When the two German economies merged back in October 1990, a significant number of East Germans -without the working skills needed in the newly integrated Germany- were simply permanently displaced into welfare. Many of them never adapted to the free-market, highly industrialized, and tech-driven West German economy. At present, our economy is a perfect analogy to what happened then and there.
The current imbalance between job openings and people out of work in the US constitutes one of the biggest challenges the US economy faces. Mainly through technology-driven efficiencies (aka higher productivity), the private sector (nothing to do with politics, doctrines, dogmas, money printing, or government) has brought back the country’s GDP to pre-pandemic levels while using 7 million fewer employees. Meaning, countless types of jobs have been permanently lost.
There’s now a major dissonance between those seeking jobs and the available jobs in the US economy. According to the Labor Department, the preliminary numbers for May are 5.9 million hires vs. 9.2 million Job openings.
The available jobs are mostly for skilled workers (all highly paid and way above minimum wage levels). On the sidelines, there are millions of Americans (all of them justifiably angry) for which the economy does not have and won’t have a job for any time soon because they lack the skills (including knowledge & experience) that would qualify them for those jobs.
The country’s job conundrum is quite ironic since the solution to this situation is totally divorced from the narrative heard -ad nauseam- around the country. Either US corporations are allowed to bring the workers from abroad (one of the key components of incremental productivity is mass immigration), or the efficiency paradigm dictates that the private sector will rapidly hire these workers overseas, further incrementing their payrolls -hence their investments and presence- abroad. They have to and will do this in order to prevent a loss of competitiveness and market share.
Since the 2008 mortgage crisis, the US private sector has demonstrated unfeathered resilience through sheer efficiency, elasticity, and adaptation prowess. This has been irrefutably reflected in pricing and cost structures within a 2% yearly inflation range. The Country’s private sector has done this throughout a 12 year-run despite 1) Massive injections of inorganic liquidity; 2) Trump’s import tariffs, and 3) Now, irrespective of the increasing lack of skilled workers, the private sector, terrifyingly, has still managed to avoid any meaningful increases in worker’s real wages. This is clearly evidenced by the latest set of numbers from Atlanta’s Fed “Wage-Growth-Tracker.” Although as of June 2021, the 3-Month moving average for medium wage growth p.a. was slightly above 3%, adjusted by inflation wage growth was actually -2.2%!
Furthermore, it is also reasonable to predict that as is happening in the job market, recent supply-chain bottlenecks will turn around 180 degrees into even sharper and even more brutally efficient supply chains in the future.
“The procurement practices and efficiencies” of the future will ensure that the same supply-chain bottle-necks won’t happen again; manufacturers and suppliers of “non-branded” products, commodities, and/or services be aware. After all, among the “branded” market leaders, it is all about -not only profitability- but a never-ending race not to lose market share.
The current gap between skilled-jobs openings and the unemployed is a poster case for theoretical massive wage inflation that has not only failed to take place, but quite the contrary; a reverse and crude reality is developing. Now, for millions of people, there are far fewer of the pre-pandemic “old jobs” available in the economy; next (and inevitably) before any -pipe dream- of real wages inflation ever occurs, a significant number of those skilled-jobs openings will migrate overseas. That’s why at present, inflation cannot be interpreted under the old or traditional theories. The fact is that the current shortages and imbalances in supply chains and workforce will and are causing an overwhelming technology-driven response that will further enhance the “developed world” lack-of-inflation, 12-year run. Unfortunately, part of it will continue to be at the expense of displaced workers, left out in the cold.
July 16th. 2021.