The June employment report was decidedly weak, and serves as the latest blow to the V-shapers – if any are even left. It once again left me feeling that something is very, very wrong at the heart of the American economy, something that is much more structural than cyclical. Consider too that US policymakers appear completely unable to adequately address the latter problem, now hampered by fear of deficit spending and the threat of the invisible bond vigilantes. Yet the structural challenges are even more daunting, and I fear that the Washington establishment is simply incapable of the paradigm shift necessary to address these challenges.
Only one word describes the American labor market outcome of the last decade – abysmal. Not only is job growth well below trend, but the quality of jobs is in question. The jobs deficit is even more striking considering the supposed gains in productivity over the past 15 years. Job growth should not stagnate. Resources – including labor – released via higher productivity are supposed to be channeled into expanding sectors. Moreover, productivity growth is supposed to yield improved economic outcomes via higher real wages. Yet as spencer famously shows, labor’s share of output has been steadily decreasing since the early 1980s. This downward trend was interrupted by gains evident during the tech bubble of the mid-1990s. Apparently, only during that brief, shining moment of generational technological change did the productivity story work as we believe it should, at least since the early 1980′s.