An excess of idle workers remains the big economic problem these days. What if the cause turned out to be too few workers, or the cure became even more workers?
These thoughts stem from two different sources, but they each look at the same piece of data. They’re counting heads in the workforce.
Start with Jim Paulsen, who is the chief investment strategist at Wells Capital Management in Minneapolis.
Paulsen’s take early last month was that the current recovery isn’t so bad and in some ways is better than those following recessions in 2001 and 1991. This recovery looks weak only when compared with recoveries before the mid-1980s.
Here’s his big idea: Recoveries before 1985 were faster and stronger because the labor force grew much more quickly. Those recoveries benefited from Baby Boom demographics and the entry of women into the workforce.
Between 1960 and 1985, the U.S. labor force grew an average of 2.1 percent a year, according to his report. Since 1985, only 1.1 percent, or barely half as fast.
The other big change since 1985, Paulsen argues, has been to the “speed limit” on U.S. economic growth.
Before 1985, economic recoveries had no problem hitting annual growth rates of 5 percent, 6 percent, 7 percent and even 8 percent.
Since 1985, the economy’s top end during a recovery has been between 4 percent and 5 percent. Recovery simply has been slower and Paulsen says it is because fewer new workers have been entering the labor force over the last quarter century.
Shift now to the next quarter century and an interview Robert Doll gave the Wall Street Journal early this month. Doll is the chief equity strategist at BlackRock Inc., which manages $3.6 trillion for clients.
Doll is bullish on U.S. stocks chiefly for one reason, growth in the labor force.
“Over the next 20 years, the U.S. work force is going to grow by 11 percent, Europe’s going to fall by five and Japan’s going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth,” he told the Journal.
The reason it is an advantage is simple math. Long-run economic growth equals the labor force times worker productivity, according to Doll.
As an investor, he prefers India over China for similar reasons. Doll said that population growth between now and 2030 will be 32 percent in India, but in China it will be no higher than in the United States.
Unfortunately, Doll doesn’t connect U.S. population forecasts or relatively higher economic growth to good news on the jobs front.
The good news is that both men see overseas markets as the source of future business for U.S. companies and U.S. economic growth. And it will take growth to put more idled hands back to work.
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