WHAT IS THE “E” GAP?

Posted on | December 8, 2009 | 3 Comments

How will we recover from this recession?  This “GREAT RECESSION?”

How will we recreate the 8.2 Million lost jobs?

If you think the Congress or President Obama or the Federal Reserve is going to be part of the solution, then this article is not for you.  You are simply not in the right starting place fully to appreciate this blog.

The solution will not be big government or even big business.  Government does not save jobs or even create jobs.  Government can hinder or facilitate the business community in its natural endeavor of generating profits, which requires manpower which translates to jobs.  So, starting from that point, why won’t an economic recovery immediately generate more jobs?

I assume that the overwhelming majority of economists are correct that this will be a “jobless recovery.”  Here’s what that looks like visually:

The “E” Gap

The difference between economic growth and job creation is what I call the “E” Gap.  As explained below, the “E” Gap represents a void that will trigger the greatest wave of entrepreneurship we have witnessed since the end of World War II.

The precise numbers in the chart above are irrelevant, so please do not focus on the values that I have assigned here or the rates of GDP growth versus the rate of job creation.  Those are not the issues here.

If you start with the proposition that GDP or economic growth will out-pace job creation, then you must accept that there will be a “jobless recovery.”  That will be true, at least, in the sense that economic activity will increase faster than net job creation will grow.  I do not believe that those 8.2 million jobs will return in the same form as existed before the Great Recession started.  Here’s why:

1. Employers were extremely confident prior to the recession.  Employment is a measure of confidence in the economy.  If an employer is confident in the future, it will hire more employees in anticipation of future growth.  There are no indications that employers will exhibit the high levels of confidence that predated the recession.
2. Taxes, particularly employment taxes, healthcare costs, etc. will surely increase in future years.  These pressures will increase the costs of labor, which will cause the demand for labor (employment) to drop or at least not grow as quickly.
3. Employers will innovate in ways that will reduce the demand for employees.  Some of the best innovations result from the necessities created during difficult times-  RECESSIONS!  Unfortunately, innovation often means less need on labor.  Machines, computers, new devices, software, processes, etc. are being created right now, all in an effort to reduce costs.  Labor happens to be one of business’ largest costs.  Do the math.  Jobs will be lost forever.
4. Many manufacturing jobs have been lost forever.  Take our two largest job-producing industries: automobiles and homes. 
5. Employees seemingly distrust employers more today than in many decades.  The level of employer-employee and employee-employer disloyalty may have never been higher.
6. The Baby Boomers will be working longer, because they are living healthier lives for longer periods of time, and they have lost their retirement savings.  They can, want and must work longer, which will increase the supply of labor.

The bottom line:   SOME JOBS HAVE BEEN LOST FOREVER.

But, people have to eat, you say.  I agree.  In fact, I think that people want more than just food to eat.  I think people like to wear clothes, sleep in nice homes, drive cars, go to the movies, buy mp3 players, etc.  The unemployed will, sooner than later, find a way to earn a living.  And, businesses will still need services, innovation, talent, experience, etc.  While these needs normally translate into job creation, all indications are that jobs will trail economic growth.

If you can’t find a job, you create one!  I challenge anyone to disprove that proposition.  Even during the Great Depression, people found ways to survive.  Odd jobs eventually became services which grew into companies, which employed other people, and so on. 

Entrepreneurs will create their own jobs, build new enterprises and, in turn, create even more jobs.  AND THAT’S CALLED ENTREPRENEURSHIP.  Employers won’t hire back the 1,000,000’s of unemployed.  The unemployed will start small businesses, form partnerships, or work for a start-up or emerging company.  Job creation will start with the small venture and grow from there.  Don’t expect Uncle Sam or even Uncle Sam Walton (Wal-Mart) to create tomorrow’s jobs.  Look at today’s unemployed, highly skilled, experienced and hungry worker, middle manager or recent MBA graduate.  Those are tomorrow’s entrepreneurs who will restart the job market and create the economic recovery that will generate jobs and better wages.

More on entrepreneurship and the economy in years to come in a future blog.  Here, I wanted to cover the basic concepts that will create the “E” Gap.

________________________________________________

Matthew A. Griffith is a business and real estate attorney, entrepreneur, business success coach and investor.  He guides small business owners, management teams, inventors and investors to profitability using both time-tested and innovative business ideas, methods, tools and techniques.  For a consultation, contact him via email-  griffith@indiana-attorneys.com

Comments