(Image from Scott Winship.)
At the same time, corporate profits and economic growth in terms of GDP have been rising. So has productivity. These signs in the face of a stagnant labor market show that the economy no longer needs as many workers to generate the same output as it did a decade ago .
The root causes of these phenomena of falling labor demand with rising corporate profits and productivity are two-fold: globalization and technological change, both of which act to shrink the demand for workers in the U.S. economy. In a sense, the economy's labor needs are shrinking as offshoring, technological change and the automation of routine work reduce labor needs, according to MIT economist David Autor.
These processes suggest that the job losses are structural and that job creation programs will not work because they can't change the fundamental economic incentives that are driving employers to invest abroad and to invest in better technology which allows fewer workers to be more productive. Job training programs are also bound to fail because such initiatives do not address the fundamental problem: the lack of demand for more labor. And labor demand will fall even further in the coming years as neither globalization nor technological change can be legislated away.
Income Inequality Now Rivals That of Third World Nations
In The Wall Street Journal, Ellen Byron writes on the phenomenon of U.S. companies splitting their product lines to accommodate this growing income divide, "We now have a Gini index similar to the Philippines and Mexico — you'd never have imagined that," says Phyllis Jackson, P&G's vice president of consumer market knowledge for North America. "I don't think we've typically thought about America as a country with big income gaps to this extent."