Free Labor: I Can't Afford to Work!

Recent college graduates are really hurting in this current recession. According to anecdotal reports from across the media, young people are having a hard time getting any kind of job. Young people are being forced to compete with older, more experienced workers who have lost their jobs during this recession.

An interesting development related to this phenomenon is the rise of the "unpaid internship." The New York Times business section reported on this in yesterday's edition. The report includes a few personal stories from young college students who have worked in these unpaid internships and it's worth reading just to get a picture of what the job market is like for recent college graduates right now. However, a few things jumped out at me.

The first is this:

In 2008, the National Association of Colleges and Employers found that 83 percent of graduating students had held internships, up from 9 percent in 1992. This means hundreds of thousands of students hold internships each year; some experts estimate that one-fourth to one-half are unpaid.

This is a pretty huge and, in my eyes, significant change to the American labor market. We now have hundreds of thousands of people performing work for free. As the article points out, much of this is clerical or blue-collar labor. In other words, hundreds of thousands of jobs have been eliminated thanks to the proliferation of the unpaid internship. This didn't happen overnight however, this is a product of the past two decades of economic transformation.

The second is this:

Convinced that many unpaid internships violate minimum wage laws, officials in Oregon, California and other states have begun investigations and fined employers.

That's right - many of these unpaid internships are wholly illegal. Unpaid internships are meant to be educational. Employers who take on unpaid interns just so they can get clerical or blue-collar work done without having to pay somebody are in violation of the law. However, if the anecdotes in this article are any indication - this practice is quite widespread. There are six legal criteria that a internship must meet for it to be legally unpaid.

I also thought it was interesting that one student mentioned this practice was particularly widespread in the music and film industries. It makes some sense as it's reminiscent of an apprenticeship program but I also think it explains some of the inefficiencies and lack of professionalism in those industries.

All in all, students who are graduating today face a much tougher economic climate than previous generations. In order to succeed in many professional fields one must be willing to work for free for an extended period of time. Many students, those with families to support or a lack of financial reserves, are simply incapable of making this sacrifice - setting them back even further compared to their peers. I believe the inefficiencies of this system, which benefits established wealth and which removes hundreds of thousands of employment possibilities from the labor force, will manifest themselves in the future and further erode the U.S. economy.

Thoughts?

What I'm Reading (9/25/09 edition)

*The founder and Chairman of Tiger Management, Julian Robertson, warned that the U.S. faces a financial "armageddon" if China and Japan stop buying U.S. debt or start selling off the bonds they already own. He advised that the U.S. should "quit spending, start saving, and scale backward."

I think hes probably right but how politically feasible is that? What politician would be willing to publicly promote austerity measures in the U.S. and could still manage to win elected office? Ron Paul maybe? Unfortunately that still seems like a long shot if we're talking about the Presidency.
Read more: US May Face 'Armageddon' If China, Japan Don't Buy Debt

*Citigroup is thinking about closing some of its branches across the country. Apparently Citibank has previously announced plans to close its consumer finance division (news to me). Citigroup's plans for revitalizing itself include figuring out how to collect more deposits and improving customer service. Ingenious, I'm sure it only took an army of consultants a lot of time and money to come to that radical conclusion.
Read more: Citigroup Said to Consider Shrinking Branch Network (Update 1)

*A research firm in Spain is predicting that the Spanish economy will continue to conract for the next three years. They state that the economy is likely to eventually lose 11% of GDP compared to its peak in this decade. Unemployment will peak at 25%. In other words, it is entering a full-fledged Depression. One analyst claims it will take a 10% reduction in salaries to make the Spanish economy better able to compete globally, but the trade unions and current government will fight to prevent any declines. Despite all this, the government continues to claim that the recession will be milder in Spain than in the rest of Europe.

Ambrose Evans-Pritchard blames Spain's membership in the European Monetary Union for having a big role in creating the crisis. Membership in the EMU automatically cut interest rates in half. If this recession/crisis continues, or gets more severe, I expect more cracks to appear in the European Union.
Read more: Spain tips into depression

Where are the jobs?!

Today, I'm looking at the Bureau of Labor Statistics unemployment numbers for July. As many have pointed out before, the federal government's numbers don't represent the real number of unemployed people out there. For an understanding of why that is so, you should turn to the Shadow Government Statistics web page on employment. Regardless, here are the government's numbers:

Unemployment Rates for States Monthly Rankings Seasonally Adjusted July 2009p
Rank	State	Rate
1	NORTH DAKOTA	4.2
2	NEBRASKA	4.9
2	SOUTH DAKOTA	4.9
4	UTAH	6.0
5	IOWA	6.5
5	OKLAHOMA	6.5
5	WYOMING	6.5
8	MONTANA	6.7
9	NEW HAMPSHIRE	6.8
9	VERMONT	6.8
11	VIRGINIA	6.9
12	HAWAII	7.0
12	NEW MEXICO	7.0
14	MARYLAND	7.3
15	ARKANSAS	7.4
15	KANSAS	7.4
15	LOUISIANA	7.4
18	COLORADO	7.8
18	CONNECTICUT	7.8
20	TEXAS	7.9
21	MINNESOTA	8.1
22	DELAWARE	8.2
23	ALASKA	8.3
24	MAINE	8.4
25	PENNSYLVANIA	8.5
26	NEW YORK	8.6
27	IDAHO	8.8
27	MASSACHUSETTS	8.8
29	WEST VIRGINIA	9.0
29	WISCONSIN	9.0
31	WASHINGTON	9.1
32	ARIZONA	9.2
33	MISSOURI	9.3
33	NEW JERSEY	9.3
35	MISSISSIPPI	9.7
36	ALABAMA	10.2
37	GEORGIA	10.3
38	ILLINOIS	10.4
39	DISTRICT OF COLUMBIA	10.6
39	INDIANA	10.6
41	FLORIDA	10.7
41	TENNESSEE	10.7
43	KENTUCKY	11.0
43	NORTH CAROLINA	11.0
45	OHIO	11.2
46	SOUTH CAROLINA	11.8
47	CALIFORNIA	11.9
47	OREGON	11.9
49	NEVADA	12.5
50	RHODE ISLAND	12.7
51	MICHIGAN	15.0

Two observations:

1. Only three states have an unemployment rate below 5% (the Dakotas and Nebraska). If you're looking for a job and willing to relocate, I might begin looking there. I say might because, being of such small size, these states haven't really experienced much economic volatility at all during this recession. They haven't lost that many jobs but they're not job creating engines either. So I imagine just showing up and finding a job would be quite difficult.

2. The states with the lowest unemployment figures are all relatively low-population states with not that many urban centers. The states with the largest populations and most urban centers are the ones with the highest unemployment figures. The one exception is Texas, which is "only" at around 8% unemployment according to the BLS. Economists are saying we're entering a "job less recovery" ... meaning stocks and assets might make gains for investors but it doesn't appear that many jobs are going to be creating in the near future. Even the most optimistic establishment economists are saying that half of the manufacturing jobs that left this country during the recession will never return. That's a very negative job picture for the American public. There is no way the American consumer is going to return in a big way under those conditions, yet that is exactly what this economy needs according to these same economists. This is a major reason why I'm extremely skeptical about a recovery any time soon.

Job Growth (?)

I want to draw your attention to this article from the New York Times. And specifically to this graphic. The Times writes that:

FOR the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring.

The accompanying charts show the job performance from July 1999, when the economy was booming and companies were complaining about how hard it was to find workers, through July of this year, when the economy was mired in the deepest and longest recession since World War II. For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.

This reveals more about the state of the real economy than any stock index or analyst opinion does. Without jobs there are no consumers, and without consumers there is, in effect, no American economy. Now, of course, there are jobs out there. But with unemployment reaching towards 10% nationally and closing in on 20% in some particular areas, its clear that finding a job is a much harder venture than it was a few years ago.

One comment in the article which I found interesting was:

Hard as it may be to believe, the consumer economy of the United States actually lost retail jobs over the decade, at a rate of 0.2 percent. There were fewer people working in food stores. But the category of general merchandise stores — like Wal-Mart and Costco — showed an impressive gain of 1 percent a year, even though the category also includes department stores like Macy’s, where the number of jobs has fallen.

So even retail, one of the supposed bright spots of the economy, suffered in this decade.

If you look at the graphic, you'll see that the two economic sub-sectors which exhibited the greatest growth were 'Management & technical consulting' as well as 'Home health care.' I'd like to go more in-depth into each of these industries later. Needless to say, I'm skeptical that they will be drivers of economic growth.

In recent memory, one of the primary reasons that management consultants have been hired by corporations is to and fire and downsize. With smaller operating budgets during this recession, I wouldn't be surprised if the use of management consulting declines overall.

Secondly, when it comes to home health care nothing is a 'given.' I keep hearing people trot out facts about the aging boomer population and how they'll need home health care in the near future. Yes, there will be a lot of elderly people in the United States. There are many elderly people around the world, however, and not all of them receive commercialized care (or government care, for that matter). Most are taken care of by their families. If there is no money to pay for commercial home health care, it doesn't matter how many old people you have. Lets just take a look at a few factors:
1. The incredible wealth-destruction that many retirement accounts have been subject to during this recession.
2. The incredible debt load future generations will carry.
3. The dismal jobs situation in the United States.
With these three conditions in mind, how can we be so sure that health care will continue to grow at such a rapid rate and be a job-creator? In my opinion, we can't.

Thus, I see the New York Times job report as being all-around dismal.