It is no secret that there are two economies in the U.S. The most common appellations are Wall Street and Main Street. There is no clearer identification of the divergence between the two economies than the employment data.
The following graph tells the story:
Employment in large companies (500 employees or more) has been accumulating a contraction for more than 10 years. In the two super rallies in stocks and the earnings of large corporations have not seen any increases in employment in large business. The reason that both of the periods after the ends of the last two recessions have been called “jobless recoveries” is substantially the failure of large company employment to rebound.
What is curious is that the recovery in employment by small and medium businesses has in fact been quicker than occurred after the 2001 recession. By most measures, the 2007-2009 recession was much more severe than 2001.
There are three obvious reasons why the 2 million person small and medium business employment recovery is not being felt in the larger economy:
- There were 7 million small and medium company job losses, many more than in prior recessions. A much larger rebound is needed to feel like a recovery because 5 million small and medium jobs are still missing from the 2007 high.
- The population is nearly 10% larger now than 10 years ago. Adjusting for population growth would also diminish the relative slope of the most recent employment recovery.
- Wages are stagnant and real disposable income is down.
Large company employment determined from ADP data is shown in the following graph from the St. Louis Fed.
If we take the S&P 500 earnings as a proxy for large company earnings and plot the changes on the same graph with the changes in large company employment, the facts we are discussing are shockingly clear.
As long as the profit centres of the economy are largely concentrated in finance and large corporations and there is no improvement in employment associated with those profits, the divergence between America’s two streets will continue. As Global Economic Intersection has reported, the U.S. Problems are Institutional. Those, such as Paul Krugman, who have argued that U.S. employment problems are not structural simply haven’t looked critically at this data.