challenges facing US economic growth.

Americans have a number of advantages in regard to the global economy.  Primary advantages include inertia, innovation, adaptability, natural resources, and the dollar as the world’s currency—all of which will sustain the US economy in the short-term.

  • In physics, inertia is defined as a property of matter to retain its momentum in the absence of an external force.  The same is true of our consumption-based economy that has retained momentum over the last five decades as shown on the 1959 to 2012 Personal Consumption/Expenditures by Major Types of Product  chart .  Even the Great Recession of 2008-2009 caused only a temporary speed-bump in US personal consumption expenditures.  Even with all its challenges, the US economy is still the largest, most vibrant and the most stable in the world.
  • Innovation is part of the American fabric.  Historically, Americans have been the first to embrace disruptive technologies that transform life, business and the global economy.  US innovators and entrepreneurs have revolutionized our society many times in the last century from the military-technological revolution in the 1950s/60s, to the information-technology revolution in the 1980s/90s and todays energy-technology revolution.
  • Americans adapt to change.  Within the last 200 years, Americans transitioned from: pre-consumer to consumption-based, agriculturally-based to industrial-based, industrially-based to information technology-based, from dependence on goods to services, as well as rural to urban.   In 1810, only 6.1% of Americans lived in cities.  By 1910, 45.6% lived in cities.  Today, 80.7% of all Americans live are urbanites.
  • Unlike most countries, America has ample resources.  The most important resource is human.  When we run short of human resources, America has been able to attract and retain foreign talent.  The second most important resources is natural.  We have abundant supply of arable land, water and energy.  Our challenge is to husband these resources in an economically and environmentally balanced way.
  • The dollar is the world’s reserve currency. While there is a lot of talk about replacing the dollar with a new form of global currency based on a “basket” of currencies or commodities, the dollar should remain the world’s currency in near future.  Being the world’s reserve currency, allows the US federal government to print and borrow money to manage its cash flow needs.  This is not true of almost any other country on earth.

 

However, America has a number of significant challenges to include debt/deficits, fiscal/monetary policy, financial disruptions and demographics that could upend our consumption-based economy.

  • The US is now the greatest debtor nation in the world.  Over-consumption caused US private and public debt (the total of all US government, households, corporations and financial institutions) to surge upward to $45 trillion, or 300% of US GDP.  Eventually these debts will be reconciled via dollar devaluation, increased interest payments, defaults or high inflation.
  • The US Congress is responsible for fiscal policy (tax and spending) and the US Federal Reserve System is responsible for monetary policy (printing money and setting interest rates).  As long as the US Congress spends $1 trillion more each year than it takes in taxes and the Fed continues to stimulate the economy at an average of $1 trillion a year, consumption will continue unabated with copious amounts of “easy” money.   This rate of spending cannot last.  Hopefully, the US economy will strong enough to operate on its own when government stimuli end.
  • Domestic financial disruptions, like recessions and periods of inflation, and occur frequently.  Since WWII, the US averaged 1.7 recessions per decade.  So far in this decade (2010 to today), the US has been recession-free mainly due to infusion of trillions of dollars worth of government stimuli.   Inflation is also a major consideration.  So far in 2013, inflation has averaged 1.5%, which is in the normal range.  In 2008, prior to the Great Recession, it was 5.6%.  In 1980, it was 14.7%.  When government stimuli end, many fear that inflation will increase, perhaps significantly.  The next recession and/or an inflationary spiral could be very deleterious to consumption.
  • Global financial disruptions caused by political, economic, military or social malfeasance could trigger changes to US consumption.  Europe and Japan are in recession.  Conflicts in the Middle East continue.  Competition from China remains unabated.  It is unlikely that a single global disruption will have a significant impact on US consumption.  However, a global disruption may have a multiplying effect making a domestic financial disruption worse.  Multiple or cascading global disruptions, especially with our key trading partners, would certainly have an adverse affect on the US economy.
  • US demographic trends signal reduced consumption.   78 million baby-boomers just began to retire.  Retirees are generally fiscally conservative and less prone to large expenditures.  The other demographic group that is buying less is the middle class.  Since year 2000, the middle class has decreased by approximately 6%.  In the same period of time, the number of able-bodied Americans that can work but choose not to work has grown by 20 million people to a total of 90 million, not including 70 million people that cannot work, out of a total population of 316 million.

 

Potential Consequences of Reduced Consumption.    Depending how the US economy is managed or mismanaged, the consequences of reduced consumption can range from benign to malignant.  The longer we wait to implement meaningful reforms to our long-term challenges the more severe the consequences of reduced consumption.

Unemployment is directly tied to consumption.  One can roughly calculate the consequence a relatively minor drop of 5% in consumption and its impact on unemployment.  A 5% reduction in the US $16 trillion annual GDP would precipitate a loss of approximately 20 million jobs ($16 trillion GDP x 5% = $800 billion/$40,000 annual median personal income = 20,000,000 jobs).  Today, the US employs a total of 136 million citizens, so a reduction of 20 million jobs would equate to approximately 15% of the US work force.   If the layoffs were focused on the poor and the lower middle class making an average personal income of $20,000, the numbers could double.

As shown on the International Comparison chart at the beginning of this article, a 5% reduction in GDP would still make the US highest consuming society tied with the UK at 66%.  Given the volatility in today’s geo-political/economic environment, financial disruptions should be anticipated. Given the severity, duration and number of disruptions, a 5% (or greater) drop is certainly in the realm of the possible.

 

Jobenomics Recommendations.   Jobenomics believes that the best way to mitigate the effects of a potential consumption downturn is to promote small business growth as opposed to massive stimulus packages oriented to government jobs, big business and large financial institutions. Since the beginning of this decade (2010s), small business produced 71% of all new jobs.  Today small business employs 77% of the US labor force (see: Jobenomics Employment Report-August-2013).

Jobenomics also believes that a national initiative involving small, emerging and self-employed business creation would be an insurance policy against future economic downturns.  The creation of 20 million new jobs via small businesses—the engine of the US economy—would mitigate potential reduction of 20 million jobs as calculated above.

 Total New US Jobs By Decade

In the 1970s, 1980s and 1990s, the US created an average of 20 million new jobs each decade and can do so again. However, this amount of growth will not transpire using traditional methods.  Jobenomics believes that America needs to focus a model based on sustainability and self-sufficiency enabled by emerging information technologies and an improved national info-structure.  Jobenomics advocates a transition from dependency on large urban institutions to more independent small rural and virtual business networks.  This does mean that we abandon our current model but supplement it with alternatives that have the highest probability for scalability and growth.

Jobenomics is working on three highly-scalable, small business initiatives that could create millions of new jobs.  These initiatives include:  (1) a national effort for Generation Y to monetize social networks via a modernized info-structure, (2) a national direct-care effort to accommodate the aging and children via substantially increasing the number of women-owned businesses, and (3) a national effort to monetize waste streams via waste-to-energy and waste-to-raw materials that could rejuvenate depressed inner cities and the financially disadvantaged.

These three fledging initiatives are representative of the efforts of several hundred dedicated individuals—imagine what our nation could do writ-large.



[1] The Sourcebook for Teaching Science – Strategies, Activities, and Instructional Resources, Television Statistics, IV. Commercialism, http://www.csun.edu/science/health/docs/tv&health.html

[2] World Bank, Household final consumption expenditure, etc. (% of GDP), http://data.worldbank.org/indicator/NE.CON.PETC.ZS

[3] Federal Reserve, Flow of Funds Accounts of the United States, 2007-2013 Q1,  Table F.6 Distribution of Gross Domestic Product, Page 12, 6 Jun 2013, http://www.federalreserve.gov/releases/z1/Current/z1.pdf

[4] US Department of Commerce, Bureau of Economic Analysis, Table 2.3.5U Personal Consumption Expenditures by Major Type of Product and by Major Function, 7 August 2013, http://www.bea.gov/itable/iTable.cfm?ReqID=12&step=1#reqid=12&step=3&isuri=1&1203=14

[5] US Department of Commerce, Bureau of Economic Analysis, Table 2.5.5 Personal Consumption Expenditures by Function, 7 August 2013, http://www.bea.gov/iTable/iTable.cfm?reqid=9&step=3&isuri=1&903=69#reqid=9&step=3&isuri=1&910=X&911=0&903=74&904=2004&905=1000&906=Q

[6] American Bankruptcy Institute, Annual Business and Non-business Filings by Year (1980-2012), Year 2012, http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&CONTENTID=66471&TEMPLATE=/CM/ContentDisplay.cfm

Stock Markets and The Fed

Download PDF Version: Stock Market and The Fed 1 July 2013

1 July 2013

US stock market performance has been phenomenal since the depths of the Great Recession.  Since March 2009, all three major US indices (Dow Jones, S&P 500 and NASDAQ) have experienced a 4 ½ year bull market as shown below—up as high as 163%.

Stock Market Performance

The big questions facing economists, policy-makers, opinion-leaders and investors are whether (1) this bull market will continue, (2) can the stock markets operate under their own power, and (3) how chaotic will the markets become during tapering of US government subsidies to big business? To answer these questions, one must first consider the level of involvement of the US government, especially the actions of the US Federal Reserve Board—the single most important government agency in relation to stock markets.

The US Federal Reserve System’s, also known as the Federal Reserve or simply the Fed, engagement on monetary and credit policy has immediate consequences for financial institutions, investors and economic recovery.  After 4 ½ year’s of aggressive engagement via printing money, buying securities and manipulating interest rates, an increasing number of investors fear that disengagement by the Fed may have dire consequences regarding the attractiveness of stocks vis-à-vis other investment opportunities, such as commodities, bonds or even cash.  Moreover, many economists fear that stock market has been artificially inflated by government involvement and any tapering by the Fed likely to cause the stock market bubble to deflate, or burst, not only in the US but in fragile economies in Europe and Japan.  Finally, policy-makers and strategic planners are worried that adverse consequences created by Fed cutbacks will have a domino effect on the global geo-political/economic balance of power.

 USG Financial Bailouts to Private Sector

The US government has been stimulating publically-traded financial institutions and corporations to the tune of $16.6 trillion since 2008.  Federal Reserve programs totaled $10.9 trillion, mostly for banks, financial institutions, insurance companies and government sponsored enterprises (Fannie Mae and Freddie Mac—holders of 77% of all American mortgages).  US Treasury programs totaled $2.9 trillion, mostly to individuals and the auto industry.  Federal Deposit Insurance Corporation (FDIC) totaled $2.5 trillion, mostly for local banks. The US Department of Housing and Urban Development (HUD) totaled $306 million, mostly for homeowners via the Federal Housing Administration.  Since the Federal Reserve is responsible for 66% ($10.9 trillion out of $16.6 trillion), it has been the most influential organization in regard to the US economic recovery as well as  4 ½ year bull stock market run.  Consequently, it is important to understand the role of the Fed and its actions in order to anticipate the future of the US stock markets.

The US Federal Reserve System is the central banking system of the United States.  The Fed is both the US government’s bank and the bankers’ bank.  As an independent institution, the Federal Reserve System has the authority to act on its own without prior approval from Congress or the President.  The Fed was created by Congress to be self-financed and is not subject to the congressional budgetary process. In this way, the Fed is considered to be “independent within government.”

The Federal Reserve System has a number of layers.  The top layer is the 7-member Board of Governors, who are appointed by the President and confirmed by the US Senate.  Ben Bernanke is the current Chairman of the Board whose term expires on 31 January 2014.  The second layer is comprised of 12 regional Federal Reserve Bank districts, each with a board of nine directors, 3 of whom are appointed by the Fed’s Board of Governors and 6 are elected by commercial banks in the district.  The third layer consists of approximately 4,900 member banks that are private institutions (mainly national and state-chartered banks). Each member bank is required to subscribe to non-tradable stock in its regional Federal Reserve Bank, entitling them to receive a 6% annual dividend.  While not officially part of the Fed, the Federal Deposit Insurance Corporation is a sister institution with 9,500 members.  The FDIC-insured lending institutions comprise the vast majority of all bank deposits in the US.  A very small number of small banks are neither an FDIC nor a Fed-member bank.

The primary responsibility of the Fed is the formulation of monetary and credit policy in pursuit of maximum employment, stable prices, moderate long-term interest rates, and economic growth.  The Fed normally accomplishes this by setting interest rates, controlling the money supply by printing money and trading government securities, and regulating the amount of reserves held by banks.

 Federal Reserve Funds (Interest) Rate

One of the first actions that the Fed initiated was lowering interest rates to almost zero to simulate the economy.  As shown above, the Fed lowered the Federal Fund Rate to near-zero prior the end of the recession—the lowest rate in 60 years.  Today, four and half years later, this rate remains at near-zero (0.11%).  To understand the role that the Federal Funds Rate plays in the banking system, one must first understand the four layers of interest.

  • Federal Funds Rate.  The federal funds rate (currently 0.11%) is the rate of interest at which federal funds are traded among banks, pegged by the Federal Reserve through its Open Market Operations.
  • Federal Reserve Discount Rate.  The discount rate (currently 0.75%) is the rate that the Fed charges its depository banks and thrifts who need to borrow money from the Fed.  The Fed directly sets the discount rate based on the economic/monetary policy it wants to achieve, as well as the underlying rates that banks charge one another.
  • Prime Rate.  The prime rate (currently 3.25%) is the interest rate offered by banks to their most valued customers.  The prime rate is based on the discount rate.
  • Bank Rate. Most consumers are familiar with the interest at their local bank when they apply for a mortgage, auto or other loan.  The bank rate (currently 4% to 6%) is based on the prime rate.

Consequently, the Federal Funds Rate sets the baseline interest rate that all other rates are based upon.   Since virtually every US bank sets its rates on underlying Fed rates, the magnitude of the Fed’s near-zero rate policy is profound.   Unfortunately this near-zero rate has not produced a robust US economic recovery as anticipated.  While stocks and corporate profits have soared, GDP growth, employment and lending have languished with dire impact on the American middle class.

When a near-zero Federal Funds Rate does not achieve the desired monetary effect (stimulating economic growth), the Fed turns to other measures since they are not able to reduce interest rates below zero.   Normally, the Fed stays out of the private sector, but these are not normal times.  As a result of the 2008-09 economic crisis, the Fed was compelled to enter the private sector in essentially three ways:

  • Printing money to increase liquidity to increase lending by banks,
  • Rescuing too-big-to-fail financial institutions, and
  • Buying mortgage-backed securities that are toxic to banks, major financial institutions and insurance companies.

After September 2008, the Fed launched a massive liquidity effort by pouring trillions of dollars in short-term lending into financial firms and corporations.  A host of new programs was created, including repurchase agreements, term auction credits, commercial paper funding facility, liquidity swaps and various other loans and bailouts.  This liquidity effort was designed to be temporary in nature with a minimum risk to inflation.  The liquidity effort worked.  It saved a number of banks and corporations (such as the automotive industry) from insolvency without creating inflation.  This liquidity, coupled with near-zero interest rates, has also found its way into the US stock markets, which have now recovered their losses since the Great Recession.

 Federal Reserve Balance Sheet

Since 2008 to today, the Fed has purchased approximately $3.5 trillion in toxic financial instruments from the private sector.  In essence, the Fed is now carrying the bad debt that formerly resided on the balance sheets of major financial institutions and corporations.

The Fed also launched an aggressive asset purchase program, called quantitative easing or QE.  Quantitative easing involves buying securities, which increases the money supply, which promotes increased liquidity and lending.  Over time, the Fed’s purchases of these assets was supposed to promote new business investment that, in turn, would bolster economic activity, create new jobs, and reduce the unemployment rate.  While QE has bolstered the stock markets, it has done little for business investment or unemployment.

 Effects of Feds Stimulating S&P500

The effect of the Fed’s quantitative easing programs can be seen on the performance of the S&P 500 stock market, which is comprised of America’s top 500 publically-traded companies.  As shown on the graph above, every time the Fed initiated a quantitative easing program the S&P 500 grew significantly.   The opposite effect happened when the quantitative easing programs ended—the markets declined. The same effects happened with other US and foreign stock markets.

  • QE1 (Quantitative Easing #1) occurred between December 2008 and March 2010 and involved a total of $1.75 trillion dollars worth of purchases of toxic mortgage-backed securities ($1.25 trillion) and debt ($200 billion) from Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks, and $300 billion of long-term Treasury securities. The main purpose was to support the housing market, which was devastated by the subprime mortgage crisis.
  • QE2 (Quantitative Easing #2) occurred between November 2010 and June 2011 and involved $600 billion dollars worth of purchases of long-term Treasuries at a rate of $75 billion per month.  Treasuries include treasury bonds, notes, and bills. The Fed buys treasury securities when it wants to increase the flow of money and credit, and sells when it wants to reduce the flow.  In essence, after the Fed purchases treasury securities, it adds a credit to member banks, which increases the amount of money in the banking system and ultimately stimulates the economy by increasing business and consumer spending because banks have more money to lend at lowered interest rates.
  • QT1/2 (Operation Twist #1 & #2) occurred between September 2011 to December 2012 and involved a total of $667 billion.  Operation Twist was a plan to purchase bonds with maturities of 6 to 30 years and to sell bonds with maturities less than 3 years, which pressured the long-term bond yields downward and extended the average maturity of the Fed’s own portfolio.
  • QE3/4 (Quantitative Easing #3/#4) started in September 2012 and continues today open-ended until the economy recovers and the official employment rate drops below 7%.  QE3 provided for an open-ended commitment to purchase $40 billion agency mortgage-backed securities per month until the labor market improves “substantially”.  QE4 authorized up to $40 billion worth of agency mortgage-backed securities per month, and $45 billion worth of longer-term Treasury securities.

 DOW versus Fed Assets

This graph shows the relationship between the Dow Jones Industrial Average (top 30 US publically-traded companies) and the Federal Reserve’s balance sheet.  The Fed’s purchase of toxic mortgage-backed securities from the private sector and Treasuries has bolstered stock markets worldwide, as well boosting US corporate profits to an all-time high as shown below.

 Corporate Taxes After Tax

Corporate profitability can be directly tied to the Fed’s involvement.  First, low interest rates encouraged investors to buys stocks as opposed to traditional investments like savings accounts, certificates of deposits (CDs) and money market accounts since their rate of return was low due to low Federal rates.  Secondly, corporate bonds (even those rated as junk bonds status) offering meager dividends (compared to savings, CDs and money markets) sold briskly allowing corporations to build up their cash reserves and profitability.  Rather than hiring or recapitalizing, many corporations used this cash for mergers, acquisitions and buy-backs of their own shares that increased their own net worth as well as their investors.  In most cases, these corporate actions were wise financially.  Corporate officials knew that the “era of easy money” stimulated by the Fed would eventually end, and building up cash reserves was fiscally responsible until the US economy showed real signs of recovery, which has not happened.

 Corporate Profits After Tax vrs Money in Circulation

What do we mean by the “era of easy money”?  The above chart is an exploded view of corporate profitability from 2008 to today (April 2013) that is overlaid by money in circulation that is controlled by the Fed.  During the period, corporate profits rose by $1.1 trillion versus a $2.2 trillion rise in money in circulation.  While rising about half the rate of the money supply, corporate profits generally followed the same upward path.  This generous supply of easy money allowed corporations to borrow at low interest rates for mergers, acquisitions and buy-backs.  In addition, easy money depressed the value of the US dollar relative to other currencies, which made US exports (the domain of big business) more competitive.

The old adage “make hay while the sun shines” is applicable to corporations and their investors in the stock markets.  The Fed Chairman has recently indicated that the era of low interest rates, excessive borrowing and quantitative easing are about to end.  In other words, the era of easy money is about over and the markets will have to operate with less and less government subsidies.  It is clear that the stock markets are addicted to these subsidies and are adverse to any withdrawal.    On 20 June 2013, the Dow Jones and the S&P 500 had their biggest point losses in more than a year and a half after Federal Reserve Chairman Ben Bernanke hinted that the Fed could begin dialing back its economic stimulus later this year.  After 4 1/2 years of Fed’s quantitative easing levitating stock markets and low interest rates, many investors are terrified by the prospect of market chaos without the underwriting of the Fed.

The probability of market chaos is a given.  However, there are two views.  The view that is held by most economists, policy-makers and opinion-leaders is that the markets will undergo a period of turbulence but will recover due to structural soundness and historical precedent.  Jobenomics takes the opposite view.  Jobenomics asserts that the US economy is structurally flawed because Americans, from Wall Street to Main Street, shifted emphasis from manufacturing and producing to investing and speculating over the last three decades.   Three decades ago, the US was the largest creditor nation in the world and commanded the lion’s share of global GDP.  Today, we are the largest creditor nation in the world and our share of GDP has diminished significantly—largely due emerging economies like China.   Jobenomics also asserts that the $16.6 trillion spent by the federal government was not well spent as evidenced by the low rate of US GDP growth, high unemployment, exponential growth of people leaving the US labor force, our dwindling middle class, and a hundred million US citizens dependent on government handouts and welfare payments.

To grow an economy, a nation needs three essential factors: (1) sound monetary policy, (2) sound fiscal policy, and (3) private sector growth.  The Fed is responsible for monetary policy.  Under Chairman Bernanke’s leadership, the Fed has done an admirable job by keeping our economy from going over the proverbial fiscal cliff.  However, the Fed cannot produce economic growth, it can only stimulate and incentivize.  Congress is responsible for fiscal policy.  Their failure to resolve debts and deficits, taxation and budgeting, as well as a host of other economic and employment issues are major obstacles to economic growth.  Private sector businesses are ultimately responsible for economic growth.  Unfortunately in this era of big government, private sector businesses have suffered.  Moreover, many Americans and politicians view businesses as a necessary evil or as a check book for social programs.  Until these negative attitudes change, American economic recovery will be tentative at best.

Jobenomics believes that the best prescription for economic prosperity lies with small business creation with emphasis on startup, emerging and self-employed businesses.

 US Jobs Created This Decade by Company Size

Since the beginning of this decade, small business produced 71% of all new jobs.  This is an amazing statistic considering the adverse lending environment by financial institutions, mounting government regulation, and the pittance of federal government spending on small businesses.  Equally important, is the lack of commercial lending to very small and startup businesses that have been starved for capital.  Very small and startup businesses have traditionally been the primary source of employment for entry-level workers and the long-term unemployed.  Had the US government paid more attention to small business rather than providing generous subsidies to big business, Jobenomics estimates that ten million more Americans would be employed today if government focused on key next-generation business initiatives.   Jobenomics is working on three next-generation business initiatives that could potentially ten million new jobs.  These initiatives include:  (1) a national effort for Generation Y to monetize social networks via a modernized info-structure, (2) a national direct-care effort to accommodate the aging and children via substantially increasing the number of women-owned businesses, and (3) a national effort to monetize waste streams via waste-to-energy and waste-to-raw materials that could rejuvenate depressed inner cities and the financially disadvantaged.

In conclusion, stock market success may be more of an illusion than reality.  At some point in time, US federal government subsidies to financial institutions and corporations will end.  When that time happens, we will find out if the markets can operate under their own power.   Until then, America needs to diversify its investment strategy starting with small business, the engine of the US economy. Now is an ideal time to implement a new investment strategy to replace the old one that Chairman Bernanke says is about to end.

 

Income Inequality versus Opportunity

PDF Version: Income Inequality versus Opportunity 26 November 2012

26 November 2012

There is a significant difference between income inequality and income opportunity.  Income inequality represents a rearward view on how much money a person possesses at a given time.  Income opportunity represents a forward view of wealth potential and upward social mobility.   Jobenomics recognizes income inequality as a starting point, but focuses on income opportunity, via business and job creation, especially at the base of America’s economic pyramid.

Income Inequality.  Income inequality is defined as unequal distribution of household or individual income across the various participants (regional, social, racial, gender) in an economy. Income inequality slows economic growth, reduces social mobility, causes financial conflicts and creates discord.  A survey for the World Economic Forum identified growing income inequality as one of the world’s most pressing issues for the next decade.  After a period of wane, income inequality is growing again in America.  US income inequality is often associated with income fairness and is now a dominant issue for policy-makers, media and social activists.

Much of the $6 billion dollars spent on the 2012 US election process focused on income inequality, especially rich (top 1%) versus middle-class and poor (the bottom 99%).  Inflammatory rhetoric and political attack ads offered few solutions but exacerbated our political divide. A recent New York Times article[1], entitled Look How Far We’ve Come Apart, addressed the severity of the political divide in our country.   Polarization between our two main political parties (shown below) has grown to the point of political paralysis.                                                                                                                                                                    

The article also indicates that the US public is similarly divided,
almost to the extent that America was divided prior to the American Civil
War.  The media are also polarized.  America has reached a crossroads where the left wing no longer believes anything the right as to say, and vice versa.  Now that the 2012 elections are history, the world is anxiously watching to see if America can reverse course and unite as a nation to address our strategic challenges. If we continue to focus on income inequality, America will continue to divide politically, socially and economically.  The word “inequality” is
divisive, implying inadequacy and disparity.  We cannot unify by using words, slogans and data that create dissension.

Conventional wisdom asserts (1) that income inequality is always bad, and (2) the United States is one of the most inequitable distributors of income on the planet.  Both of these assertions are not accurate.

Income inequality is not a condition that we should tolerate, but is a myth that it is always bad.  Throughout history, income inequality has been a powerful motivator.  The American Revolution had issues of income inequality at its roots.   Today, many of the greatest American success stories are about people from humble beginnings.  Some degree of income inequality can be tolerated as long as a corresponding degree of income opportunity exists.  Individuals and businesses would not innovate without the opportunity to reap rewards.  When opportunity exceeds inequality, people are generally optimistic and motivated to succeed.  However, when inequality exceeds opportunity, people are unhappy and motivated towards discordance.  Unfortunately, America has entered a period where inequality exceeds opportunity, which places the US economy at risk.

Regarding the assertion that America is inherently inequitable, let’s take a strategic view of income inequality using official US government data, which is footnoted for the reader.  Household income is generally used as the standard measure of income wealth by US government agencies.   US household income includes the income of the householder and all other individuals 15 years old and over in the household.  Household income is defined as income received on a regular basis not including capital gains or non-cash benefits (food stamps, health benefits, subsidized housing, and most other forms of welfare or entitlement benefits).  “Median” household income divides the total number of households and families (including those with no income) into two equal parts.

According to the US Census Bureau, 95.7% of US households (multiple incomes) make less than $200,000 and 49.8% make less than $50,000.  $50,000 represents the median US household income.  The US poverty line is approximately $15,000 depending on the number of people in the household.   These groups are usually defined as “middle-class” or “poor”.

The “the rich” are usually defined by personal income categorized in percentiles: top 5%, top 1%, and the ultra-rich.  To qualify for an entry level position in the top 5%, a person needs to earn an annual income of $150,000.  $340,000 is needed for the top 1%.  An ultra-rich person in the top 0.1% starts at $1.5 million.  An ultra-rich person in the top 0.01% starts at $8 million.

US median household income has fallen substantially this decade—the first such decline since the Great Depression in the 1930s.  The Median US Household Income chart, from the 2012 US Census Bureau report[2],  shows that median US household income started decreasing prior to the Great Recession.  In 2007, the median US household income for all races peaked at $54,489.  In 2011, it was $50,054, for a loss of $4,435, or 9%.  All races suffered a decline over the same period, but the US Asian community continues to have the highest median household income of $65,129, followed by Whites ($55,412), Hispanics ($38,624) and Blacks ($32,229).  Over the decades, income inequality has remained relatively the same between the races, collectively increasing during good times, and collectively decreasing over bad times.  During the good times, income inequality was not a politically-charged issue since increasing household income provided a sense of well-being.  During the last five years, declining household income has produced anxiety and discord.

The US Federal Reserve reports[3] on income inequality using the Income Gini Ratio (also called the Gini Index or Gini Coefficient) by race.  The Gini Ratio is defined as a measurement of income distribution that ranges from 0, representing perfect equality, to 1, representing prefect inequality.  As shown, Black Americans suffer the worse inequality within their own race.  In other words, the distance between rich and poor within the Black community is greater than the distance in other races.  The Hispanic community is the most homogeneous in terms of household income.  Whites and Asians are in the middle with the Asian community having volatile swings during the decade.

A number of international organizations, like the World Bank and International Monetary Fund, use the Gini Ratio to define income inequality among nations.  The Global Income Inequality chart (above) was created by Jobenomics using US Central Intelligence Agency data listed in their widely-accessed World Factbook’s Distribution of Family Income-Gini Index[4], which was compiled by the CIA using data from various international institutions.  As far as global income inequality, the United States ranks slightly above average.  The world’s worst income inequality is in emerging and totalitarian countries.  Industrial and democratic countries are much more equitable in terms of income inequity.  Globalization has narrowed the income inequality between nations but has exacerbated income inequality within nations due to global competition, international supply chains, global capital markets, and new information technology.

The data that gets most political and media attention is from the US Census Bureau’s Income Inequality Historical Tables[5].  The Census Bureau reports historical income inequality data in current dollars (not adjusted for inflation) and inflation adjusted dollars.

The US Historical Income Inequality chart was created by Jobenomics using Census 2011 dollars (adjusted for inflation) over the last 45 years.  Over the last 4 ½ decades, the bottom 95% of US households have not made significant income gains.  The top 5% average household income increased from $111,866 in 1967 (note: unadjusted 1967 household income for the top 5% was $19,000) to $186,000 in 2011 for a gain of 66%, or 1.5% per year— significant but certainly not great.  To get to great numbers, one must use top 1% or top 0.1% data that is addressed below.

 

 Here is the same chart showing current dollars that are not adjusted for inflation.   In current dollars the top 5% increased their average household income by 879% ($19,000 in 1967 to $186,000 in 2011) as opposed 66% ($111,866 in 1967 to $186,000 in 2011) using 2011 Dollars that were adjusted for inflation.  Jobenomics believes that inflation adjusted dollars give more of an apples-to-apples comparison, than non-adjusted current dollar comparisons.

Jobenomics created the Top 1% chart using the most recent bipartisan US Congressional Budget Office report[6], updated August 2012 (note: the US Census Bureau does not report on the top 1%).  The chart shows that the top 1% far exceeds all other taxpayer incomes.  In 2009 Dollars, the top 1% earned an average after-tax income of $886,700 down from $1,120,500 a year before the recession.  The CBO also reports that there are 1.1 million top 1% households out of a total of 117.6 million US households, and that their share of total after-tax income was 11.5%.  In other words, the top 1% represents 1% of all households and earns 11.5% of total US income.

There is no US government data that regularly reports on ultra-rich income.  However, much antidotal data is available.   The average CEO of the top US companies make $13 million per year, not counting stock options.  By some accounts, the top 25 hedge fund managers make as much as all the top S&P 500 CEOs.  These managers make billions, not millions, per year.  From a global perspective, while Americans consider millionaires and billionaires to be rich, there are many areas of the world where personal wealth is measured in billions and trillions.  In oil rich Arab nations, baby-sheikhs (20 year olds) are worth tens of billions of dollars and their fathers are trillionaires.

The 2012 presidential campaign debated the merits of increased taxation on the wealthiest American.  Using Congressional Budget Office data[7], if taxes were increased by 5% on the top 1%ers, as requested by President Obama, approximately $60,985 more would be paid by each of the 1.1 million 1%ers.  The net result would be approximately $69 billion dollars in new tax revenue, which is a relatively insignificant compared to $1 trillion annual deficit spending.  Since $69 billion is only 7% of $1 trillion, the other 93% would have to come from increased taxes on the middle-class or reductions in spending.  If taxes were increased all Americas in the top 20%, the net result would be $264 billion, or 25% of our annual spending deficit.   It should be noted that the lower end top 20%ers (81st to 90th percentile) do not feel that they are wealthy, especially if the average $131,700 household income is a dual income family (e.g., husband and wife) each earning $65,850.

Income Opportunity.  Income opportunity involves money that people can earn as opposed to money that they have.  The term opportunity implies favorable conditions or prospects in order to attain advancement or success.  Today, the American dream of upward mobility, fairness and optimism has been shaken in the wake of a Great Recession, chronically high unemployment and a stagnant economy.

Income opportunity is directly influenced by socio-economic mobility.  Socio-economic mobility is the movement of an individual or group from one income level to another.  Socio-economic mobility can be upward or downward.  In America, with a few exceptions, mass upward socio-economic mobility has been the general trend since the creation of the United States.  Most people that enter US workforce from high school or college move from initial lower paying jobs to higher paying careers.  Those that dropout of school or society are likely to entrench themselves in the lowest income quintile with much lower mobility.  While welfare and unemployment payments provide a safety net for those in the lowest quintile, these payments tend to trap these same individuals in low quintiles by eroding their socio-economic mobility.  The longer a person is out of the workforce, the harder it is for that person to get a meaningful job.  Socio-economic mobility is also influenced by education and social status.  A presentation by Assistant Treasury Secretary Jan Eberly at the 2012 Economic Measurement Seminar produced an insightful graphic on intergenerational socio-economic mobility[8]:

According to Sec. Eberly, higher education is critical for economic mobility.  Without a college degree, children born in the bottom income quintile have a 45% chance of remaining there as adults.  With a degree, they have a roughly equal chance of attaining each income quintile, which means an 80% chance of being in a higher income quintile than their parents.

While America has always been know as the “land of opportunity”, the Great Recession and chronically high unemployment has eroded socio-economic mobility for those at the base of America’s economic pyramid.  A 2012 study[9] by the Economic Mobility Project of the Pew Charitable Trusts states while “Eighty-four percent of Americans have higher family incomes than their parents did….Those born at the top and bottom of the income ladder are likely to stay there as adults.   More than 40 percent of Americans raised in the bottom quintile of the family income ladder remain stuck there as adults, and 70 percent remain below the middle”.

Jobenomics believes that high school dropout rates, especially in the inner cities, is symptomatic of a greater problem—the lack of income opportunity.  Jobenomics is working with local leaders in Detroit, Harlem, Atlanta, Washington DC and a number of smaller communities, all of whom say that high dropout rates are directly related to the lack of jobs.  Why graduate from school when meaningful opportunities are not available?   Jobenomics defines meaningful opportunities more in terms of careers as opposed to jobs.  To most young people, minimum wage jobs are not meaningful as compared to income opportunities derived from illicit employment or government welfare benefits.  Consequently, Jobenomics emphasizes community-based business generators in order to mass produce thousands of micro-businesses in the inner city.  Micro-businesses provide meaningful income opportunity.

Many Americans feel that Washington policy-makers can fix our problems.  Jobenomics disagrees for a number of reasons.  First, a stagnant economy as well as a deeply divided citizenry  makes political consensus-building difficult.  Second, the biggest challenges for improving income opportunity are beyond Washington’s reach.  Thirdly, global competition in the digital age levels the playing field for 6 billion other people around the world who want income opportunity and are often more motivated to strive to get it.  While Washington has an important support role, it is up to the private sector to create businesses and jobs.

Since the beginning of this decade, small business has created 66% of all new jobs in America.

A recent McKinsey report[10] entitled Restarting the US Small-Business Growth Engine accurately describes small business as the engine of US economic growth with emphasis on “high growth” small businesses.  The McKinsey article states that “a subset of small businesses—high-growth ones—creates the vast majority of new jobs. Seventy-six percent of these high-growth firms are less than five years old. The 1 percent of all firms that are growing most quickly (fewer than 60,000 in all) account for 40 percent of economy-wide net new job creation.”   The biggest challenge for the McKinsey model is picking winners.  It is hard to identify the next generation serial entrepreneurs, like Bill Gates (Microsoft), Steve Case (AOL), Mark Zuckerberg (Facebook) and Meg Whitman (eBay). Therefore, the McKinsey model focuses on small businesses that already have established themselves with potentially high growth products or services. McKinsey also advocates big business and government assistance to help emerging businesses grow rapidly and mass produce jobs.

Jobenomics focuses on “highly scalable” start-up businesses that are unlikely to receive significant government and big business support.  Jobenomics is currently working on the establishment of a dozen community-based business generators that will mass produce small and self-employed businesses that can be replicated easily.  Self-employed businesses (both incorporated and unincorporated) are a good example of the type of highly scalable business that can be mass produced in order to create millions of jobs. The Jobenomics model focuses on individuals that have a yearning to start a business.  Jobenomics is currently concentrating on four demographics: inner city minority groups (service-providing businesses that focus on journeyman skill sets), women-owned businesses (direct-care, direct-sales and education/training businesses), Generation Y (start-up businesses that focus on monetizing social networks and the internet) and veterans-owned businesses (businesses that specialize in defense industry related occupations).  These demographics have the potential for 10s of millions of jobs and millions of new businesses that can be replicated across America.

In conclusion, income distribution is relatively well divided in the US even though a majority of Americans believe otherwise.  So why are Americans so upset about income inequality when official government data indicates otherwise?  For America to prosper, the answer lies with income opportunity, not income inequality.

Today, too few are paying for too many.  Only 32% of our population financially supports the rest of our population.  We have a moral obligation to provide a safety net for the 23 million looking for work and the 70 million that cannot work.  We also have an economic imperative to grow the private sector work force that currently consists of 102 million people.  The Jobenomics goal is 20 million new private sector jobs by year 2020.  The Jobenomics national grassroots plan is designed to unite a divided nation through business and job creation with emphasis on small, emerging and self-employed businesses in the middle and bottom of America’s economic pyramid.  Providing meaningful income opportunity is essential to sustaining the American dream of mass upward social mobility.


[1] The New York Times, The Opinion Pages, Look How Far We’ve Come Apart, by Jonathan Haidt and Marc J. Hetherington, http://campaignstops.blogs.nytimes.com/2012/09/17/look-how-far-weve-come-apart/, 17 Sep 12

[2] US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2011, by Carmen DeNavas-Walt, Bernadette D. Proctor and Jessica C. Smith, http://www.census.gov/prod/2012pubs/p60-243.pdf, issued September 2012

[3] US Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/fred2/graph/?id=GINIBAF,GINIWANHF,GINIHARF

[4]  CIA World Factbook, Distribution of Family Income-Gini Index, https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html

[5] US Census Bureau, Historical Income Tables: Income Inequality, H-1 All Races, http://www.census.gov/hhes/www/income/data/historical/inequality/

[6] Congressional Budget Office, Distribution of Household Income (Supplemental data spreadsheet), updated 10 August 2012, http://www.cbo.gov/publication/43373

[7] Ibid

[8] US Department of the Treasury, Remarks of Assistant Secretary Jan Eberly before the National Association of Business Economists (NABE), 2012 ECONOMIC MEASUREMENT SEMINAR, 31 July 2012,  http://www.treasury.gov/press-center/press-releases/Pages/tg1662.aspx, and http://www.treasury.gov/press-center/press-releases/Documents/View%20the%20charts%20shared%20with%20NABE%20today.pdf, Page 6

[9] Economic Mobility Project of the Pew Charitable Trusts, Pursuing the American Dream: Economic Mobility Across Generations, 9 July 2012, http://www.pewstates.org/research/reports/pursuing-the-american-dream-85899403228

[10] McKinsey & Company, McKinsey Quarterly, “Restarting the US small-business growth engine”, by John Horn and Darren Pleasance (Strategy Practice), November 2012, http://www.mckinseyquarterly.com/Strategy/Growth/Restarting_the_US_small_business_growth_engine_3032

Manufacturing Industry Forecast

Executive Summary:  US manufacturing is not likely to employ significantly more Americans than it currently employs.

Overview:  Manufacturing is a vital component of our economy.  Unfortunately, Americans have unrealistic expectations regarding the role of the manufacture sector in our economic recovery as well as jobs creation.  The American economy is dominated by service-providing industries that employ the 86% of all Americans. Manufacturing (part of the goods-producing sector) employs only 9%.  Correspondingly, American policy-makers and opinion-leaders do disservice to the American public by heralding manufacturing over other industries.  Reasonable rates of employment and economic recovery can only be achieved via a balanced approach to resourcing and supporting all growth industries.  Most Americans understand how we transitioned from an agriculturally-based society to an industrial-based society, but have not come to terms with the ramifications of a postindustrial, services-based, internet-empowered society that is significantly less dependent on domestic manufacturing.

Total US Employment.  Out of a total population of 314 million, America employs 133 million people in three sectors: service-providing industries, goods-producing industries, and government services.  115 million Americans (including government employees) are employed in service related jobs, which equates to 86.3% of all working Americans.  The service-providing sector employs 93 million Americans.  Government (federal, state, local) is the second largest employer at 21.9 million.  The goods-producing sector is the smallest with 18.3 million.  Manufacturing is the largest goods-producing industry that employs 11.97 million, which equates to 9% of all working Americans or 3.8% of our population.   At 9%, it is difficult to assert that the US is an industrial or manufacturing-based society.  With 86% in service related jobs, America is better defined now as a postindustrial, services-based country.

Recent US Manufacturing Employment Statistics.   US manufacturing employment decreased 39% from its pre-recession high.  If adjusted for population growth, the declination is 55%.  Over the last two years, manufacturing employment has increased 4% but is now trending downward.  Jobenomics predicts that the entire US manufacturing sector (durable and nondurable goods) will not produce significantly more jobs than it currently does. 

In 1946, 11.9 million Americans were employed in manufacturing.  By 1979, manufacturing grew to 19.5 million.  Then the decline began.  Over the last three and a half decades, manufacturing has declined 39% to 11.97 million today.  Since the post-Great Recession low in January 2010, manufacturing has grown by approximately 500,000 people.  This is good news, but insufficient evidence to believe that a manufacturing renaissance is underway.

The US manufacturing sector is comprised of durable and nondurable goods.  Durable goods consist of machinery, appliances or equipment that are not easily consumed or destroyed during use and lasts for over three years.  Nondurable goods are items, such as food and apparel that are used up quickly or purchased infrequently.

Durable goods have suffered a 39% decline from the peak in 1979 and now employ 7.5 million people or 63% of the total manufacturing sector.  From its post-recession low in January 2010, durable goods have added approximately 500,000 jobs or a gain of 7%.  Much of this gain can be attributed to generous federal government stimuli and bailouts (e.g., the auto industry).

There are 10 durable goods industries or subsectors as defined the US Department of Labor’s Bureau of Labor Statistics (BLS) as shown above.  The transportation/motor vehicles/equipment sector is the largest subsector with 1,468,000 employees.

The American public generally associates the automotive industry with this durable goods industry.  However, according to the BLS[1], the entire US automotive industry (both foreign and domestic manufactures) only employs only 772,000 people in motor vehicles and parts manufacturing, or 10% of the durable goods sector, or 6% of the manufacturing sector, or 1% of all working Americans, or 0.2% of all American citizens.  These percentages are offered not to diminish the importance of auto industry manufacturing, but rather to emphasize that there are a host of other industries and sectors that are equally critical to the American economy.

One could argue that the auto industry supports a vibrant retail trade (services-providing industry) with 1,716,500[2] Americans employed by motor vehicle and parts dealerships as well as another 815,000 independent automotive repair and maintenance personnel.  This is true.   Automotive manufacturing supports a large indirect jobs tail.  However, it is also true that US automotive manufactures are no longer the dominant vehicle provider in America.  In September 2012, out of a total of 1,188,865 light vehicle sales[3] made in America, only 44% (538,752 vehicles) were manufactured by American auto manufactures (GM, Ford and Chrysler).  Consequently, foreign automotive manufacturers now have a longer indirect jobs tail in the US than American auto manufacturers.  This large indirect tail of dealer and maintenance jobs would exist even if the Big 3 did not.  This is not meant to imply that the Big 3 and domestic manufacturing is not important.  It is vitally important.  The point is that automotive manufacturing, as well as other durable and nondurable goods manufacturers, may not be the job creators that most Americans expect.  Our limited resources should be invested in industries that have the most economic and jobs creation potential.

Nondurable goods have suffered a 38% decline from the peak in 1979 and now employ 4.5 million people or 37% of the total manufacturing sector. From its post-recession low in October 2010, nondurable goods have added an insignificant number of new jobs.

Coincidently, the largest nondurable goods industry, food manufacturing, employs exactly the same number of people (1,468,000) as the largest durable goods industry, transportation, and twice as much as the entire automotive manufacturing industry.  In addition, as shown above, food manufacturing was much more stable after the Great Recession and did not need stimuli, bailouts and buyouts from the US government and its taxpayers.

Industry Employment Growth.  As stated previously, manufacturing employs 9% of all working American’s, but how has it grown compared to other US industries?

Since the beginning of this decade (1 January 2010) with a growth rate of 10.5% over this 32 month period, the manufacturing sector is the fifth best jobs generator out of thirteen US sectors.  This is a welcome development after decades of steady decline.  Will this growth continue in the future?  Probably not.

The latest Manufacturing ISM Report on Business[4] data (depicted above) shows that US manufacturing contracted in two of the last three months.  This is the first contraction since June 2009 at the end of the Great Recession.  Since the Great Recession, US manufacturing trended upward, leveled and is now trending downward.  Note: the Manufacturing ISM Report index uses values over 50% as positive (expanding) and values under 50% as negative (contracting).

This downward trend follows general corporate trends like declining corporate earnings that are predicted to go negative in the first quarter of 2013[5] after positive growth in the eleven previously positive quarters (see posting entitled, Uncle Sugar High).  To a large extent corporate earnings and manufacturing recapitalization are inextricably linked.  Corporations are less likely to invest and hire with poor earnings.

In addition, the World Economic Forum (WEF)’s annual forecast[6] shows a rapid downward trend in American global competitiveness after being #1 for years.  The WEF is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders.  Out of 144 countries, the WEF ranks the US #1 in market size, #6 innovation, #10 business sophistication, #8 higher education and training,  #23 goods market efficiency, #34 primary education, and #111 macroeconomic environment (i.e., low public trust in politicians and a perceived lack of government efficiency).  In 2006, the United Kingdom was #2, but disappeared thereafter.  Hopefully, the US will reverse the downward trend.  Competitiveness is paramount to success.

In the long-term, Jobenomics predicts that the manufacturing industry will not produce a significant number of new jobs for the following reasons:

  1. While the recent uptick in manufacturing jobs over the last few years has been slightly positive, the headwinds of the last three decades have not significantly abated.
  2. Emerging economies with lower labor rates, less regulations, better technical skills, and greater government underwriting will continue to be competitive in global manufacturing.
  3. US corporations will continue to outsource jobs to emerging economies despite government pressure and incentives to re-shore jobs. Many of the domestic job openings that require hi-tech skills will remain unfilled.
  4. The political ideological divide will prevent any meaningful pro-business policies, or significantly reduce the regulatory environment.
  5. The advent of the third industrial revolution has shifted the manufacturing equation from labor-intensive to technology-intensive and from jobs-heavy to jobs-lite with a premium on highly skilled labor as opposed to manual labor.

The American public generally understands the first four reasons even though they may be hard to accept.  Political rhetoric about streamlining the regulatory environment, increasing US exports, creating reciprocal trade agreements, imposing tariffs on cheaters, and lowering corporate taxes is good for elections but is not likely to be enacted nor achieved in the near future.  Free trade in a global marketplace will likely trump any attempts for protectionist legislation.  Mandatory entitlement programs will continue to drive government spending which is dependent on individual and corporate taxes.  In addition, corporations will, and must, continue to deliver profits to shareholders.  US multinational corporations will continue to expand overseas in emerging economies as opposed domestic expansion in the mature US market.   Finally, American workers, now the most productive workers in the world, will continue to produce more with less—requiring less labor per unit produced.

The third industrial revolution (reason #5) may be the biggest reason for a “jobs-lite” manufacturing future.  The first industrial revolution (IR1) took place in the late 18th Century with the mechanization of industry starting with the cotton gin.  IR1’s labor force consisted of high-touch, non-mass production, manual labor, which created the infamous sweat-shops in the 19th Century.  The second industrial revolution (IR2) started in the early 20th Century with the advent of Henry Ford’s moving assembly lines.  IR2’s labor force consisted of high-touch manual labor augmented by machinery designed for mass production.  The third industrial revolution (IR3) is currently underway.  IR3’s labor force consists of highly-skilled, hi-tech laborers who support digitally automated factories.  Each revolution has caused a reduction in low-skilled, high-touch jobs.

The third industrial revolution is powered recent technological advances including: artificial intelligence, high-speed broadband networks, robotics, web-based services, rapid prototyping (such as 3D computer-aided design and 3D printing), as well as innovative manufacturing processes that include better business process reengineering, global supply chain management, customer relationship management and enterprise risk management.   Consequently, most of the jobs will no longer be on the blue-collar factory floor but in white-collar offices.  Premium jobs will be for professional designers, engineers, logisticians, IT specialists and the like.  Old fashioned repetitive manual labor jobs are being eliminated or outsources overseas.  Traditional support staff jobs are also being eliminated or accomplished online.

In conclusion, manufacturing is vital to the US economy but is not likely to provide a significant amount of jobs to reach the Jobenomics goal of 20 million new jobs by year 2020.   20 million new jobs is a reasonable goal considering that the US produced 20 million new jobs in previous decades and that 20 million new jobs are needed for new workers (16 million per decade) and to decrease unemployment rates below 6% (4 million).  As such, it is imperative that the American public, policy-makers and opinion-leaders properly promote and support manufacturing in relation to the other twelve US employment sectors.  While major US durable goods manufacturers (such as automotive and aerospace) produce products that are a source of national pride, it is equally important to support less glamorous industries and businesses (especially small, emerging and self-employed) that are the engine of our economy and have the greatest jobs creation potential.



[1] Department of Labor’s Bureau of Labor Statistics, Automotive Industry: Employment, Earnings, and Hours, http://www.bls.gov/iag/tgs/iagauto.htm, July 2012

[2] Ibid.

[3] The Wall Street Journal, Auto Sales, Sales and Share of Total Market by Manufacturer,  http://online.wsj.com/mdc/public/page/2_3022-autosales.html, retrieved 3 Oct 2012

[4] Institute for Supply Management, Manufacturing ISM Report On Business , September 2012, http://www.ism.ws/ismreport/mfgrob.cfm

[5] The New York Times, Earnings in United States Are Beginning to Feel a Pinch, 16 September 2012, http://www.nytimes.com/2012/09/17/business/earnings-outlook-in-us-dims-as-global-economy-slows.html?nl=todaysheadlines&emc=edit_th_20120917

[6] World Economic Forum, Global Competitiveness Report 2012-13, http://www.weforum.org/issues/global-competitiveness

Uncle Sugar High

What’s going on?   Stock markets are approaching historical highs while the middle-class has lost 40% of its net worth, unemployment is persistently high and the ranks of those “not in the labor force” (i.e., the Bureau of Labor Statistics’ category for those who can work but don’t) is increasing by three million people a year.  Government efforts to artificially induce economic recovery explain much of reason that the markets seem to be disconnected from the rest of society.

The Great Recession of 2008/09 was a calamity that could have gotten much worse.  Both the Bush and Obama Administrations and the Federal Reserve reacted strongly with stimuli, bailout and buyouts to reverse the downward trend.  Thankfully, their efforts worked in regard to the stock markets, which have subsequently risen as much as 140% from their lows in March 2009 (see chart).  The US government has committed $14.1 trillion to make this happen and keep the markets growing.

Composition of the $14.1 trillion is shown above.  Federal Reserve programs totaled $8.4 trillion, mostly for banks, financial institutions, insurance companies and government sponsored enterprises (Fannie Mae and Freddie Mac—holders of most American mortgages).  US Treasury programs totaled $2.9 trillion, mostly to individuals and the auto industry.  Federal Deposit Insurance Corporation (FDIC) totaled $2.5 trillion, mostly for local banks. The US Department of Housing and Urban Development (HUD) totaled $0.3 trillion, mostly for homeowners via the Federal Housing Administration (FHA).

From a Jobenomics perspective, these stimuli, bailouts and buyouts have contributed to economic recovery, albeit slow and shaky.  However, a number of big questions remain unanswered: (1) how effective are new stimuli, (2) when will stimuli become unaffordable considering government debt, deficits and the value of the US dollar, (3) how will the markets operate without government stimuli, and (4) how will the economy/markets react to the next major disruption?  For the purposes of this blog posting, let’s focus on new stimuli (1) and address the other factors in future postings.

Quantitative easing (QE) is a monetary policy used by the Federal Reserve to stimulate the national economy by purchasing financial assets (usually toxic) from banks and private institutions with newly created money.  The third round of quantitative easing (QE3) was announced by Chairman Bernanke on 13 September 2012.  QE3 is an open-ended (at least to mid 2015) $40 billion per month program to buy the mortgage-backed securities that started the housing crisis and Great Recession.  QE3’s goal is to reduce the amount of toxic mortgage-related financial assets from the private sector to spur the residential construction industry that continues to languish today and likely into the future (see Jobenomics’ Construction Industry Forecast).

Jobenomics is a big fan of Chairman Bernanke and considers him the “John Wayne” of our economy (read Jobenomics, the book, to find out why).  However, Jobenomics disagrees with him on one major point.  Chairman Bernanke believes that the US economy is facing a stiff headwind that will eventually abate and that stimuli are needed until the wind abates.  Jobenomics believes that the US economy is structurally flawed when Americans, from Wall Street to Main Street, shifted emphasis from manufacturing and producing to investing and speculating, and seriously needs re-enginnering as opposed to stimuli.

On 4 September 2012, Chairman Bernanke told fellow central bankers “I see little evidence of substantial structural change in recent years… Following every previous US recession since World War II, the unemployment rate has returned close to its pre-recession level.”  Consequently, his approach to encouraging economic growth is to rely on past practices and stimulate the economy by printing money, buying and selling treasuries and securities, and keeping interest rates low.  He will be able to continue this course until the value of the dollar declines or inflation increases.  Considering the turbulence in other developed economies and slowing growth in emerging economies, he may have only months to several years to do so.  Europe is on the verge of recession and its contagion is likely to spread to the US.

Not all economists agree with Chairman Bernanke’s optimism.  The National Bureau of Economic Research recently published a paper written by Northwestern University’s Robert Gordon that concludes the US growth rate is damaged, and the past 250 years may prove to have been a “unique” period of economic expansion.  St. Louis Fed (FRED) President James Bullard says that “the economy was on one trend pre-crisis and is on a very different trend post-crisis.”  Other skeptics include Mohamed El-Erian and Bill Gross of Pacific Investment Management Co., who popularized the term “new normal” meaning that economic malaise and high unemployment may be with us for the foreseeable future.

Regardless who is right, everyone agrees that increased profitability in banks, financial institutions and corporations have not translated to improvement in employment and wealth of the average American citizen who has lost 10% in household income and 40% in net worth in recent years.

Corporate profitability has more than doubled since the Great Recession low and is up over 25% since the pre-recession peak as shown above.  As of September 2012, corporate-profits-after-tax is at an all time high of $1.65 trillion as reported by the Federal Reserve and Bureau of Economic Analysis.   This does not include several trillion more dollars of corporate cash stranded overseas.

Financial institutions and corporations are inextricably linked.  Financial institutions make money in a large part by speculating in secondary-markets that are comprised of corporate stocks listed on the major exchanges.  The Dow Jones Industrial Average (DOW or DJIA) is comprised of the top 30 publically-traded US corporations.  The Standard & Poor’s 500 (S&P 500) is based on the common stock averages of the top 500 American publically-traded companies.  The NASDAQ Stock Market (formerly National Association of Securities Dealers Automated Quotations, now simply NASDAQ) specializes in emerging high-technology corporations.  On the other hand, many major corporations are deploying their excess cash speculating in secondary-markets and exotic financial instruments (like derivates such as mortgage-backed securities) as opposed to recapitalizing and hiring domestic workers.  Consequently, when the US government stimulates, it is the financial institutions, corporations and quasi government agencies (like Fannie and Freddy) that benefit the most.

If Chairman Bernanke and his backers are correct that economic malaise and chronic unemployment are due to a strong, but temporary headwinds, financial institutions and corporations should lead the way to economic recovery.  However, there are signs that this may not be correct.

On 9 September 2012, this graph was posted in The New York Times [1].  It shows the year-over-year change in corporate earnings of the top 500 US corporations.  Since the initial influx of bailouts, buyouts and stimuli, corporate earnings have decreased every year.  According to Thomson Reuters (the world’s leading source of intelligent information for businesses and professionals [2]) and The New Times, the consensus forecast is that corporate earnings will go negative for the first time since the Great Recession.  In other words, Americans are getting fewer bangs for the buck with government intervention.  In addition, if the corporate world goes into recession, the entire US may not be far behind.  The US averages 1.7 recessions per decade.  So far this decade has not suffered a recession largely due to the $14.1 trillion worth of stimuli.  This time QE3 may not produce it desired effort and the US is rapidly running out of big stimulus funds.

This chart shows that the Federal Reserve’s crystal ball may not be as good as one would hope.  In January 2010, the Fed predicted that the stimuli would boost the economy to annual GDP (gross domestic product, the sum of all American goods and services) to 4.15%.  Since then it has been consistently revised downward.

Uncle Sam’s bailouts, buyouts and stimuli can be compared to a “sugar high”—lots of temporary energy but no real nutritional value.  To grow an economy, a nation needs three essential factors: (1) sound monetary policy, (2) sound fiscal policy, and (3) private sector growth.  The Fed is responsible for monetary policy.  Under Chairman Bernanke’s leadership, the Fed has done an admirable job by stimulating via controlling (increasing) increasing money supply, borrowing via selling treasuries, reducing toxic financial instruments and keeping interest rates low.  However, the Fed cannot produce economic growth, it can only stimulate and incentivize.  Congress is responsible for fiscal policy.  Their failure to resolve debts and deficits, taxation and budgeting, as well as a host of other economic and employment issues are major obstacles to recovery.  The private sector is responsible for growth.  Since the beginning of this decade, big business has added only 5% of all new jobs.  Small business has added 95%.  Unfortunately, big business gets the bulwark of government financing and small business gets a lot of rhetoric.  Unless we provide real nutrition (sponsorship, incentives and patient capital) for small, emerging and self-employed business creation, the Uncle Sugar High will create economic malnutrition and unemployment obesity.



[1] http://www.nytimes.com/2012/09/17/business/earnings-outlook-in-us-dims-as-global-economy-slows.html?nl=todaysheadlines&emc=edit_th_20120917

[2] http://thomsonreuters.com/about/

Who Should I Vote For?

Jobenomics believes that the economy is the most important issue facing American voters.  A strong economy allows us to be secure and create the lifestyles that we desire.  In the not so distant past, there was relatively little difference between the political parties.  Today, the chasm between the parties is vast—leaving many Americans in a quandary regarding for whom to vote.

Recent political campaigns recently have been more about labeling than solutions.  In modern politics, labeling fits well in a 20-second TV and radio sound bites.   Americans rely on labels, brands and phrases to establish the goodness or badness of a product, person or community.  Consequently, let’s examine labels relating to the politics relating to the economy.

The political spectrum is often defined as left or right wing.  The terms “left” and “right” can be traced back to 16th Century Europe where politicians were grouped by those loyal to the King and those advocating reform or independence.   In contemporary times, the left-wing is associated with liberals, progressives, greens, social democrats, socialists, communists, and anarchists.  The right-wing is associated with conservatives, capitalists, reactionaries, nationalists, as fascists.  Clearly there is a wide spectrum of categories in each the left and wing.  That is why labeling is so effective.  President Obama defines himself as liberal Democrat, which puts him left of center.  His opponents want to portray him as far-left of center, so they use the label of socialist.  Governor Romney has declared himself as a conservative Republican right of center.  His opponents want to portray him as far-right of center use reactionary labels.  Since there is no consensus on the meanings of political labels, it is up the voter to determine how far right or left a candidate is and whether that is a good or bad attribute.

Economically, Democrats tend to promote a public sector driven philosophy over a private sector driven philosophy that is promoted by Republicans.  In the past, both Democrats and Republicans alike generally supported a minimalist government role in the economic affairs of the private sector.  The historic election of a president firmly rooted in publically-driven philosophy set the stage for a new dialog on the role of government vis-à-vis the private sector.  However, it was the Great Recession of 2008 that was the real catalyst for change.  The magnitude of the recession and the stagnant recovery has given voice to those on the left that promote a greater governmental role.  Moreover, the ranks of those dependent on government (government workers, unemployed, under-employed, entitlement/welfare recipients) as well as those subsidized by government, are becoming the new majority.

Today, only 32% of all Americans financially support the rest of the country.  Out of a population of 101 million workers in the private sector are supporting 32M that work for government (including contractors), 88M that can work but choose not to work, 71M that cannot work (children, retired, disabled, etc.) and 23M that are looking for work (officially unemployed and unemployed). See Jobenomics Employment Scoreboard posting for more detail.

Given this economic distribution, the left argues that the need of the many outweigh the few (especially given the historically high degree of income inequality).  The right argues that too few pay for too many (which may lead to an economic collapse).  American voters are at a crossroad.  The road to the right is largely the road that we have traveled.  The road to the left represents an economic inflection point—a point of change.

Those on the left who yearn for a public economy generally favor increased government involvement, egalitarianism, regulation of business, wealth distribution, robust government spending, taxation and stimulus packages focused on resolving economic inequalities.   Those on the right tend to favor limited government involvement in the private sector, the free market system, limited taxation, deregulation of commerce and industry, and increased austerity measures regarding entitlement and welfare programs.

So, which path does Jobenomics endorse?   Jobenomics is a bipartisan, centrist movement that deals with the economics of business, job, wealth, and tax revenue creation with a goal of creating 20 million new private sector jobs by year 2020.  As such, Jobenomics promotes a middle way.

In regard to a public or private economy, Jobenomics leans center-right.  Jobenomics favors a private/public partnership where the private sector leads and the public sector supports.   With the exception of times of crisis, government’s role in big business should be minimal.  On the other hand, government needs to play a greater role in small, emerging and self-employed business creation—America’s economic engine.  Financing to the base of the America’s economic pyramid is needed.  Almost all of government’s recent stimulus, bailout and buyout program funding went to financial organizations and large corporations.  Little went to small business.  To make matters worse, now healthy banks are more restrictive in their lending practices, and big businesses are hoarding cash.  Initiatives, like the Jobenomics Community Based Business Generators and Jobenomics Women-Owned Businesses that are designed to mass produce small and self-employed businesses, are needed.  Government also has a role in investing in research and development that is the lifeblood of hi-tech small businesses.   Rather than touting shovel ready highway projects, government should focus on the next-generation broadband super highway.

In regard to higher taxation, Jobenomics leans center-left.  An eroding middle class leaves only the rich to bear the tax burden.  However, Jobenomics does not favor transferring the wealth to government bureaucrats.  Instead, rich individuals and corporations should be offered incentives to invest in community business generators, business incubators and vocational training programs.  Big business has trillions of dollars of cash and even more trillions that could be repatriated from foreign business accounts.  Jobenomics is not suggesting social charity.  Instead, community investments by the rich could be in the form of debt (micro business loans) and equity financing that would maximize the potential for a win/win/win for small businesses/big businesses/local communities.  The rich know how to maximize return on investment.

In regard to austerity programs, Jobenomics is neutral.  There is no doubt that the soaring national debt is an economic albatross that will eventually cripple or topple the American economy.  On the other hand, there were over 350 million welfare and entitlement annual payments (51M social security, 45M Medicare, 59M Medicaid, 44M food stamps, etc.) are made to financially distressed Americans.  Considering that the total population is only 314 million, this surreal number begins to give scope to the growing divide between haves and have-nots.  An austerity program is needed but should be implemented slowly to keep from upending the fragile recovery.  In the near-term, Jobenomics supports capping spending on the major entitlement programs and seeking savings on non-essential discretionary programs.  For essential programs, like national security, it is time that we look at reorganizational efforts of the magnitude of the National Security Act of 1947.

So who should I vote for?  The answer is the one who comes closest to the center.

Construction Industry Forecast

Highlights of this posting:

  • The US construction industry was one of the hardest hit industries in the Great Recession and is the second worst industry in terms of employment of the ten private sectors industries.
  • Overall construction industry employment is down -29% with the residential sector down -42%, nonresidential (commercial building) down -23% and the non-building publically financed infrastructure/heavy construction/civil engineering sector down -18%.  The official unemployment rate for this industry is 14.2% as of June 2012.
  •  Overall construction industry spending is down from peak -32% with the residential sector down -62%, nonresidential (commercial building) down -29% and the non-building publically financed infrastructure/heavy construction/civil engineering sector down -16%.
  • Jobenomics forecasts that:
    • The residential construction industry will not significantly increase in the foreseeable future.
    • The commercial industry will not increase significantly in the US but has potential international opportunities in emerging markets.
    • The publically funded infrastructure/heavy industry/civil engineering sector will not increase significantly due to federal/state deficits and debt.

Over the last three decades, the US construction industry grew from approximately 4 million employees to peak employment of 7.8 million in April 2006 when the decline began.  The Great Recession of 2008/09 accelerated a rapid decline.  Today, the US construction industry has 5.5 million employees—a decline of -29% from the peak six years earlier. As of June 2012, the Bureau of Labor Statistics (BLS) reports that the US Construction Industry has an unemployment rate of 14.2% compared to a national average of 8.2%[1].

From the employment peak, residential construction lost -42%, commercial construction -23% and heavy construction lost 18%.

As a percentage of total US employment, the construction industry now represents only 4.2% of the US workforce.

Since the beginning of this decade (‘10s), all private sector industries have been growing with the exception of Information (-4.1%) and Construction (-1.8%).  The Information (e.g., publishing, broadcasting) industry’s decline is largely due to the Internet, whereas the Construction industry decline is largely due weakness in the residential housing and commercial building sectors.

The US construction industry can be characterized by type or labor category.  By project type, according to the Department of Labor, this industry is 48% nonresidential commercial, 37% residential and 15% heavy & civil engineering (often called infrastructure or nonbuilding).  By labor category, this industry is 63% specialty trade contractors, 22% construction of buildings and 15% heavy and civil engineering.

The Construction Industry is classified by the North American Industry Classification System as NAICS Code 23, shown above.  The NAICS Association reports that NAICS Code 23 consists of 1,466,475 million businesses[2].  Consequently, by dividing the number of businesses by the total number employed (5.5 million), the US construction industry can be characterized largely as an industry of small firms with an average of 3.8 employees.   According to the Professional Builder’s 2011 Housing Giants Rankings , the top 225 US Home Builders accounted for only 19% or $48.6 billion out of the $254 billion spent on residential construction.   The top 10 US residential home builders accounted for only 9% or $22 billion of the total.

The Federal Reserve Bank of St. Louis (FRED) provides a view of US construction spending.  Total construction spending peaked in March 2006 at a total of $1.21 trillion and hit a 15-year low in March 2011 at $762 billion, a -37% decline.   Today (June 2012), total construction spending is $820, a +8% increase from the 2011 low.

The residential construction industry peaked in March 2006 at $414 billion (two years before the Recession) and hit a 20-year low in September 2010 at $228 billion, a -66% decline.  Today, it is $256 billion, up +12% from its low in 2010 but still down -62% from peak.

The nonresidential (private sector commercial building) construction industry peaked in January 2008 at $414 billion and hit a 15-year low in 2011 at $244 billion, a -41% decline.  Today, it is $293 billion, up +20% from its low in 2011 but still down -29% from peak.

Public construction (heavy construction and civil engineering) spending peaked in July 2009 at $323 billion and hit its current low today at $271 billion, a -16% decline.  As the chart indicates, the federal government stimuli (i.e., politically-oriented, shovel-ready, infrastructure projects) increased public construction at the beginning of the recession ($294 billion in January 2008), which lifted this sector +10% to its peak latter in the recession.  After the recession, government spending has decreased significantly.

Jobenomics studies US and international economic trends.   Jobenomics assesses the following probabilities regarding the overall US economy:  30% chance that the economy will improve, 30% that it will continue to muddle along, and 40% it will get worse, or perhaps much worse, depending on the severity of potential financial disruptions.  For a more detailed discussion on why Jobenomics assigns these percentages to the US economic future read Jobenomics (the book) or visit our website (www.Jobenomics.com).   Since the US construction industry is one of the bottom performers of all US industries, Jobenomics assesses the chances that the overall US construction industry will not improve significantly in the foreseeable future with the exception of the commercial sector that has opportunities in foreign markets.  Jobenomics forecasts that:

  • The residential construction industry will not significantly increase in the foreseeable future.
  • The commercial industry will not increase significantly in the US but has potential international opportunities in emerging markets.
  • The publically funded infrastructure/heavy industry/civil engineering sector will not increase significantly due to federal/state deficits and debt.

Residential Construction Industry.  Jobenomics assesses the chances that the US residential construction industry will improve at 10%, remain stagnant at 20%, and will worsen at 70%.  This assessment is a nationwide assessment.  However, like real estate, the residential construction industry is largely local.  Residential traditionally has been the driving-force in the construction industry.  However, this may no longer be true.

This chart shows the total number of privately owned residential new starts since the middle 1950s. The January 2006 peak almost reached the previous peak in January 1972.  Then the US housing bubble burst which contributed significantly the Great Recession two years later.  From the peak in 2006, the number of residential new starts plummeted a staggering 79% to historic lows by April 2009.  Since April 2009, the number of new homes increased from 478,000 to 717,000 today, a +50% increase but still -68% from the 2006 peak.

For the foreseeable future, Jobenomics predicts that new starts will not appreciate at a significant rate, due to the following factors:

1.            Slow growth of the overall economy

2.           Chronically high unemployment and a shrinking middle class

3.           Distressed selling due to:

a.            Foreclosures

b.            Delinquent mortgages

c.            Underwater mortgages

d.            Strategic defaults

4.            Changing attitudes on home ownership (more people renting)

Other leading economics agree with this Jobenomics assessment.  According to Yale economics professor Robert Shiller, the co-creator of the Standard & Poor’s/Case-Shiller home price index, “I worry that we might not see a really major turnaround in our lifetimes” for the residential real estate market[3].

Nonresidential & Nonbuilding Construction. Jobenomics assesses the chances that the US nonresidential and nonbuilding construction (infrastructure, heavy and civil engineering) industries will improve at 20%, remain stagnant at 30%, and will worsen at 50%.  These two sectors did not suffer to the extent that their residential counterparts did during the housing bubble burst and Great Recession.  In addition, they were the beneficiaries of more government stimuli (e.g., “shovel-ready” infrastructure projects) than residential.   Assuming no major domestic or foreign disruptions to the US economy, Jobenomics believes that worst may be over for the nonresidential and nonbuilding construction industries.  Unlike residential construction, the nonresidential and nonbuilding construction industries have upside potential in the international marketplace that could offset downward trends in domestic public sector funding.

Most construction analysts predict that the US government public sector funding growth will resume as it has done in the past.  Jobenomics disagrees due to the magnitude of public debts and deficits.  A quick look at the largest government agency, the US Department of Defense, is indicative of what will happen to other government agencies including federal, state and local government agencies.   The US Department of Defense’s Military Construction Budget is dropping precipitously due to budget constraints.  The DoD’s Fiscal Year 11 (actual), FY12 (actual) and FY13 (planned) construction budgets (TOA, total obligation authority) where $20.1 billion, $13.9 billion and $11.2 billion respectively.   The difference between FY11 and FY13 is $8.9 billion, a decline of 44%.

McGraw-Hill Construction, a mainstay in construction industry forecasting, predicts that upsides in private sector construction financing (plants, warehouses, hotels, and commercial buildings) will be offset by large declines in public sector construction projects funded by municipal, state and federal governments.  New public sector projects like school, healthcare, electric utility and other public works programs (bridges, parks, roads) are problematic due to fiscal constraints at all levels of government.  In addition, new industry entrants face challenges with access to capital.  Strict lending standards will continue to exclude many general contractors from being eligible for loans.

Compared to their residential counterparts, larger corporations play a much larger role in the nonresidential and nonbuilding construction sectors.  There is some debate on the size and revenues of the major US construction corporations due the fact that many are private corporations.   However, the ENR (Engineering News Record) and Fortune 500’s Top 10 US Contractor Lists for 2011 represent the major players in the nonresidential and nonbuilding construction sectors.

Bechtel and Fluor are not only the leading US construction firms; they are the trendsetters for the entire US nonresidential and nonbuilding construction industries.  From a Jobenomics perspective, the future of all US construction corporations will largely depend on their success in the international arena with emphasis on emerging economies and economics within our own hemisphere (Canada and Mexico).

Bechtel Corporation (Bechtel Group) is the largest engineering company in the United States, ranking as the 5th largest privately owned company in the US[4].   In 2011, Bechtel had $32.9 billion in total revenue (up from $27.0B in 2007) and employed 53,000 workers on projects in nearly 50 countries.  Bechtel doubled its New Work to $53 billion in 2011 from $21.3 billion in 2010 and $20.3 billion in 2009.  Fluor Corporation is one of the world’s largest publically owned engineering, procurement, construction, maintenance and project management companies[5].   In 2011, Fluor had $23.4 billion in total revenue (up from $16.7B in 2007) in revenue and employed 43,000 workers on projects six continents.  Fluor’s international business sectors (in order of consolidated backlog by region) are: 24% Australia, 22% United States, 16% Canada, 15% Latin America, 13% Middle East, 6% Europe, 2% Asia Pacific and 2% Africa.  According to Fluor, Fluor’s future growth is dependent on international business as opposed to domestic US.

The following chart (extracted from ENR’s Top 225 Global Contractors list for 2011[6])) shows the top 10 global contractors (Bechtel #10) as well as the top 10 US global contractors (Bechtel #1)

Within the global top 10, Chinese companies had 5 positions and Europeans had 4 positions.  Bechtel, the lone US company, occupied the 10th position.   The top 10 US contractors earned a combined total $74.767 billion in 2011.  The top single Chinese contractor (China Railway Construction Corporation) earned slightly more ($76.206 billion) than the total of the top 10 US contractors.  Bechtel and Fluor earned almost as much as the next 8th largest US companies ($36.9B versus $37.9B). From a Jobenomics point-of-view, the international market holds immense potential for US construction industry, including US domestic homebuilders.  What is needed is a common vision and collective game plan.


[1] Bureau of Labor Statistics, Industries at a Glance, Construction: NAICS 23, http://www.bls.gov/iag/tgs/iag23.htm, 21 Mar 12

[2] NAICS Association, Six-Digit NAICS Codes & Titles, http://www.naics.com/free-code-search/sixdigitnaics.html?code=23, 21 Mar 12

[3] MSNBC, Economy Watch, http://economywatch.msnbc.msn.com/_news/2012/04/24/11369617-home-prices-up-for-first-time-in-10-months?chromedomain=bottomline&lite, 20 Apr 12

[4] Forbes, Largest Private Companies in 2011, http://www.forbes.com/lists/2011/21/private-companies-11_Bechtel_800U.html

[5] Fluor, Investor Relations, 2011 Annual Report, http://investor.fluor.com/phoenix.zhtml?c=124955&p=irol-irhome

[6] ENR, Top 225 Global Contractors: 2011, http://enr.construction.com/toplists/GlobalContractors/001-100.asp

Nation of Shopkeepers

The epithet “Nation of Shopkeepers” was used by Napoleon to infer that a British merchant society was incapable of effectively waging war against the mighty nation of France.  Napoleon was wrong.   British merchants and industry provided the resources that enabled England, with half the population of France, to win the Napoleonic Wars.

The phrase, “Nation of Shopkeepers”, did not originate with Napoleon. It first appeared in The Wealth of Nations by Adam Smith in 1776.   Smith believed that when individuals pursue their self-interest, they indirectly promote the greater good of society. He argued that merchants, seeking their own self-interests, contribute significantly to the commonwealth by producing vital goods, services and tax revenues.  Without this “invisible hand”, societies would be incapable of effectively pursuing self-sufficiency, prosperity and wealth creation.

Recent articles in prestigious publications, like USA Today and The Economist, make similar claims that a nation of small businesses cannot compete in the global marketplace because:

  • Big is better.  Big firms employ more, are more productive, can reap economies of scale, can focus resources on innovation, offer higher wages, and pay more taxes.
  • Smaller means weaker.  Small businesses fail at greater rate than big businesses.    Small businesses are not particularly adept at creating jobs, at least not the best jobs.  Almost all the 6 million companies in the US are small businesses, with fewer than 500 workers.  Most small business owners just want to be their own boss and never expect to hire more than a few employees.

Like Napoleon’s premise that a nation of shopkeepers cannot compete, those that believe that a nation of small businesses cannot compete are simply wrong.  Small business is America’s economic backbone—producing $6 trillion worth of annual products and services and employing half of the American private sector work force.  Moreover, it is small business, not big business, which is the foundation of job creation.  Since the beginning of this decade, small business generated 95% of all new American jobs (see: Employment Scoreboard: March 2012).  As far as innovation, the Small Business Administration (SBA) reports that small business produce 16.5 times more patents per employee than large firms.

There are not 6 million small businesses in the US.  There are 27.3 million small businesses.   The latest available Census data show that there were 5.9 million firms with employees and 21.4 million without employees in 2008. These 27 million small businesses pay 43% of total US private payroll and are responsible for 97.5% of all identified exporters with 31% of export value as reported by the SBA Office of Advocacy.  Just as important small businesses do not export jobs like big businesses.

The perception that small businesses regularly fail is only partly true.  While the failure rate is high, so is their entrance rate.  A recent landmark Census Bureau study showed that small establishments are no more inclined to exit business than large businesses.   This misperception exists because of the high exit rate of micro-firms (1-4 employees), which averaged 18.4% over the last three decades.  While this rate was high, their entry rate was even higher at 21.3%, therefore producing a net gain of 2.9% over the period.  The entry/exit rate difference for all firms was only 1.9%.  Looking at this data from a different perspective, compared to all businesses, micro-firms were more likely to succeed, which is counter-intuitive to common perception.

More recent data, reported by the ADP National Employment Survey, shows that very small businesses with 1-49 employees grew +7% over the last dozen years, whereas small businesses with 50-499 employees and medium/large businesses with more than 499 employees lost -4% and -16% respectively over the same period of time.

According to a recent Kauffman Foundation Study, job growth in the US is driven entirely by startups.  The study reveals that, both on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers, losing one million jobs net combined per year.   By contrast, in their first year, new firms add an average of three million jobs.  According to the Kauffman Foundation, “Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies. But the data from this report suggest that growth would be best boosted by supporting startup firms.”

From a Jobenomics perspective the government’s primary jobs creation role is to create an environment where small, entrepreneurial businesses can flourish.  Unfortunately, government officials are locked in a mindset that a nation of “shopkeepers” cannot compete and the solution to growing the economy is a combination of big business and government. Perhaps the greatest factor contributing to this mindset is the scarcity of business owners working in government.  Furthermore, entrepreneurs and serial-entrepreneurs are almost completely absent in government decision-making.

Bureaucrats tend to view risk as a liability, whereas entrepreneurs embrace risk as an opportunity.  Serial entrepreneurs embrace multiple ideas, get companies started, and transfer leadership to operational managers so they can move on to new ventures.  Steve Jobs is an example of a serial-entrepreneur who created multiple iconic businesses.  Our country is blessed with tens of thousands of proven serial entrepreneurs.  Unfortunately, few serial-entrepreneurs serve on government economic councils that are replete with politically-correct and process-driven corporate chieftains and economists.

If small business is America’s economic engine, and if entrepreneurs and innovators are essential to business startups, then how does America change the government mindset?  The upcoming presidential election debates are a good place to start.

From a Jobenomics point-of-view, neither the President nor the leading Republican candidates have yet articulated a viable jobs creation strategy.  Virtually all of the proposed job creation plans are top-down political agendas oriented to ideologically-driven constituencies.  Almost every political speech contains references to a reformed regulatory environment, better tax incentives and cuts, debt and deficit reduction, helping the middle-class, importance of small business, revitalized manufacturing, green jobs, environment protection, energy independence, stimulation packages, tort reform, reciprocal trade agreements, and increased exports as ways to increase jobs.  While all of these areas are necessary, they are insufficient.

Political focus has to be on business creation, not job creation.  In recent years, small, emerging and self-employed businesses have been responsible for virtually all of America’s new jobs.   Yes small businesses fail, but enough survive to prosper our society.   Seven out of ten startup firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more.  From an entrepreneurial perspective, these are very lucrative statistics that should be the bedrock for a national business initiative to create millions, or tens of millions, of new small and self-employed businesses by year 2020.

A nation of small businesses empowered by 21st technology can compete globally in ways never before thought possible.  It is almost inconceivable that today half of America’s GDP is generated by 27 million small businesses.   It is equally inconceivable that 52% of these businesses are home-based.  Jobenomics envisions that the American labor force will continue to be transformed by small, largely self-employed, home-based businesses. This transformation will be lead by 70 million members of America’s millennial generation who will monetize the internet and social networks in ways not yet conceived.  The country that learns how to monetize social networks, like Facebook with 825 million users, will be transformed almost overnight.  Tens of millions of new businesses (mostly small and self-employed) will be created.

American innovation, ingenuity and entrepreneurship are the keys to a prosperous future where everyone who wants to work can find a job.  A national small business initiative starts with an achievable vision.  President Kennedy focused American science and technology on getting to the moon in a decade.  In comparison, the Jobenomics 20 million new private sector jobs by year 2020 (20 by 20) goal should be very achievable.  If China can lift 400 million peasants out of poverty in two decades, America can create 20 million new private sector jobs in one decade. Adding millions of new “shopkeepers” to a nation that is already of nation of small businesses could boost our commonwealth to new economic heights.



 

Self Employment Screen

Welcome to the Jobenomics “Self-Employment Screen“.

“20 Million Jobs by 2020″.

What is the Self-Employment Screen (SES)? The SES analyzes the key inherent characteristics and attitudes that influence entrepreneurial success and can help predict which of the four major entrepreneurial business environments a person is most naturally suited to: agent/representative, consulting/contract, franchises or small business.

The SES does not pre-judge whether someone should be self-employed. Rather, it provides the person interested in becoming self-employed with insights into her/his business development style, motivational factors, developmental needs and the type of self-employment that she/he would be most naturally suited to.

A copy of the SES report is provided online immediately upon completion of the survey.

For your complimentary assessment to determine the best type of opportunity fit for you, click here: Take the Self-EmploymentScreen

 

Veterans

If you are a Veteran, we invite you to complete the CareerManagementPro™.

This profile will provide you with key insights into yourself and your personal strengths as you make important career decisions.

To begin this assessment, please click here: CareerManagementPro™ for Veterans

 

More Information

For more details and to purchase available profiles, please click here.

To hire small business coaches, contact: Hugh Ballou or Micro Biz Coach

5 Million Government Layoffs Ahead?

Recent US Employment Trends addressed the three most important employment sectors: private sector service-providing industries, private sector goods-producing industries, and the government sector.   This article examines the government sector in more detail and hypothesizes how many more job losses could occur in the near future.

2012 will be a pivotal year for the US economy.  For 2012, Jobenomics assesses the following probabilities:  20% chance that the economy will improve, 30% that it will continue to muddle along, and 50% it will get worse depending on the severity of financial disruptions (see 2012 Jobenomics Outlook article).  Given this 50/50 forecast, Jobenomics forecasts that the current government trend of government layoffs will continue.

The Jobenomics plan calls for creation of 20 million new private sector jobs with emphasis on small, emerging and self-employed businesses in service-providing industries in order to generate a robust economic recovery.   Our plan also calls for zero government growth as opposed to cuts in government employment.  However, since the US is creating new jobs at only 45% of what is needed (see Recent US Employment Trends) reductions in the government workforce appear inevitable.  A drop of 5.4 million government jobs is our best guess given current economic conditions and trends.  It is our hope that these reductions will not occur if the economy improves on its own, or is nudged by the Jobenomics national grassroots movement.

Local Government Civilians: 2 million potential job reductions. 

State and local governments have been shedding jobs for the last three years. This trend will likely accelerate and perhaps double from the current rate of 250,000 (see BLS/CBPP chart) to as much as 500,000 layoffs per year.  There are four major reasons for this assertion.  The first reason deals with decreased discretionary income due to unemployment, under-employment, and declining middle-class wages and net-worth.   Decreased discretionary income translates to reduced consumption and lower government tax revenues.  Second, federal stimulus funding has ended and new stimulus funding is unlikely.  Third, non-essential state, municipal and local programs and services have already been cut.  Future cuts are likely to involve personnel.  Fourth, reduced property tax revenues will be a major new factor with local governments that are responsible for 82% of all recent government sector layoffs.

Property taxes are the main source of tax revenues for municipal and local governments.   Because it takes years to process property assessments, the collapse in housing values are just now beginning to impact local governments at a time when federal and state aid are ending.  Most local governments predict that their tax base, generated by residential and commercial property taxes, will shrink consistently each year over the next five years.

Since the Great Recession of 2008, when tax revenues from inflated property values and federal/state aid were plentiful, local governments were compelled to shed hundreds of thousands of jobs.  Today times are much worse financially.  Rainy-day funds have been largely depleted.  Cuts in non-essential programs and services mostly have been made.  Without a robust US economic recovery, a perfect storm is brewing where local governments may have to make deep cuts in essential services including teachers, police and firefighters.  Since education constitutes 56% of local government employment, teachers will be particularity hard hit.

In the last two years, local government jobs decreased from 14,498,000 to 14,078,000, a loss of 420,000 jobs or 1.45% per year.  Due to the shrinking tax base, it is likely that this rate could increase to 3%, resulting in 2 million job losses over five years.

State Government Civilians: 340,000 potential job reductions.  Over the last three years, states had budget shortfalls of $430 billion.  State governments rely heavily on sales taxes, income taxes, business taxes, excise taxes and tuitions for state-funded universities.  All of these sources of tax revenues are likely to increase, which should keep state layoffs to the minimum.  On the other hand, increasing entitlement (Medicaid) and welfare expenses, dwindling federal subsidies, persistently high unemployment rates, and a sluggish economy make balanced budgets a difficult goal for the 42 states that are projecting a $110 billion budget shortfall in 2012.

In the last twelve months, state government jobs decreased from 5,144,000 to 5,073,000, a loss of 71,000 jobs or – 1.4%.  While states have the capability of raising many forms of taxes, Jobenomics predicts that voters reject most of the legislative efforts to increase taxes.  Without additional tax revenue, states will continue to reduce its public sector workforce.  Consequently, it is likely that the -1.4% trend will continue and 340,000 jobs will be lost over the next five years.

Federal Government Civilians: 300,000 potential job reductions.  In the last twelve months, federal government employment decreased from 2,844,000 to 2,817,000, a loss of 27,000 jobs or – 0.9%.   This modest rate is likely to increase due to budget and deficit concerns.   There are growing calls from Congressional conservatives that the US federal government should reduce size by as much as 10%.   While opposed, Congressional liberals are faced with a dilemma justifying high federal government salaries in relation to growing needs of the unemployed and other financially challenged groups.  Jobenomics predicts that federal civilian workforce reductions (not including the US Postal Service and DoD Civilians) will average 2.5% over the next five years, which would result in 170,000 job losses.

612,000 US Postal Services employees are federal employees.  In the last twelve months, the postal service lost 30,700 jobs, or 4.8% of its workforce.  Due to inefficiencies within the postal service, private sector competition and increased use of email, this trend is likely to continue at its current rate for a loss of 130,000 jobs in five years.

US Military: 435,000 potential job reductions.  The Department of Defense (DoD) is comprised of 1,430,895 active duty, 848,000 reserve, and 779,000 federal civilian employees for a total of 3.1 million personnel.  Secretary of Defense Leon Panetta is considering reductions once thought sacrosanct.  Planned cuts of $450 billion will reduce the military budget by 7% to 8%.  According to Panetta, “Rough estimates suggest after ten years of these cuts, we would have the smallest ground force since 1940, the smallest number of ships since 1915, and the smallest Air Force in its history.”   SecDef’s forecast does not include $600 billion of other potential congressionally mandated DoD reductions which could increase DoD cuts to approximately 20%.   $600 billion is half of the potential $1.2 trillion sequestration amount.

Priority currently is being placed on cutting weapons programs, but in the end, manpower will have to be reduced since it is the largest component of the national security budget.  Due to annual trillion dollar budget deficits, a flagging economy, priority given to mandatory accounts (Social Security, Medicare) over discretionary accounts (National Security), attrition of returning Iraqi and Afghani veterans on top of normal attrition, rising personnel and retirement costs, and inflation, the DoD is a prime target for severe cuts in manpower.

Jobenomics estimates that the US military and civilian workforce is likely to decrease at an annual rate of 3% per year over the next five years.   If this occurs, 435,000 positions will be lost.

Government Contractors: 2.3 million potential job reductions.  Exact numbers of government contractors are hard to obtain.  So Jobenomics accessed data from USAspending.gov which provides the public with information about how their tax dollars are spent.  According to USAspending.gov, in fiscal year 2011, the US federal government’s direct payment to federal government civilian contractors was $895 billion.   Jobenomics estimates the approximate number of federal contractor employees by dividing their estimated average wage and benefits of $120,000 (triple the median private sector wage, but equal to the average federal government civilian pay) into $895 billion, which equals 7.4 million federal contractor employees.   While the number of state and local civilian contractors jobs are unknown, it is safe to assume at least 2.6 million (1/3 of federal contractor jobs), for a total of 10 million government (federal, state, local) civilian employees.

Due the size of budget deficits at all levels of government (federal, state and local), 5% cuts are likely for federal contractors over the next five years, resulting in the loss of 2.3 million jobs.

Cuts of this magnitude would cause a crisis for defense and aerospace industries.  While national security enthusiasts will vigorously resist the magnitude of these cuts, similar defense industry cutbacks occurred after WWII, Vietnam, and the Cold War.  Cold War spending was replaced by the so-called “Peace Dividend” which reduced military expenditures as a percent of GDP by approximately 50% over ten years.  Considering the severity of annual trillion dollar budget deficits, and a potential post-Iraq/Afghanistan peace dividend, it is conceivable that massive defense contractor reductions could occur in a period of five years, if the US economy does not significantly improve soon.