Kentucky has become the center of aluminum manufacturing for the automotive industry In the spring quarter, Braidy Industries announced it will build a $1.3 billion aluminum mill in Greenup County in Eastern Kentucky. The plant will produce aluminum sheet and plate for automotive plants in the South and Midwest. The deal will create 550 jobs. With Ford using more aluminum in its vehicles that are built in Louisville, the plant is needed. Also, Toyota is undergoing a $1.3 billion expansion of its plant in Georgetown, Ky., part of which is to accommodate more aluminum parts in its vehicles assembled there. The move convinced Logan Aluminum, which for decades has made aluminum cans in Logan County, Ky., to invest $248 million in the plant to produce aluminum parts for cars and trucks.
South Carolina automotive plant moving to Mexico Kongsberg Automotive will close its plant in Easley early next year and eliminate nearly 100 jobs. The plant makes parts for large trucks and buses.
Who’s in the running for Toyota-Mazda plant? According to the Wall Street Journal, 11 states — Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, North Carolina, South Carolina and Texas — are being considered for a $1.6 billion auto manufacturing plant planned by Toyota and Mazda.
Freightliner to open $27 million logistics center in North Carolina Rowan County’s huge Freightliner plant, owned by Portland, Oregon-based Daimler Trucks North America, will get a new $27 million logistics center and add more than a dozen new jobs to the 1,400 employees already working there. The idea is to consolidate existing warehouses and pave the way for adding more robot vehicles to the production line.
Toyota Motor North America expands Plano, Texas operations hub Toyota Motor North America will form a new group focused on new technologies for its Toyota and Lexus vehicles. Called Connected Technologies, the group will employ approximately 100 positions and will include members from Toyota’s existing teams working on connected vehicles, information systems, and research and development.
Sentury to build North American HQ and tire plant in Georgia Sentury Tire’s Georgia-based North American headquarters and manufacturing plant will sprawl across 1.5 million square feet, according to a filing made with the state. Last September, China-based Sentury Tire confirmed plans for a $530 million investment in LaGrange to make tires for cars and aircraft, including the landing gear tire for the Boeing 737. The first phase will employ 1,000 and include R&D and distribution centers.
Parts supplier to establish new operation in South Carolina Germany-based Frimo Group subsidiary bo parts GmbH, a tier one and tier two supplier to the automotive industry, is establishing a new facility in Greenville County, S.C. The $4.1 million project will create 100 new jobs.
In wake of Toyota-Mazda decision, Chatham County, N.C., approves options on megasites Chatham County has approved five-year option agreements for both the Chatham-Siler City Advanced Manufacturing Site and the Moncure Megasite. Both sites are located in Chatham County and both meet the requirements for an automotive assembly facility.
Auto parts supplier expands in Tennessee U.S. Tsubaki Automotive is investing $35.8 million to expand its facilities in Portland, Tenn. The parts supplier will also add 70 new jobs.
Auto parts maker to expand in Mississippi Ohio-based S&A Industries announced it will invest $4 million to expand its plant in New Albany, Miss. The company, which will hire 40, makes noise vibration damping products for automakers.
Another megasite in the South tries to land Toyota-Mazda The Purchase Area Regional Industrial Authority that covers several counties in Western Kentucky is offering up more than 2,000 acres of free land in an effort to land the latest automotive assembly plant site search in the Southern Auto Corridor. The site is in Graves County near Mayfield, Ky. According to sources, about 15 states in the South and the Midwest are competing for the proposed $1.6 billion plant that will build Toyota Corolla models and a Mazda SUV.
Automakers in Alabama shipped vehicles to 86 countries last year Alabama’s automotive industry is in its 20th year. Last year, Hyundai, Honda and Mercedes-Benz shipped $7.9 billion in Alabama-made vehicles to 86 different countries. The number is a 13 percent increase over 2015 exports. Germany was the top export market for Alabama-made vehicles with more than $2.4 billion, followed by China, Canada, Mexico and the United Kingdom.
Florida-Alabama megasite makes pitch to Toyota-Mazda In the Florida Panhandle, just South of the Alabama-Florida line and Dothan, Ala., lies the 2,240-acre Florida-Alabama Mega Site. The site is relatively new to the large number of megasites in the South. Alabama and Florida officials have contacted leaders of the Toyota-Mazda joint venture to build electric sedans and SUVs. The site is located 30 miles from Dothan, 49 miles from Panama City, Fla., and 63 miles from Tallahassee. The city of Marianna, Fla., operates a municipal airport 12 miles from the site.
European auto supplier to open first U.S. facility in Alabama
An automotive company based in Spain is investing $30 million in a new wheel assembly plant in Tuscaloosa County. Truck & Wheel Group’s move will create more than 70 jobs.
Bolta opens $49 million Alabama plant
Global auto parts supplier Bolta Group has opened its new $48.7 million production facility at the Tuscaloosa County Airport Industrial Park. The factory will add 350 to its current staff of 200. Bolta manufacturers parts such as nameplates and decorative trims for the automotive industry.
German logistics firm launches in Greer, S.C.
Rudolph Logistics Group is launching a new warehousing operation in Greer, bringing more than $18 million of capital investment to the Upstate and creating at least 150 new jobs. Its customers include Audi, BMW Group, Continental and Mercedes parent group, Daimler.
BMW facility to draw thousands to College Park, Ga.
BMW plans to open a training center in College Park next to the Georgia International Convention Center, moving the training out of its Southern region headquarters in Sandy Springs. Officials in College Park expect the training center will draw as many as 10,000 BMW workers annually for corporate training. At 53,000 square feet, the new $16.6 million center will be four times as big as the old one. It will mainly be used for interactive training of dealership employees.
Gateway Tire to invest $11 million in Alabama
Gateway Tire, a wholesale distributor of brands such as Toyo and Hankook, announced plans to invest $11 million to open a 200,000-square-foot tire distribution center in Dothan.
Shapiro Metals opens second Alabama plant
Shapiro Metals recently launched its 11th North American plant with the opening of a new 20,000-square-foot facility in Decatur, Ala. The plant recycles metals from aerospace, trailer manufacturing, automotive and medical device customers.
Calsonic Kansei undertakes major expansion at Mississippi plant
Japan-based automotive supplier Calsonic Kansei will invest $16.33 million to expand its manufacturing plant in Madison, Miss. The company plans to create 98 new jobs, bringing its total employment in the area to about 600. Calsonic Kansei is a supplier to Nissan’s Canton automotive assembly plant.
Netherlands-based manufacturer bringing 71 jobs to Spartanburg County
Netherlands-based AWL-Techniek, a producer of high-tech welding machines primarily for the automotive market, will invest $2.53 million to establish its first plant in the U.S. The project also means 71 new hires.
Auto supplier adding 98 jobs in Tennessee
Automotive supplier Cooper Standard will create approximately 98 new jobs at its facility in Surgoinsville. Alongside the new jobs, the company, which is headquartered in Michigan, is investing $1 million in new plant equipment.
Electro-Spec launching new operations in Lexington County, S.C.
Electro-Spec, a specialty plating manufacturer for the aerospace and auto industries among others, is locating new production operations in Lexington County. The development is projected to bring $3.1 million of capital investment and create 53 new jobs.
Honda supplier expanding and hiring in Alabama
A Canada-based automotive metal-forming company is planning another facility for its plant in Sylacauga, Ala. Fleetwood Metal Industries is building a 60,000-square-foot facility close to its current plant in Sylacauga’s industrial district, and plans to hire 70 more employees by year’s end.
Toyota opens the doors of its billion-dollar campus
About 2,000 team members are arriving at Toyota North America’s new 100-acre, 2.1 million-square-foot campus it expects to operate for the next 60 years.
Giti Tire building $560 million campus
Singapore-based Giti Tire, the 10th largest tire company in the world, is on track to open its first North American manufacturing and distribution facility on a 1,100-acre site, 170 miles northeast of Charleston, in Richburg, S.C. The company expects to invest $560 million and create 1,700 new jobs over the next decade in Chester County.
Automotive supplier to build in Charleston County, S.C.
Knapheide Manufacturing Co. announced recently it is opening a new manufacturing facility in Charleston County, expected to bring an investment of $1.3 million and create 63 jobs. The new plant will install van interiors and bodies for Mercedes-Benz
BMW commits to new jobs in U.S.
BMW AG is the latest auto maker to commit to new jobs at a U.S. factory following criticism from President Donald Trump, saying it will create 1,000 American jobs through 2021 as it works to boost its production of sport-utility vehicles in South Carolina. The jobs are part of a $600 million investment planned for the German auto maker’s Spartanburg factory.
I’ll believe North Carolina will land the Toyota-Mazda Big Kahuna when they write the check
By Michael Randle, EDITOR
Some are saying that North Carolina is the front-runner for Toyota and Mazda’s proposed $1.6 billion, 4,000-employee plant that the Japanese automakers are shopping around the U.S. The advantages are numerous for the Tar Heel State, sources say. They cite four excellent megasites in the state — two in Chatham County near the Research Triangle, one in Randolph County near Greensboro and another in Edgecombe County near Rocky Mount. North Carolina also has one of the largest workforces in the South in an age of very tight labor.
Also weighing in North Carolina’s favor, some sources say, is the fact that the state is not currently home to what we call a “Big Kahuna,” or a major automotive assembly plant. Plain and simple, automotive plants are the Big Kahuna in economic development. No projects have the economic effect that an automotive plant has on a state, multi-county region or a city. Simply put, they are the largest drivers of wages in the South. In 22 of the last 23 years, the automotive industry has led all sectors in the region — services or manufacturing — in large projects of 200 jobs or more.
Arkansas, Florida, Louisiana, North Carolina, Oklahoma and Virginia are the only states left in the South that are not home to at least one major automotive assembly plant. Louisiana and Oklahoma were home to GM plants, but those closed in the last 12 years.
Of those states void of a major automotive assembly plant, North Carolina and Virginia would be ranked No. 1 and No. 2 in the prospect of landing one in the Southern Automotive Corridor. After all, North Carolina was a finalist for the Toyota plant that ended up in Blue Springs, Miss., in 2007. The state was also a finalist for the Mercedes-Benz plant that announced in Alabama in 1993. In both cases, North Carolina was outbid badly by Mississippi and Alabama when it came to the incentive packages offered.
Just like those two projects, North Carolina will have to pony up for the Toyota and Mazda joint venture, unlike it has ever done for a large job generating deal. The largest incentive package I can recall that North Carolina has doled out over the last 25 years was to Dell when it opened a computer factory in Winston-Salem in 2005. That package totaled over $200 million. However, Dell didn’t even get a whiff of a large portion of that $200-plus million. The plant closed four years after opening and most of the incentives paid to Dell were returned to state and local agencies via claw back provisions.
North Carolina has written into its state budgets this year and next up to $50 million in incentives toward a “transformative” project. According to the provision, that amount could be offered by the state for a project of $4 billion in capital investment and a 5,000-employee commitment. Let me tell you, it’s going to take a lot more than $50 million to land this latest Big Kahuna. In fact, it might take $500 million to land the project, which will be the most efficient automotive factory in the world using artificial intelligence and connectivity to build automobiles. Toyota will most likely make electric Corolla models and Mazda will make electric SUVs at the proposed plant.
Other than the aforementioned sites in North Carolina, we’ve heard Toyota officials have already looked at the Glendale Megasite in Hardin County, Ky; the Huntsville Megasite in Limestone County, Ala.; and the Memphis Megasite in Haywood County, Tenn. It should be noted that in addition to Toyota’s plant in Mississippi, the automaker has an engine plant in Huntsville, Ala., and its largest U.S. plant in Georgetown, Ky. Again, in an age of very tight labor, let’s not forget there are thousands of out-of-work coal miners in Eastern Kentucky.
There have been nine new foreign-owned automotive plants built in the Southern Automotive Corridor since Mercedes announced it was building its Alabama plant in 1993. Right up to the day before that transformational Alabama project, The Wall Street Journal had picked a site in Mebane, N.C., as the site for the German automaker.
After decades of being the bridesmaid in auto assembly announcements, this Toyota-Mazda site search could actually end up in North Carolina. But I will believe it when I see North Carolina write the check for this latest Big Kahuna.
Real answers about the South’s economy in a post-truth, “alternative facts” age.
By Michael C. Randle
In a post-truth, alternative facts, fake news world, brought about almost exclusively by the far-left and far-right media, as well as political officials on the fringe, what are we supposed to believe? What we can trust is the data. So, let’s look at the data that busts some of the myths that are out there now in an effort to find the truth about the current economy.
Quarterly economic data from the federal government did not exist until after World War II. Therefore, it is difficult to trust sources prior to then when it comes to economic expansions or recessions.
Based on the data, an economic expansion is defined as a measure of economic growth from one quarter to another. It is essentially the rate of change in the nation’s gross domestic product. Some measure the growth or decline of an economy from one year to the next, but mostly, it is factored quarterly.
If GDP grows each quarter — the current economy has expanded for 31 consecutive quarters, or almost eight years — that is considered an expansion. A recession is defined by the federal government and economists as a decline in real GDP, income, employment, retail sales and manufacturing for at least two quarters, or six months. That has not occurred with the nation’s economy since the first and second quarters of 2009.
The current economic expansion is very impressive, but it is not the second-longest in U.S. history, or even the second-longest post-World War II. The nation’s economic expansion from the first quarter of 1961 to the fourth quarter of 1969 lasted 36 quarters, according to the U.S. Department of Commerce. That was the second-longest expansion in U.S. history.
The nation’s economy advanced by 32 consecutive quarters from 1982 to 1990, making it the third-longest expansion. And the expansion of the go-go 1990s from 1991 to 2001 lasted 38 quarters, or nine and a half years, the longest economic expansion ever recorded.
Regardless, this current economy is in rarefied air, and no one who has the data can call it a recession as we have heard from some far-right news sources. One more quarter of an advancing economy and we will have tied the third-longest expanded economy.
And the data says: The length of the current economic expansion is not the second-longest in U.S. history. It is the fourth-longest in the nation’s history (or since quarterly GDP numbers were first calculated in 1949).
Workforce participation rates are not great, they are average, which is really not the problem. The real problem is most who claim the quote above, or anything like it, don’t even know the definition of “workforce participation.”
“Workforce participation rate” is defined as the percentage of people from age 16 to 64 years old, either holding a job or actively seeking work. High school and college students who do not have a job are deemed “not participating.” Retirees in nursing homes are considered “not participating.” The disabled are considered “not participating.” Stay-at-home persons who can’t afford childcare or elder care are considered “not participating.” I’m sure there is a kid somewhere who is 16 years old, driving his Camaro to junior high because he failed the ninth grade twice. Yes, that kid is considered “not participating” in the workforce.
Also, the severely addicted, if not working or seeking a job, are considered “not participating,” as are the mentally ill, which should be addressed when discussing workforce participation, or lack thereof.
Arguably, one of the reasons the workforce participation rate is just average at 63 percent is that back in the 1990s when it was so high (67 percent), there were very few drug tests taken when applying for a job. Today, drug tests are almost mandatory due to insurance regulations.
Drug use is part of the reason many people don’t participate in the workforce. There is more illegal drug use in this country than ever before, which has been documented by many sources. That’s a big portion of the work-eligible, participation problem. What’s the point in applying for a job, when many think, “I won’t pass the drug test.”
There is no question that drug tests administered when applying for a job are keeping workers on the sidelines. So, it is a little unfair to compare workforce participation rates today to the days when drug tests were rarely if ever given.
Since 1970, the highest workforce participation rate was in March 2000 at 67.3 percent of eligible workers with a job or seeking one. Today, the workforce participation rate is right at 63 percent. For the year 1970, the labor participation rate was 60.4 percent. At no time since has it ever risen above 67.3 percent.
And the data says: At 63 percent, workforce participation rates today are not the worst in U.S. history. Since 1970, we’ve seen workforce participation rates drop to 60.4 percent, and the highest ever was 67.3 percent. So, workforce participation rates today are a little below average the rates seen since 1970.
It should also be noted that over the last 18 months, the civilian labor force climbed nearly 2 percent, a very strong pace. That growth came from workers reentering the workforce. And the prime-age workforce participation rate (ages 25 to 54 years) has surged to 82 percent, the highest in nearly three years.
Since 1960, annual wage growth or decline has bounced from its highest at 13.77 percent to a low of minus 5.77 percent. In recent recoveries like the one we are in now, wages on average grew by about 3.7 percent per year. According to the Bureau of Labor Statistics, wage growth in the U.S. averaged 6.29 percent from 1960 to 2016. But that average counted many years in the 1960s of fast-rising wages, and in the 1970s of spiking inflation.
In the last three decades, wages have not come close to growing by the 6.29 percent annual average, particularly post-Great Recession. In fact, average hourly wages grew by only 2.9 percent in 2016, and that was one of the best years in a decade. Wages grew by 2.3 percent in 2015, and 2.1 percent in 2014. If hourly wages had grown by 3.7 percent in 2016, the average during recoveries, workers would be making nearly $30 an hour compared to the $26 average today.
However, in former President Obama’s defense regarding his claim, the median household income grew to $56,500 in 2015 (adjusted for inflation), according to the U.S. Census Bureau. That’s growth of more than 5 percent in real median household income.
That 5 percent gain is the largest annual increase in income since median household income data has been recorded, which began in 1968. . .which is probably what Obama was referring to.
And the data says: Wages have not grown faster over the past few years than at any time in the past 40 years. President Obama was wrong.
Under President Obama’s watch, at least 2 million jobs were created in each of his last six years in office. During that time, the U.S. set a record for the most consecutive months of creating 200,000 jobs or more. Under Obama, the U.S. created 2.2 million new jobs in 2016 and 2.7 million in 2015.
On the other hand, Obama’s administration claimed that more than 15 million jobs were created in that administration. That’s a gross figure, which they failed to point out. Remember, the Obama administration began in January 2009. At that time and until 2010 (the first full year of recovery), the U.S. was bleeding hundreds of thousands of jobs monthly. That being the case, Obama’s net job creation total was 11.3 million jobs.
That total was still much better than President George W. Bush’s two terms, which saw only 2.3 million net new jobs created. But Obama’s net jobs figure did not compare to Ronald Reagan’s two terms (15.9 million net jobs) or Bill Clinton’s two terms (22.9 million net jobs).
And the data says: True, the 77 consecutive months of job growth in the U.S. under the Obama and Trump administrations is indeed a modern-day record.
In the recent presidential election, Donald Trump said in the final debate, “We don’t make our product anymore. It’s very sad.” He then said, “We’ve given up.”
We did give up in the 1990s, when those comments by President Trump would have been applicable. Back then we simply could not compete in the manufacturing arena with China. Today, we compete very favorably with every country in the world, including China and Mexico, for new and expanded manufacturing industries.
In an article published by CNN Money in the fall 2016 quarter, Chad Moutray, chief economist with the National Association of Manufacturers, was quoted saying, “We produce more today than we ever have. We made $2.1 trillion worth of products in 2015.” In fact, in the first quarter of 2016, the value of products made in America reached a record high. Which means that we are experiencing the most productive period in manufacturing history in this country.
Today, U.S.-based factories — both foreign-owned and domestic — are making almost five times more product than in the 1950s and ’60s, and they are doing it with many less workers. That’s where people can get confused about the manufacturing sector and its performance in the U.S. The job losses are important, but misleading.
In 1979, manufacturing employment peaked at 19.6 million workers. Today that figure is about 12.4 million and it has stabilized. In fact, over the last six years, the U.S. has created net new manufacturing jobs for the first time in more than two decades. Since the end of the recession, the U.S. manufacturing sector has added more than 800,000 jobs, with about 40 percent of those in the South. And compared to 1960 when one in four Americans had a job in manufacturing, today only one in 10 work in the sector.
The best way to understand advanced manufacturing today is to look at the history of the farm workforce in the U.S. In 1880, roughly 50 percent of Americans worked on a farm. Today, that figure is below 2 percent. The reason is the same reason jobs have been lost in the manufacturing sector; automation on the farm and on the factory floor have reduced both workforces.
And the data says: In the first quarter of 2016, the value of products made in America reached a record high. Today, U.S.-based factories — both foreign-owned and domestic — are making almost five times more product than in the 1950s and ’60s. The real issue is that the nation’s manufacturing sector is making more today than ever with about 60 percent of the peak manufacturing workforce of 1979. Yes, we have lost millions of manufacturing jobs, primarily to automation, but President Trump is wrong. The U.S. manufacturing sector makes more products than ever.
When campaigning for the Democratic nomination for president, Sen. Bernie Sanders introduced a bill that would raise the federal minimum wage to $15 an hour. This is not a black-and-white argument that can be fact checked like the previous statements simply because the minimum federal wage hasn’t been raised to $15 an hour, or even to $8 an hour, so it’s impossible to make a definitive statement on right or wrong based on its effect on the economy. It is more of a gray area that needs to be discussed among unbiased, nonpartisan minds.
There isn’t any question that Sanders is right when he said “the federal minimum wage” of $7.25 an hour is “a starvation wage.” You would have to be far right of the Tea Party if you believe that $7.25 an hour is a fair wage. It hasn’t increased since July 2009. There is no question that it needs to be raised. However, an across-the-board advancement of the federal minimum wage from $7.25 to $15 an hour would make some areas of the nation incredibly vulnerable, and place those areas in noncompetitive positions.
Wages are the most important aspect of any economy in my opinion. When it comes to the practice of economic development, wages are the only thing the vast majority of people — outside of economic developers and economists — truly understand. The economic development community tries to explain to elected officials, business leaders, local and statewide media as well as the citizenry at large, why a job-generating project is so important to a community and why incentives to capture that project are so critical. But they do a very poor job in their explanations.
In an age of “corporate welfare” accusations when it comes to incentives, simplifying the return on investment of a job generating project can be very effective. At the moment I am writing this article, some politicos in Florida want to abolish Enterprise Florida, the only statewide economic organization in the state. It has come to this because the economic development community in the state cannot seem to argue the merits of Enterprise Florida and the incentives the organization hands out to new and expanding business and industry.
Again, few people outside of it understand the practice of economic development — tax generation, multipliers and revenue streams that come from a job- and investment-generating project. And if an elected official’s proposed incentive is based on tax generation, then those outside of economic development would simply say to themselves, “I don’t trust them with that money, either.”
However, wages are something that everyone understands, because most everyone earns a wage. Wages go directly to the people and not first to the government. I often tell people who are charged with explaining how economic development works to focus on the wages a single project will inject into a community.
For example, the BMW plant in South Carolina generates about $700 million in wages for the Upstate region each year, not including the automaker’s suppliers. Count suppliers, and the wages are upwards of $1.7 billion a year for a single project. The plant has been operating since 1994, and it will continue to roll out SUVs for many years to come, meaning the incentives paid to BMW are a pittance compared to the wages generated over the course of, say, the 75-year lifespan of the plant.
I remember when a far-right think tank from North Carolina accused me in 2003 of being a fiscal liberal because of my support of incentives. I told the far-right editor who was interviewing me that Alabama has spent less than $2 billion in incentives to three automotive assembly plants — Mercedes-Benz, Honda and Hyundai — since 1993. The wages paid at just those three assembly plants are today right at $20 billion dollars. Those wages don’t count the hundreds of suppliers the three facilities have drawn to Alabama. So far, Alabama has enjoyed more than ten times its return on investment in wages alone!
The editor of the far-right think tank would have none of it. He said, “I think all ‘corporate welfare’ should be directed to education and public safety.” I said to him, “Well, if you do that, North Carolina will be the safest, smartest, 20 percent unemployment state in the South.”
But back to Bernie Sanders and his recent quest to advance the federal minimum wage to $15 an hour all across America. I think everyone would support higher wages for all if, of course, it didn’t come at the expense of someone else’s pocketbook. Obviously, that is not possible.
A $15 wage increase across the nation is ludicrous. Sanders wanted to raise the federal minimum wage the same amount for New York City, San Francisco and Los Angeles as with Martinsville, Va., Monroeville, Ala., and Alexandria, La? That makes absolutely no sense.
If you raised the minimum wage in those last three areas to $15 an hour, they couldn’t compete, and while not all three are considered “rural,” the rural South and much of rural America would immediately lose any competitiveness they now have because the wages would be too high for employers. The rural South is competitive for cost reasons and natural resource-based reasons only in today’s economy. Take out the cost advantage from the rural South and they are out of the game, forever.
It doesn’t make sense to me to have a universal hike in the minimum wage for all states or cities. For example, the minimum wage in New York City is $11 an hour. But that $11 only has the purchasing power of $7.36. Here in Birmingham, Ala., the minimum wage is $7.25, but it has the purchasing power of $8.06.
MIT’s Living Wage Calculator exemplifies the differences in earning thresholds and cost of living indexes from around the country. The Living Wage Calculator provides “cost-adjusted estimates of what workers and their families need to make in order to support a basic living in the communities in which they reside.” The developer of the MIT Living Wage Calculator, Dr. Amy Glasmeier, defines a living wage as “the wage needed to cover basic family expenses plus all relevant taxes.”
By using the Living Wage Calculator, you can determine what you need to make for a living wage in every county in the country. In San Francisco County, Calif., it’s $14.37 an hour to achieve a basic living for one adult. The minimum wage in California is $10.50 an hour.
Third Way, described by The Wall Street Journal as a “center-left think tank” and by The New York Times as “radical centrists” and “incorrigible pragmatists,” has taken MIT’s Living Wage Calculator further. Third Way proposes establishing five different minimum wage hikes based on the cost of living in metros. Third Way calls their plan “a regional minimum wage.”
Third Way policy adviser Joon Suh writes on the think tank’s website and in the story titled, “Doing the Right Thing, the Right Way: A Regional Minimum Wage,” what he believes is a fair way to go about raising the minimum wage.
Third Way proposes to replace the single federal minimum wage with a regional minimum wage with readjustments every three years. The think tank believes that the new wage would range from $9.30 per hour in low cost regions to $11.90 per hour in high cost areas. That would set the median federal minimum wage at $10.60 per hour, about where the political centrists believe it should be.
It’s my view that five regional federal minimum wage floors are not enough. Some small manufacturers in rural areas of the South would get hammered by a $2-an-hour hike in the minimum wage, particularly in areas like the Mississippi River Delta and Appalachia.
And the data says: As written, one cannot form a black-and-white, data-centric answer to raising the federal minimum wage. Yet, using MIT’s Living Wage Calculator to set the federal minimum wage is certainly a start to one of the most important aspects of our economy.
Both Treasury Secretary Steven Mnuchin and President Donald Trump think the Bureau of Labor Statistics cooks the books when it comes to the monthly unemployment report it publishes each month. Both men totally refuse to believe that the nation’s unemployment rate is 4.7 percent. With 95 million Americans over the age of 15 without a job or not looking for one, surely the unemployment rate cannot be as low as 4.7 percent. There are only 325.5 million people in the country.
As mentioned in the workforce participation section of this story, those outside the labor force can be current high school and college students, stay-at-home parents, prisoners, the disabled and retirees. At a workforce participation rate of 63 percent today, down from 66 percent prior to the Great Recession, the U.S. labor force is the smallest it’s been since the 1970s when the participation rate was as low as 60 percent.
Is the 63 percent workforce participation rate a sign of a weak economy and fewer available jobs, or are demographic factors such as retiring baby boomers to blame? To answer that, let’s look at current statistics. There have been over 5 million jobs available in this country for years. If there is a large block of available labor out there, why aren’t those jobs being filled?
Companies large and small are having a tough time filling positions, many times because the skills needed for those positions can’t be found in the labor shed. Again, if there are so many people in this country who can’t find jobs, then why are 5 million jobs seemingly always available to those people?
There are many announced job-generating projects on hold this very minute because labor is not available in certain areas of the South. For example, several large petrochemical plants in Louisiana and Texas are being delayed because of a lack of construction labor. These projects are waiting on other companies to finish a project, freeing up labor. Construction jobs are considered temporary, but not in the petrochemical industry in Louisiana and Texas. Welders, for instance, will finish up at one plant then start on a new project that may have been delayed for up to a year because there was no available labor, or specifically, no available welders.
Let’s see what driving up the workforce participation rate would do for labor in this country. At no time since 1970 has there been a workforce participation rate that was higher than 67.3 percent. That high mark was set in 2000. Today’s rate is 63 percent, so a difference of 4.3 percent. So, if we met the highest workforce participation rate seen since 1970 today, that would mean an additional 4.4 million workers. That’s not many, and wouldn’t even fill the 5.5 million available jobs that are out there now.
The fact is, since 1970, there has always been between 33 to 40 percent of the workforce over 15 years of age that does not work or does not look for work. So the facts point really to demographics. The sad truth is, this nation is getting older and its population growth is the lowest it has been since the Great Depression.
There is still some slack in the labor market, but it isn’t nearly what President Trump and Treasury Sec. Steven Mnuchin believe. The fact that there were 235,000 jobs created in February proves there is still labor slack. It was interesting that President Trump, who has said that the monthly Bureau of Labor Statistics jobs report is “one of the biggest hoaxes in American politics,” took credit for the great February jobs report. He also said about the February jobs report, the first while in office, “I think it’s going to continue big league.”
So, yes, the demographics indicate that this year and next we could still see some months of 200,000-plus job gains, but those months are dwindling. With a 4.7 percent unemployment rate, we are nearing full employment and that has been supported by the Federal Reserve. Add that to the fact that this administration could deport millions of undocumented people and slow immigration, we could soon be in a situation where we have a shortage of unskilled labor, not just skilled labor.
But all of that pales in comparison to these demographic figures. . .as written, this nation is aging, but at the same time, the U.S. fertility rate fell last year to its lowest rate since the government began keeping track in 1909. The general fertility rate is the average number of births from 1,000 women ages 15 to 44 years old. In 2016, the fertility rate dropped to 59.8 births per 1,000 women, the lowest ever. In addition to the lowest fertility rate in more than 100 years, the U.S. saw the death rate rise last year for the first time in a decade. According to the Census, the U.S. population in 2016 grew at its lowest rate (0.7 percent) since 1936-1937.
Yes, the demographics have our backs against the wall when it comes to the current and future labor force. Of course, the wild card is how many jobs over the next decade or even longer will be replaced by automation. If it is in the millions, the current and future labor shortage will take care of itself.
In the meantime, not factoring in job losses to automation (because I am not sure anyone can put a finger on that number at this point), the labor force is shrinking and fast. The fact of the matter is the growth of the working age population (between 16 and 65) is slowing dramatically. Demographic math is cutting into our available workforce.
For example, from the 1970s to the 1990s, the economists’ standard for job growth in this country was 150,000 jobs created per month. Above 150,000 jobs created per month and the jobless rate would drop, and anything below 150,000 jobs created per month caused the jobless rate to go up.
From the 1970s to the late 1990s, the working age group of 16 to 64 years was growing on average nationally of about 200,000 people a month. The working age population rose by just 71,000 per month over the past two years. And the Census Bureau reported in the fall quarter that the working age population will grow by an average of just 50,000 per month over the next 15 years, which is alarming.
So, 20 years ago, 200,000 people became work eligible each month, but now only 71,000 per month become work eligible in this country. That does not mean the economy is doing poorly. It just means we are seeing less and less people enter employment age.
Today, you can throw away that standard number of needing to create 150,000 new jobs per month. To absorb the current slower growing population, we only need to create about 50,000 jobs per month to sustain a healthy economy. And in a few years, that will drop to 33,000 new jobs per month.
President Trump has set some big goals for the economy. He has promised to create 25 million jobs over 10 years. That’s more than double what has been created under Obama and more than Ronald Reagan or Bill Clinton’s terms. But where will that labor come from? It apparently won’t come from immigrants, and if he deports large numbers of people living in this country, we will see reductions in an already tight labor market.
And the data says: There will always be anywhere from 33 to 40 percent of the workforce that is not participating, unless governments end social, poverty and disability assistance. The U3 unemployment rate is 4.7 percent and the U6 is 9.4 percent. There is no measure that we can find that indicates the true unemployment rate is 20 percent or higher. If anything, we are at or near full employment. And the demographics indicate clearly that the number of people entering the labor force will be at historic lows for many years to come.
The demographics also indicate that creating 25 million jobs over the next 10 years is simply impossible, given the lack of growth in our population. The only way to enlarge the labor force over the next decade or so would be to increase immigration from the current 1 million a year to around 3 million a year, and that is not going to happen. Or, perhaps automation could free up millions of needed workers, but that remains to be seen.
There’s a lot of talk right now about trade agreements. Not all of the usual suspects are in support of two proposed free trade agreements in this political cycle. Some blame NAFTA and free trade in general as elements that have reduced the middle class in the U.S., while building the middle class in Mexico and elsewhere. Yet, in 2015, almost 50 percent of U.S. exports went to the 20 countries the U.S. currently has free trade agreements with. Those countries do not include any in Europe, nor do they include China or Japan.
We do have free trade agreements with Australia, South Korea, Israel, Singapore, several countries in Central and South America, and, of course, Mexico and Canada. With the FTA countries, the U.S. enjoyed a trade surplus in manufactured goods of about $12 billion last year. Not so much with those we do not have trade agreements with. . .regarding those countries, we have a trade deficit of about $500 billion.
There are two major trade agreements that are currently proposed. One is with the European Union and the United States, trading partners that accounted for about one-third of U.S. exports last year. Called the Transatlantic Trade and Investment Partnership (TTIP), it is a companion agreement with the Trans-Pacific Partnership (TPP). That agreement involves 12 countries: the U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. The pact is designed to create stronger economic relations between the member nations, cutting tariffs and fostering trade to boost growth in exports and imports.
I will not take sides on the free trade agreement argument. It is a complicated issue. I can clearly see the basis of the arguments for and against these trade agreements. But I do know this: the Southern Automotive Corridor has lost out on nine major automotive assembly plants in the last few years to Mexico, primarily because Mexico has free trade agreements with more than 40 different countries. That’s more than double the number of countries the U.S. has trade agreements with, and that alone is a major factor for manufacturers when it comes to exporting.
Exports fall for the first time since the recession
For the first time since the end of the recession, the total value of U.S.-exported goods fell from one year to the next. In 2015, the U.S. exported about $1.5 trillion in goods, including high value products such as automobiles, aircraft, machinery, telecommunications and chemicals, among other goods. That was down about 7.5 percent from 2014 when the U.S. exported $1.63 trillion in products, but well above the $1 trillion exported in 2006 prior to the recession. The $1.63 trillion in goods exports in 2014 was the largest total ever for the U.S.
The South also saw a reduction in the value of its exports in 2015 from its record year of $654 billion in 2014. The South exported $61.7 billion less in 2015 than in 2014.
One of the reasons for the drop in exports can be attributed to the resilient U.S. economy. With a strong economy comes a stronger currency. Exports have tumbled in part because of the strong dollar that’s made American-made goods and services more expensive. Put that on top of a weak global economy and it’s not a mystery why exports fell last year.
Last year, the U.S. was the second largest exporter in the world, behind only China. China exported $2.27 trillion in goods in 2015. Germany was third with $1.3 trillion, followed by Japan with $625 billion. The American South’s total value of $593 billion exported in calendar year 2015 would make it the fifth largest exporter in the world if it were a country.
The 15 states that make up the American South led the other three U.S. regions by a wide margin in export values (see pages 46-47). In fact, the South accounted for 40 percent of U.S. exports last year. If worldwide demand increases this year and next, the region is positioned to set export records because of the increased manufacturing capacity of high value products that have come on line in the last three years or are currently under construction.
For example, all but one of the 17 major automotive assembly plants in the Southern Automotive Corridor have expanded since the end of the recession, three more than twice. And two major automotive assembly plants were announced last year — Volvo and Daimler Vans in South Carolina — that have yet to begin production. Both plants are designed to export at least half of their yearly vehicle production totals.
Furthermore, the fracking frenzy has expanded chemical production in Louisiana and Texas at a furious pace. Additionally, multi-billion dollar LNG export facilities are coming online in Louisiana and Texas, with the first — Cheniere Energy in Southwest Louisiana — already exporting the essential and abundant energy product. New aircraft, spacecraft, engine and rocket production are coming online, and the South is now home to two of the nation’s three large commercial aircraft assembly facilities with Airbus in Mobile, Ala., and Boeing in North Charleston, S.C. The other is Boeing’s massive Puget Sound facility in Washington State.
Job generation tied directly to exporting is growing as well. In 2014 (latest figures available) almost 2.9 million direct jobs were tied to exporting in the 15-state American South. With dozens of inland and deep-water ports — more so than any other U.S. region — the South is set up perfectly for companies that want to expand export capacity.
The rise of the middle class in the South?
In this presidential campaign, a lot has been said of the 40-year decline of the middle class. There is no question the middle class is weaker financially than at any point in the last three generations. Some estimate that prior to the recession, jobs that paid $60,000 were replaced by jobs that pay $40,000. Wage earnings have flattened since the recession ended, even though they are perking up a little as most places in the South have reached, or are near, full employment.
There is also no question that during one of the longest economic expansions in U.S. history, those wages should be higher than they are currently. The stagnant wages are one of just a small number of negatives currently involving the U.S. economy. Otherwise, the data is off the charts, including more large projects announced in the South in 2015 than any year since this publication began counting in 1993.
Look, the executives of companies setting records for new and expanding projects in the South in 2015 are not stupid. If they saw a recession looming, or a challenged economy like you hear about constantly in this presidential election, those same executives wouldn’t have invested a record $90.5 billion in this year’s SB&D 100. Most of those investments won’t even come online for one or two years.
The Great Recession, along with new automation technologies that are taking boots off the factory floor by the tens of thousands, and offshoring manufacturing capacity to China, Mexico and elsewhere from the 1990s to the beginning of the recession have devastated the middle class in this country. Yet, one of the major reasons why the American middle class has been reduced in number may be what helps bring it back.
There is a new middle class that is greatly assisting the world economy right now, one that didn’t even exist 30 years ago. And it’s not the middle class of America. There are now more middle class Chinese than there are people in the United States. The Chinese middle class is growing faster than any economic demographic in the world, and they are demanding the purchase of foreign-made products, particularly from the U.S.
In an article published this summer by Businessinsider.com titled “Chinese imports of U.S. goods are about to soar,” writer Andrew Meola insists that 15 percent of the Chinese population will buy products from a foreign country this year, amounting to more than $85 billion in sales. He forecasts that the number of foreign goods purchased by the Chinese will rise to $157 billion by 2020. And according to a Boston Consulting Group (BCG) study, more than 60 percent of Chinese consumers said they would pay more for products made in the U.S. instead of in China. BCG also published a press release in the summer claiming that three-quarters of Chinese consumers plan to maintain or increase spending this year.
So, clearly, the economic dynamics of China are changing. Just a few years ago, there was no middle class in China. Now, it dominates Asia’s economy and prefers American products. This big new customer might just contribute greatly to a renewed and stronger middle class in this country.
The fact that more jobs are returning to the U.S. from China than are going there is also a relatively new phenomenon. Combined with the fact that the Chinese are investing in the U.S. in record numbers, it looks as if China will be bolstering the U.S. economy for years to come. These big changes in how China helps this country’s economy, instead of taking from it, will boost exports to levels never before seen in the U.S.
Foreign Direct Investment
The ebb and flow of goods and money from one country to another is the very essence of the global economy. Last year, there was a record $1.76 trillion in foreign direct investment flows around the world, according to the United Nations. Of that total, there were $721 billion in massive cross-border mergers and acquisitions. Some of those mergers and acquisitions included Merck KGaA’s $17 billion purchase of Sigma-Aldrich and GlaxoSmithKline’s $16 billion purchase of Novartis.
While FDI worldwide set a record, a record was also set in the United States. Expenditures by foreign direct investors rose to $420.7 billion in calendar year 2015, an increase of 68 percent from 2014. These investments by foreign entities included acquisitions, existing industry expansions and new greenfield operations.
Of the $421 billion invested in the U.S. last year, more than half, or $281 billion, was manufacturing related, including new, expanded and acquisition. Within manufacturing, large investments were seen in chemicals, automotive, consumer products, pharmaceuticals and medicines, among other sectors.
Some of the most active foreign investors in the U.S. in 2015 were the typical customers — United Kingdom, Japan, South Korea, Luxembourg, The Netherlands, Ireland, Canada, Switzerland, Germany and France. Again, it should be noted that China continues to invest in the U.S. at rates never before seen.
In 2010, China invested just $4.6 billion in the U.S. In 2015, China invested $15.3 billion in 171 U.S. projects according to the Rhodium Group. In the first two quarters of 2016, China has turned 70 deals for a total of $18 billion invested. One of those deals was China-based Haier’s acquisition of GE Appliances and its massive Appliance Park facilities in Louisville, Ky. China’s largest and most active investments the last couple of years have been in automotive, consumer products, information technology, communications technology and real estate.
Until recently, the Chinese have been no-shows when it came to investing in the South, and in North America as a whole for that matter. On average, from 2000 to 2009, Chinese companies invested about $1.7 billion a year in the U.S. That’s the total investment of one small petrochemical plant in Louisiana or Texas today. Strictly speaking, Chinese investment in the U.S. has been chump change. . .until recently.
So, really, for the first time in history, China is playing a direct role in the U.S. economy from a job- and investment-generating position. The number of Chinese-owned companies now operating in the United States at the end of the second quarter of this year is estimated to be about 1,800. Those companies are employing approximately 110,000 people. Employment in China-owned companies, according to Stephen A. Orlins, President of the National Committee on United States-China Relations, is expected to quadruple over the next five years. Five years ago, Chinese-affiliated companies employed just 15,000 workers in the U.S.
Some believe that the recent surge in outbound FDI from China is an indication of capital flight. China’s economy the last couple of years has been somewhat chaotic. Because of that volatility, Chinese investors could be stashing away capital in what they believe is a safe economic haven in the U.S. But according to the Rhodium Group, a firm that tracks Chinese investment in the U.S., more than 80 percent of all Chinese FDI transactions in the U.S. in the first half of this year “. . .falls into the category of strategic investment.”
We believe this surge in outbound FDI from China to the U.S. is simpler than capital flight or strategic investments. There is no question that reshoring, onshoring, nearshoring, make it where you sell it — whatever you want to call this economic shift in manufacturing capacity — is driving this Chinese investment run in the South and in the U.S.
For example, if it is getting more difficult to make a profit in manufacturing many products in China for U.S. consumption, wouldn’t it make sense for Chinese manufacturers to offshore production to North America? Also, if it is getting more expensive to manufacture in China, where does that leave Chinese manufacturers? It puts them in the same position as other companies that are reshoring to the U.S. The Chinese are offshoring to the U.S. for economic reasons simply because soon, a manufacturer will be unable to make a profit making something in China for U.S. consumption.
One example of the “make it where you sell it” phenomenon is the proliferation of foreign-made tire facilities announced in the South in recent years. If you could make tires in Asia for U.S. consumption and make a profit, that’s what Yokohama, Hankook, Kumho, Bridgestone and Giti — just five of the many foreign tire plants announced in the South in recent years — would do. Instead, those companies are finding it more profitable to produce tires here. In fact, at deadline, Chinese tire maker Sentury Tire Americas chose a site near LaGrange, Ga., for a $500 million greenfield plant that will house 600 workers.
Again, the $18 billion in Chinese investment in the United States in the first two quarters of this year represents the best “year” ever. But it doesn’t even remotely tell the whole story. According to Rhodium Group, the value of announced but not completed Chinese investments in the U.S. was near an all-time high of $33 billion at the end of the second quarter.
Some of the pending Chinese merger and acquisition deals out there currently include HNA Group’s $6 billion purchase for Ingram Micro, Anbang’s $6.5 billion acquisition of Strategic Hotels and Apex Technology’s $3.6 billion purchase of Lexington, Ky.-based Lexmark.
In the U.S., there are about $10 billion Chinese greenfield projects that are pending and have not been counted as investments by the end of the second quarter. In the South, those include Sun Paper’s $1.3 billion mill in Arkadelphia, Ark., China Jushi’s $300 million fiberglass plant in Richland County, S.C., and Yangfeng Automotive Interiors’ $71 million plant in Laurens, S.C., and its $55 million plant in Chattanooga, Tenn.
The large increase in FDI in the U.S. in 2015 is a sure sign that foreign investors view the nation’s economy as one of the safest in what currently is a chaotic world economic marketplace. And why not? For the most part, the nation is at full employment for the first time in 16 years, the stock market is humming and on a cost basis, the U.S. — particularly the South — is very competitive right now with just about any country in the world.
Regarding the current economic conditions in the U.S., Forbes publisher Rich Karlgaard wrote this summer, “Dismal though the political mood is today, the U.S. is heading into a remarkable era. The hand of cards America holds is like a royal flush: reliably cheap energy costs; low (on a global scale) real estate costs, especially in the South and Midwest; political stability; military strength; a growing population; the world’s best research universities; and global leadership in all the key digital technologies.”
To conclude, trade, exports and foreign direct investment are looking pretty good today, especially in the South. Other than wages that are stubbornly low, there are not many negatives regarding the U.S. or the South’s economy. Surely, now that the region is at or near full employment, wages must rise, right? Let’s get this presidential election out of the way, which can’t be assisting the economy, and I believe we will find out.
Where are we going to find the labor to keep this expansion going?
By Michael Randle
We are still in the second longest economic recovery period ever in this country, approaching 90 months. On top of that, at 74 months, the U.S. is enjoying what is now the longest stretch of consecutive monthly job creation on record. The recovery has been solid, with about 15 million jobs created, and 11 million of those new jobs. In September, we reached a record low level of layoffs and discharges of 1 percent according to the Bureau of Labor Statistics. Yes, workers are finally winning in this economy.
During this current recovery, the U.S. set a record for the most consecutive months of 200,000 or more new jobs created. Since January 2013, almost 9.7 million jobs have been created, averaging 224,000 new jobs each month. And all of this has been done in a time when the public sector hasn’t created jobs at all. From 2010 to 2013, the private sector added about 6.7 million jobs, while the public sector lost around 626,000, which is unprecedented. During President Obama’s two terms, the public sector saw a loss of 341,000 jobs.
The public sector is typically a huge job generator, especially at the federal level. However, because austerity practices have been implemented in an effort to stop adding to the national debt, lawmakers have slowed the hiring of government jobs. Many states aren’t hiring as well.
Some argue that the recovery from the Great Recession has been slow. Well, it wasn’t called the Great Recession for nothing. It should have been called the Great Crater or the Great Abyss. Long-term unemployment rose to historic highs during and after the recession, and the unemployment rate spiked almost to its post-war high.
The recessions in the early ’80s, ’90s or the one in 2001-2002 cannot even remotely be compared to the recession of 2007-2009.
The reason the climb from the crater has taken longer to get to pre-recession peaks is because the low point of the Great Recession was so low. The U.S. is at pre-recession unemployment lows now, at 4.6 percent, but it took 51 months to get there, according to the Economic Policy Institute. In comparison, the recession of the early 1980s took 11 months to reach pre-recession peaks, and the recession in the early 1990s took 23 months.
Yet, today, from an economic development perspective — at least here in the South — project activity is better than any time since this magazine began charting that activity in 1992. There were 730 projects meeting or exceeding 200 jobs and/or $30 million in investment in 2015, and 668 in 2014, both records. The last time you saw a year like that was in 1997 when 636 projects meeting or exceeding our thresholds were announced in the South.
As for corporate investment, some say it is declining. In fact, it is leveling off. The truth is that in Quarter 3 of 2015, a record $2.217 trillion was invested by private corporations in the U.S., according to Commerce. In Quarter 3 2016, that investment fell to $2.19 trillion, which is not far off the record set last year. So, corporate investment has stabilized near record totals.
Furthermore, in 2015, the largest 100 projects in the South had a total investment of $90.5 billion, easily breaking the then 23-year record set in 2014 of $78.2 billion. My question is, how can business investment be off when billions are being spent on new and expanded petrochemical plants in Texas, Louisiana and elsewhere? We are in the midst of the largest build-out of chemical plants since World War II.
The hundreds of massive petrochemical plants that have expanded or been built — or are under construction now — are the result of widespread fracking that began in the U.S. in the late 2000s. On average, the cost of natural gas to run a petrochemical plant in much of the U.S. is a third of costs in Europe, and even lower compared to Asia.
Furthermore, spending by the automotive industry — the second-most investment intensive sector aside from petrochemicals — has also been remarkable over the last few years in the Midwest and South. With the exception of one, every major automotive assembly plant in the South has seen automakers spending hundreds of millions, if not billions, on expansions since the recession ended. There is no question that the petrochemical and automotive industries led the South out of the recession.
In short, we have seen a remarkable climb out of the crater called the Great Recession, and it continues today. But, I hate to tell y’all this: The U.S. economy and the South’s economy are about to slow down, maybe noticeably, if there are pulls on the economy outside of labor. . .inflation for instance. And it’s not because of a new administration.
What is happening, without question, is that we are running out of labor, this country’s most prized economic asset. Sure, there is still some slack in the labor market, and there are millions of workers in the U.S. who can’t find a job, can’t find the right job, or are unwillingly working part-time. However, the long party of job generation of 200,000 or more each month may be over. . .and that’s not such a bad thing.
Before I make my case that we are running out of labor, let’s address the issue that centers on the 35 percent of workers who are not participating in the workforce, yet are eligible, according to the government. Politically, this is a hot-button issue. If you are the voting block that doesn’t think the current economy is so great, you point to the labor participation rate. There is nothing wrong with that, but the fact is, there are 5.5 million jobs in this country that are available almost on a daily basis. There are more than 1 million jobs that remain unfilled in the tech sector. The jobs are there, the takers aren’t. Why?
In addition, some claim the current 62.9 percent labor force participation rate is far and away the lowest in the nation’s history. Nothing could be further from the truth. In 1970, the labor participation rate was 60.4 percent. At no time since has it ever risen above 67.1 percent.
It should also be noted that over the last year, the civilian labor force climbed nearly 2 percent, a very strong pace. That growth came from workers reentering the workforce. And the prime-age (25 to 54 years) participation rate has surged to 81.5 percent, the highest in nearly three years.
There are all kinds of reasons why people don’t seek work. Some are lazy, some are crazy, or both. Many are disabled. Some are recently retired but are still being counted as work eligible. Thousands join the military every year or go to prison and are still counted as work eligible. And millions more are currently in high school or in college and are counted as outside the labor force, or not participating.
Many don’t want to work and would rather take their legal and rightful federal assistance. If you are a single mother of four, say, and can’t find a job that pays as much as what you get from available federal programs that address poverty, who wouldn’t take what is legally available to them?
For those who get angry at that, then encourage the politicians who represent you to change the laws. But it needs to be understood that many people in that group have decided to stay home and take care of family, both young and old. If they could earn a job that pays enough to afford a sitter to take care of their loved ones, they would do it. Otherwise, they won’t.
And then there is the group that can’t pass a drug test when applying for a job. In decades past, prospective employees didn’t have to take drug tests to earn a job. Today, it’s almost mandatory because of insurance regulations.
There is a scourge of opiate and meth use in this country, with millions of people unable to pass a drug test when applying for a job. Not only that, smoking one joint while on a weekend fishing trip can actually keep you from getting a job, or, worse yet, get you fired. With several states legalizing marijuana, that should stop, but the insurance industry needs to lead that change.
It’s sad, but it is a fact that drug use is part of the reason so many people don’t participate in the workforce. According to many polls/studies, drug use in the U.S. is at an all-time high. That’s a big part of the work-eligible, participation problem. What’s the point in applying for a job, when many think, “I won’t pass the drug test?”
Worker non-participation rates will rise in years to come
A new Labor Department study came out in the fall quarter. It highlighted projections of the labor force through 2060. The “labor force” is defined as those people who are 15 to 65 years old, either holding a job or actively seeking a job.
Today, there are about 95 million people in this country outside the labor force. The Labor Department’s study shows that segment will grow to 101 million people by 2020. The study also predicts that by 2060, those not in the labor force who are eligible for work will grow to about 140 million. In other words, the worker participation rate will grow, but not nearly as fast as the population ages out of that segment.
Of course, those figures are simply projections by the Labor Department. Depending on the quality of the economy, the worker participation rate could grow if more money can be earned in a job than would be paid by the government to a non-participating person for not working. In a smoking-hot economy, more good jobs will be available, but at the same time, more people will go ahead and retire because they can.
There are things that federal and state governments can do to help grow the worker participation rate. Reforming disability and welfare programs could raise the participation rate, but politically speaking, that’s like turning around an aircraft carrier. More jobs and better pay, which is actually occurring this year for the first time in years, will grow participation. Workers are seeing real wage gains. Because of that, more and better jobs will entice some retirees to return to the workforce. But there are other critical factors working against the labor force.
The fact of the matter is that the growth of the working age population (between 16 and 65) is slowing and slowing dramatically. Demographic math is cutting into our available workforce. For example, from the 1970s to the 1990s, the standard for job growth in this country was 150,000 jobs per month. That was the standard used by economists. Anything above 150,000 jobs created per month was a strong month and anything below 150,000 jobs created per month caused the jobless rate to go up.
But from the 1970s to the late 1990s, the working age group (16 to 65 years) was increasing on average of about 200,000 people a month nationally. That same working age population rose at just 71,000 per month over the past two years. And the Census Bureau reported in the fall quarter that the working age population will grow by an average of just 50,000 per month over the next 15 years. Shocking.
So, 20 years ago, 200,000 people became work eligible each month, but now only 71,000 per month become work eligible in this country. So, when we were averaging over 200,000 new jobs each month over the past four years, one can easily see how the unemployment rate dropped from about 10 percent during the recession to 4.6 percent today. We were creating many more jobs compared to the number of people entering the workforce.
Today, you can throw away that standard number of needing 150,000 new jobs per month in this country. To absorb the current slower growing population, we only need to create about 50,000 jobs per month to sustain a healthy economy. And in a few years, that will drop to 33,000 new jobs per month.
Officially the U.S.’s “U-3” unemployment rate is 4.6 percent, or close to full employment. Many economists, even ones at the Federal Reserve, believe that a national unemployment rate of 4.8 percent brings us to full employment. The U-3 is defined as “total unemployed, as a percent of the civilian labor force.” However, a broader look at unemployment can be seen in the “U-6” rate. The U-6 is defined as all unemployed, plus “persons marginally attached to the labor force, plus total employed part-time for economic reasons, as a percent of the labor force.” That would include the underemployed. The U-6 rate as of this November was at 9.3 percent, above pre-recession levels. There is your slack in the labor force, meaning there are still gains to be had, albeit small ones.
How can we eke out more from the labor force that we have?
The existing slack in the labor force just happens to be the toughest group to employ. Many of the unemployed are unskilled, and leaders in economic development know that. That’s why there is a Herculean effort going on right now in Southern states, counties and cities to train workers for today’s jobs. Even in a situation where labor is in short supply, a more productive existing employee can make a big difference in the economy. Workforce training can make employees much more productive, and there are new programs all over the South that are re-creating our educational system. The four-year model that has been in place for years is being replaced somewhat by the two-year model.
One such effort can be found in Memphis where noted workforce development guru Dr. Glen Fenter heads up the Greater Memphis Alliance for a Competitive Workforce (GMACW, or “G-MAC”). Fenter and Memphis’ approach to job training is done through a demand driven model. “There is absolutely no reason why most of our students across the country should not be graduating from new models that compress the last years of high school with the first years of college,” Fenter said. “Walking across the graduation stage with a meaningful portfolio of employer driven skills that can lead to immediate employment in areas of high demand or shortened post-secondary educational requirements, or both, is so important today.”
The Trump effect
How will the current tight labor market affect President-elect Donald Trump and his plans for the economy? If President Trump implements several of his campaign promises, like deporting millions of illegal aliens and putting a severe cap on immigration, the current tight labor market will tighten even further, if not simply vaporize altogether.
Ironically, some new manufacturing projects destined for the U.S. will choose Mexico because that country can serve our market easily and can backfill labor for decades to come. Some site selection consultants have told me that because of our aging population, the U.S. can’t compete with Mexico in backfilling labor 20 years or more out. Simply put, Mexico’s demographics are much younger than the United States’.
While Forbes publisher Rich Karlgaard wrote this summer that America holds cards that are like a “royal flush” regarding its economy as a result of cheap and abundant energy, low real estate costs, the world’s best research universities and global leadership in digital technology, all of that will not keep this economy going without the labor that is necessary. We have been successful bringing manufacturing and other sectors back from China simply because it is cost-effective to do so. But China and Mexico remain two countries that can backfill labor decades longer than we can at this time.
Trump has set some big goals for the economy. He has promised to create 25 million jobs over 10 years. That’s more than double what was created under Obama, and more than in Ronald Reagan or Bill Clinton’s terms. But where will that labor come from? It apparently won’t come from immigrants, and if he deports large numbers of people living in this country, we will see labor force reductions.
Trump repeated in his victory speech what he had said many times while campaigning. Mr. Trump has plans for rebuilding infrastructure, and the way he explains his plans, he means everything. “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” he said in his victory speech. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
We agree with President Trump’s proposed investments in infrastructure improvements. Hillary Clinton also backed a big infrastructure stimulus and the idea would likely win bipartisan support if the funding is widely dispersed. But with a labor market as tight as this one, can it be done?
We wrote back in 2008 that such an infrastructure plan would be great timing, since the country was hemorrhaging hundreds of thousands of jobs a month. Large investments in infrastructure improvements during the Great Recession would have created millions of high-paying jobs. Whether we could have afforded it or not was the question at the time.
“The opportunity that our country has to simultaneously rebuild our infrastructure, grow our economy and connect our current and future workforce to transformative educational opportunities is unprecedented in recent history, and undeniably essential to preserving our Democracy,” Fenter added. “The problem is that most of our current political policy and resulting educational practice is focused on essentially everything else but maximizing that opportunity. Hopefully, a Trump administration will recognize the need for fundamental change in these patterns.”
As for Trump’s other economic policies, there is not much he has revealed. Federal Reserve policymakers and other analysts, including Wall Street economists, were all predicting GDP growth of around 2 percent and unemployment below 5 percent for several more years. But that was based on policies of President Obama, with Hillary Clinton essentially continuing those policies. Most economists were not expecting a Trump victory.
Trump has maintained he can raise GDP growth to the 4 percent range, but has not given specifics. That being the case, those analysts have no idea how Mr. Trump expects to get that kind of white-hot growth and how he can do it during full employment, so they may as well just throw away their forecasts. We are certainly wading into uncharted waters with President-elect Trump. But that is okay. When there is a new president, there is always uncertainty.
Maybe public sector jobs via a large federal infrastructure stimulus is just what we need to get a significant portion of those 95 million people not participating in the workforce to contribute to the economy. Yet, history has shown that this country has never reached 70 percent of eligible workers to participate in the workforce. Even if we reached 70 percent, that would put only 4.75 million workers back into the workforce who currently are not participating.
Again, the only way to grow the workforce in dramatic fashion is to grow the legal, permanent immigrant resident’s population, and of course, have a baby boom. Currently, the U.S. is approving about 1 million legal permanent residents a year. That is surely going to slow based on President Trump’s stated policies.
It’s likely that the days of hot labor market data of 250,000 to 300,000 monthly job gains are over. Sure, there will be some outlier months where you might see 250,000 or more jobs created. But unless we see large influxes of immigrants, the labor market will remain tight and millions of jobs will go unfilled.
Almost every economist agrees there has been a slowdown in the growth of the labor force over the last decade. Where do we go from here? Manage the economy so that the job market remains vibrant, but doesn’t overheat. Of course, an economic slowdown would free up labor, but we don’t see that at this time.
I really don’t like writing this, but I believe the labor force in this country needs to be maintained, not necessarily expanded in great numbers, for many years to come. The data shows us that the workers are simply not there. And that’s not such a bad thing. Yet, moving from 200,000 a month in new job generation to 50,000 to 75,000 a month will need some getting used to.
The economy is slow as a snail, but it just might win a marathon
By Michael Randle, EDITOR
Politically speaking, we are in some kooky times. There is a new meaning to the word “unpredictable” in today’s national political stage. We have an ex-FBI Director, Robert Mueller, acting as special counsel to investigate the Russians, the president and his campaign staff. He is also investigating whether President Trump attempted to obstruct justice.
Mueller has hired a high-powered team of lawyers, some of which have worked on cases ranging from Watergate to the Enron scandal. Kenneth Starr, who investigated President Bill Clinton in the 1990s, told ABC News in the spring quarter, “That is a great, great team of complete professionals, so let’s let him do his job.”
Ultimately, and I am sure it’s going to take quite some time, it will be up to Mueller and his team to decide if there is enough evidence to recommend charging anyone that he is investigating. Wait, a sitting president in his first year in office, his staff, as well as the Russians are being investigated by a former FBI director? That can’t be a good thing, right? Certainly it can’t be a good thing for the nation’s economy.
But this is no ordinary economy. Although unpredictable, the moon and the stars have been aligned for eight years now. There is little evidence that this recovery will end anytime soon, unless labor constraints slow it down to zero growth, but that won’t be a real concern for months. Not years, but months. We have enough labor for this year. After that, if the economy keeps growing as it has, the labor shed will be bare.
At 96 months, the U.S. economic expansion that began in the summer of 2009 is currently the third longest in history. Only 1961 to 1969 (106 months) and 1991 to 2001 (120 months) were longer. And at 80 consecutive months, this is by far the longest sustained period of job growth in U.S. history, or since the government started keeping track in 1939.
Can the current economy beat the longest ever U.S. expansion (120 months) that was set in the go-go 1990s? That is going to be up to the consumer, because a tight labor market will undoubtedly slow job generation. In fact, it already has.
Even though the economy since 2009 has seen on average only about 2 percent growth annually, if not less, it has been stunningly resilient. There have been no spurts of growth, instead methodical, gradual, therefore secure gains. There are a few signs that the economy is extended, like a sluggish automotive industry, but that is following the longest stretch of positive vehicle sales since the 1920s. For the most part, housing, capital investment, inflation and overall consumerism are on solid ground.
The Fed and most economists agree this expansion will keep going at a moderate pace for the next two to three years. In short, the United States is as competitive as it has ever been when it comes to recruiting industry, and the last three years (see cover story) have seen unprecedented project activity. So, mark your calendars. To beat the all-time U.S. economic expansion record of 120 months, GDP will need to grow until July 2019.
What are the chances? Bloomberg conducted a survey of economists in the spring quarter. Respondents gave a 60 percent chance of the growth streak continuing through July 2019. Since labor will essentially be non-existent at that point — unless immigration is doubled — I give it a 50-50 chance that this expansion will set the record for the longest expansion ever.
Immigration, the automation bomb and taxing robots
By Michael Randle, EDITOR
The economy keeps rocking along. Housing is on fire, as is the stock market. Manufacturing is adding jobs, the financial services sector is hiring like it is 1997, the Chinese set a record for investment in the U.S. last year, and reshoring, while not achieving the predicted effect so far, proves that this country is very competitive. More telling is the fact that the number of Americans applying for unemployment benefits is at its lowest point since 1973. Not even the go-go ’90s could achieve that. Which means. . . yep, we are almost out of labor. Regardless, good times are here, finally.
This issue’s cover story focuses on economic myths. There are some things being regularly reported that are simply not true. In truth, there are two factors that could slow this economy, outside of the Federal Reserve.
Here is the ultimate myth: “We have 95 million people outside the workforce,” inferring that there are 95 million Americans without a job who want one. Nothing could be further from the truth. Here is a breakdown of who is counted as “outside the workforce,” according to government sources:
12.9 million family caretakers
15.4 million disabled
20.5 million college students
44.1 million retirees
Total: 92.9 million of the 95 million that are outside the workforce have a reason not to work, and that total doesn’t count high school students who are of working age (16 and over). There are about 12.5 million of those.
What is alarming is the number of retirees compared to the number of those in school, ages 16 to 25. We are seeing far more people leave the workforce than enter it. The American population is aging and at the same time, the birth rate is the lowest it has been in 78 years. Yes, the labor shed is almost bare. It doesn’t mean a recession is on the horizon. It just means the days of 200,000-a-month job growth are numbered.
So, where can we get an influx of new workers? One source — immigration. We bring in about 1 million people a year. That figure would have to double to meet the needs of today’s employers. Many will disagree, but not Federal Reserve Chair Janet Yellen. She said during her congressional testimony in February, “Labor force growth has been slowing in the United States. It’s one of several reasons, along with slow productivity growth, for the fact that our economy has been growing at a slow pace. Immigration has been an important source of labor force growth. So slowing the pace of immigration probably would slow the growth rate of the economy.”
Then there’s the second factor that could idle the current economy, if not bring it to its knees. Not unlike how mechanization took millions of workers off farms in this country, automation in factories and offices will do the same.
Scores of clerks, truck drivers and manufacturing workers, among others, will lose their jobs in coming years to robots, driverless vehicles and artificial intelligence. In fact, experts predict that by 2040, automation could eliminate 45 percent of jobs currently performed in the U.S. , which is freaking out governments. Why are governments freaking out? Simple — human workers pay taxes. Robots do not.
Bill Gates chimed in on the “automation bomb” in the winter quarter in an article published by Quartz Media. The article read, “Robots are taking human jobs. But Bill Gates believes that governments should tax companies that use them, as a way to at least temporarily slow the spread of automation and to fund other types of employment.” Tax robots? And we are worried about China, Mexico and trade deals taking our jobs?
Woohoo, with an unemployment rate of 4.6 percent in November, we are at full employment as a nation! Most economists, even the snootiest at the Fed, agree that a national unemployment rate of around 4.8 percent based on the U-3 model is the definition of full employment in this country. We are not at late 1990’s full employment, yet. Back then, the unemployment rate got below 4.0. At 5.0 percent in the South, we are close to full employment as a region, as well. It’s something to celebrate.
There are, however, still some issues in the American South. We do have some slack available in Alabama, Louisiana, Mississippi, Oklahoma, West Virginia and in sub-regions like Eastern Kentucky, where thousands of skilled coal miners have lost their jobs.
As this issue’s cover story suggests, we are almost out of labor in this country. Full employment is a blessing and a curse. For one, almost everyone who wants a job has a job, and secondly, full employment drives up wages as employers turn to pilfering employees from rival companies.
On the negative side, full employment also means that backfilling labor for large projects — manufacturing or otherwise — for five, 10 or more years out, is almost an impossible task. That means competing in the manufacturing arena with Mexico — or any country that can easily serve the U.S. consumer and backfill labor for large projects 25 years out — is going to get more difficult as the years go by and this country’s workforce gets older and older.
Since 2010, we’ve significantly added manufacturing jobs for the first time in years in an age when robots are taking boots off the factory floor in record numbers. Some say automation will eliminate 5 million jobs in the U.S. by 2020. Is that where we are going to find the labor to keep this advanced manufacturing momentum going?
The demographics have our backs against the wall. For decades, you could count on about 200,000 people entering the workforce (ages 16-65) each month. That has cratered to just 71,000 on average each month in the last two years. Census reported in the fall quarter that 71,000 will drop to an average of about 50,000 people entering the workforce monthly for the next 15 years. Not good.
With immigration sure to slow under the new administration, the only place we can find more labor is from within. That would be the 95 million Americans who are of workforce age, yet are not in a job or looking for one. Surprisingly, few realize those counted as “not participating in the workforce” include high school and college students, prisoners, retirees, stay-at-home moms or dads, and the disabled.
As of October, the U.S. had a labor force participation rate of about 63 percent. The record participation rate over the last 20 years is 67.3 percent, which was set in February 2000. If educators and economic development leaders can focus on training for unfilled jobs (we have 5.5 million of them), we might convince another four percent of those not participating to enter the workforce, tying the record participation rate seen in the last 20 years. That would give us another 4 million people entering the workforce in addition to the 600,000 who come of age each year. It’s not much, but it’s all we have.
So, let’s hear it for full employment! It’s a great achievement and certainly rarefied air when the manufacturing and the service sectors are both creating jobs at the same time for several consecutive years. But now the really tough grind begins; finding skilled labor for growing companies who want to plant their flag in the South.