Will China Cause the Next Recession?

When China's stocks crashed last month, economies across the globe worried about a market meltdown; China, the United States, and countries across Europe worried whether the hard-won economic recovery could be on the brink of reversal. The Dow plunged 1,000 points, the worst day since August 2011. Stocks for a number of large American companies also fell the same day. A few weeks later, China's economy is still limping along and their slowing economic growth may be even worse than originally feared. Some worry that without improvement, China could bring on the next recession.

China has the second-largest economy in the world and has had explosive growth for the last twenty years. Its rapid industrialization has also fueled growth in other countries that feed China's appetite for natural resources, such as Brazil. As a juggernaut leading global growth, China's slowing economy has produced fears that many countries might find their own economies declining, and even sliding back into a recession.

In the weeks following the plunge, China's government intervened in order to prop up the domestic market and to stabilize the yuan and prevent the currency from spiraling into a freefall. However, China's slowdown may be worse than originally predicted: in the last month, its output of industrial commodities weakened, growth in factory output missed predictions, and production of steel and coal declined. The government is aiming for 7% economic growth in 2015, the lowest in fifty years (CNBC, 9/13/15).

Volatility in America's own stock market from China's instability and fears of an economic slowdown may affect the Federal Reserve's decision whether to raise interest rates on Thursday. A majority of economists polled believe that the Fed will not raise rates amidst the uncertainty (The Wall Street Journal, 9/14/15). Meanwhile, some 75% of investors view China as the largest risk to investments and only about 20% feel positive about the global economic outlook for the coming year (Business Insider, 9/15/15).

China's weakening growth could send other countries into a dangerous downward spiral. The repercussions of the stock market crash has been a rollercoaster, which other economies have no choice but to ride.

Readers, do you think we should be worried about China? Comment and let us know!

Where are They Now? Updates to the 4 Biggest Stories of 2015 (So Far)

So far, 2015 has been a year with many businesses and hiring trends making headlines daily. Cities have raised their minimum wage, companies have made unique (and sometimes controversial) personnel decisions, and court decisions have thrown some companies' entire existence into jeopardy. These stories continued to be front-page news. Here are the updates for the biggest four stories of 2015 so far.

Walmart Gives 500,000 Employees a Pay Raise
When the retail giant notorious for low pay decided to raise the hourly wage for 40% of its workforce, it was applauded for following successful companies with high wages. The company estimated it would be spending an additional $1 billion in increased pay and revised training programs. Almost 6 months later, Walmart is experiencing weak second quarter earnings and has predicted that extra expenditures in pay will decrease its earnings per share by 24 cents in 2015. However, Walmart is confident investors will see a payoff for higher pay; same-store retail sales were the highest in 3 years and the company had its third straight quarter of higher traffic (CNBC, 8/18/15).

Lawsuits Spell the End of the Sharing Economy?
A wave of lawsuits against companies that are part of the "sharing" or "gig" economy had their entire business model thrown into jeopardy. The suits claim that that companies like Uber and Lyft exploit workers by classifying them as independent contractors, not as employees, and therefore avoid paying benefits, health insurance, and other costs. Last week, a judge in California allowed drivers in a class-action lawsuit against Uber to proceed with their claim. If the drivers win, Uber could face a large settlement - and more devastatingly - a possible change to their business model, at least in California.

The Company with a Starting Salary of $70,000
In April, Dan Price, CEO of Gravity Payments in Seattle, decided that all 120 employees at his company would earn at least $70,000 a year. The choice was both lauded as a smart and generous business practice and also criticized as foolishness that would make the company unstable by eating into its profits. Just 3 months later, Price is seeing some fallout from his decision. Two of the company's "most valued" employees quit and although the company was signing on new clients from the positive publicity, some customers left, anticipating a rate hike.

Los Angeles' $15 Minimum Wage
Los Angeles became the largest city to pass legislation that would institute a $15 minimum wage and a familiar debate around the possible benefits or detriments ensued. The success of the Fight for $15 in Los Angeles, also spurred other cities to raise their minimum wage. New York plans to raise wages for fast food workers to $15 an hour by 2018. In the Bay area, an arms race of raising wages was triggered as Berkeley, Oakland, and Emeryville all increased minimum pay.

Readers, what do you think has been the top story this year? Comment and let us know!

August Jobs Report

In August, U.S. employers added 173,000 new jobs and the unemployment rate decreased slightly to 5.1%, according to the Bureau of Labor Statistics' Employment Situation Summary. The amount of new jobs was weaker than expected and economists are predicting that slower growth will delay the Federal Reserve from raising interest rates.

Industries that experienced the most growth in August included health care and social services (+56,000), professional and business services (+33,000), food service (+26,000), and financial activities (+19,000). Staffing firms created 10,700 new jobs in August and temporary help services increased 0.4%.

The Digital Destruction of Middle-Class Jobs

When a new piece of technology is introduced, it's touted as the miracle solution to make work and life smarter, easier, and faster. Nearly every person carries around a small super computer in their pocket, the Internet keeps faraway family or coworkers connected, and mountains of data and information can be stored for time immemorial. Technological innovations claim to aid people in life and employees at work, but is the constant march of digital development actually destroying middle-class jobs?

The end of employees and the rise or robots is an apocalyptic prediction that has been forecast before, but never come to pass. However, the rapid advancement of tech could eliminate middle-income jobs that sustain many households, leaving workers without a digital skill set out of luck. Until about the year 2000, labor productivity and private employment grew together in the U.S. However, at the turn of the century, a gap emerged between productivity and employment: productivity continued to increase, while private employment decreased (see chart). Because of new technology, the economy and GDP were growing, but not coupled with job creation (Tech Republic, 8/19/14).

Since that time, new technologies created high-paying jobs – but only for a few and only for those with the right skill set. In the past, most middle-income households were sustained by factory or manufacturing jobs. In 1970, more than one quarter of U.S. employees worked in manufacturing (Bloomberg, 4/25/2014); those jobs accounted for only 8.8% of U.S. employment in 2013 (Economic Policy Institute, 1/22/15). The decline of U.S. manufacturing has several contributing factors: outsourcing and a surge of Chinese imports both contributed to the continual drop. However, manufacturing employment is falling globally in nearly every country, including China, (Bloomberg, 4/25/2014), due mainly to technology and the elimination of the need for industrial workers.

It is not just factory jobs being claimed by automation. About 47% of all present jobs in the U.S. are predicted to be computerized or automated within the next two decades (Oxford University, 7/17/13). Some service and white-collar positions are also expected to succumb to technology; accountants, retail salespeople, technical writers, and telemarketers, all have a high probability of being replaced by robots within the next twenty years (see chart, Business Insider, 7/23/14).

As middle-class jobs decline because of automation, others jobs do replace them; however, these are typically highly-skilled tech jobs or low-wage service jobs, leading to a polarized workforce. Those working in high-skilled jobs will benefit from high wages, while those working in low-skilled jobs will encounter the continuing trend of finding their earnings depressed. Additionally, technology allows companies to substitute labor for capital, which boosts productivity, but does nothing for wages, and concentrates wealth among a small group and resulting in ever-increasing inequality (University of Oxford, 2/2015).

But are the dire predictions are a bit too apocalyptic? Is the technology boom all part of typical economic cycles that destroy some categories of jobs but open up a whole world of new employment? A few decades should determine whether technology replaces workers with robots.

Readers, do you think technology is creating or destroying jobs? Comment and let us know!

The Disappearing American Worker

The unemployment rate has been falling steadily for several years as the United States emerges from the Great Recession. In June, the unemployment rate fell to 5.3%, the lowest in seven years. Job growth has also been consistently steady, if a bit sluggish after a first quarter slump. However as the unemployment rate has fallen, so too has the labor participation rate. In June, the workforce participation rate declined to 62.6%, the lowest since October 1977. Do more and more people exiting the workforce reveal that the economic recovery may not be as bright as some hope? Or is it simply the new normal?

Americans have been leaving the labor force since the tech bubble burst in 2000. Before then, the rate had been steadily climbing as women entered the workplace. More than 94 million Americans are neither employed nor looking for work, and 432,000 people left the labor force in June, causing a further slump in participation. The downward trend has been consistent for nearly fifteen years and a sluggish economic recovery has only hastened the decline.

The drop in participation could be caused by certain demographic groups opting out of work. For instance, Americans are now living longer and the Boomers who once made up the majority of the workforce have retired in force in the last years. Only a third of Baby Boomers in the U.S. are still working (Gallup, 1/26/15). On the opposite end of the spectrum, more young Americans have opted to stay in or return to school rather than start their career. Non-working students, mostly under the age of 35, increased from 5.8% in 2006 to 7.1% in 2012 (Bloomberg, 1/19/15). Those continuing their education are predicted to return to the labor force once they've finished school, but for now their education keeps them from being employed. Younger people staying in school longer and a mass exodus of older workers means that the labor participation has dragged since well before the Great Recession and will continue to do so as more Boomers retire.

However, less people working may not just be about generations. The more worrying aspect of decreased participation is the decline of "prime workers" (those between 25 and 54 years of age) dropping out of the workforce. The amount of men in the workforce declined to 69% in June, the lowest since the data started being tracked in 1948 (U.S. News & World Report 7/16/15). Women, who were responsible for the climbing participation rate for several decades, have also left the workforce and their participation has declined to 56.7%, down from the 60% peak in 2000.

Most concerning is that economists do not expect prime workers who have left the labor force to return to it, even if the economic recovery speeds up. Those who have opted out have done so out of discouragement and changing work environments. Despite 5.4 million vacant positions, these workers do not have the skills potential employers are seeking for their open jobs. This becomes a vicious cycle: as workers drop out of the labor force due to lack of skills, being unemployed means they can't get the job skills they need and decreases their employability even further.

The shrinking American workforce is predicted to continue and economists worry that low labor participation will hurt the economy. A decline in productivity could mean depressed development and stagnant GDP growth. The disappearing American worker may mean that the economy will continue to limp along rather than surge ahead.

Readers, why do you think the labor participation rate is falling? Comment and let us know!

June Jobs Report

A third straight month of strong job growth continued to boost optimism for the second half of 2015. The U.S. economy added 223,000 jobs in June according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate decreased to 5.3%, the lowest in seven years. However, economists worry that falling unemployment was prompted by Americans exiting the workforce, rather than more people finding jobs. The labor participation rate decreased to 62.6%, the lowest since October 1977.

Industries that experienced the most growth in June included professional and business services (+64,000), health care (+40,000), and retail (+33,000). Temporary help services increased by 0.7% and created 20,000 new jobs.

Los Angeles is Now the Largest City with a $15 Minimum Wage

In an anticipated move on Saturday, Los Angeles Mayor Eric Garcetti signed a measure into law that will require employers to raise the minimum wage from $9 an hour to $15 an hour over the next five years. The first increase will take place in July of 2016 and raise the wage to $10.50. The Los Angeles law was approved with a 14-1 vote and requires that any business with more 25 or more employees raise their hourly wages to $15 an hour by 2020. The wage hike will affect upwards of 600,000 workers, but no one is quite sure the effects the new law will have, and the second-largest U.S. city has now become an experiment for a huge higher minimum wage. Although other cities such as San Francisco and Seattle have also recently raised their wages to $15 an hour, the city of Los Angeles will be watched closely as a trial for whether other cities, and even the federal government, could reasonably institute similar wage hikes. No city as large as Los Angeles, which has nearly a million people living below the poverty line, has tried to institute such a hefty or fast pay increase. The success or failure of the new law will be closely scrutinized and could either be a huge victory for those advocating for higher wages or deter other cities from implementing similar pay increases.

A seemingly endless debate surrounds raising the minimum wage and whether it will help or harm the economy. Mitchell Englander, the only City Council member to vote against Los Angeles' new measure, argues that this new minimum wage "may hurt the very people it is designed to help" by forcing low-margin industries and small businesses to reduce jobs and hours and relocate to the many districts outside of LA city limits which have much lower wage standards (Los Angeles Times, 6/15/2015). Additionally, Englander points out that even $15 an hour will not do much good when affordable housing is so scarce in LA, where the average apartment rents for more than $2,000 a month. A report from the LA Chamber of Commerce echoes Englander's concerns, citing that the increase will result in job loss, business relocation, and will do little to aid low-income families to rise above poverty due to the high cost of living in Los Angeles. Many restaurants openly opposed the measure, predicting that they would be forced to cut as much as half of their staff (The New York Times, 5/19/2015).

However, some are concerned that the wage hike is too little too late. For instance, by the time that LA's minimum wage reaches $15 an hour in 2020, it will be worth the equivalent of $13.75 today (assuming that inflation holds steady). Add to that the fact that it currently costs 40% more to live in Los Angeles than in the average American community, and the future $15 an hour for LA residents diminishes to be worth about $9.75 an hour (FiveThirtyEight, 5/20/2015).

Other cities such as Seattle and San Francisco have passed similar measures to raise the minimum wage. The pay increases have not had enough longevity to determine whether they've helped or hurt workers and businesses. San Francisco's first pay increase was instituted on March 1 and will reach $15 an hour by 2018. Long-term effects of the minimum wage increases are still a mystery, although some are already decrying the escalations in San Francisco as a disaster that has led to local businesses teetering on the brink of closure and restaurants increasing prices by 20% (The Wall Street Journal, 3/24/2015). Seattle's minimum wage, which took effect April 1 has already spurred a debate about whether the pay increases will lead to adverse effects including an abnormal amount of restaurant closures or whether that speculation was wildly exaggerated without the full facts.

Whether the recent minimum wage hikes will be a boon to the economy or will make these metro areas go bust is still unknown. Economists, politicians, business owners, and employees will all be watching these major cities as they experiment with significantly higher wages. Los Angeles especially will be under close scrutiny since it will be the largest city to date that has decided to raise the minimum wage so much and so quickly.

Readers, how do you predict that the $15 minimum wage will affect Los Angeles and other cities? Comment and let us know!

6/17/15 Update: The small California city of Emeryville, near the San Francisco Bay area, voted to raise the minimum wage to $16 per hour by 2020. This will make Emeryville the city with the highest minimum wage in the nation.

May Jobs Report

A second straight month of strong job growth continued to boost optimism that first quarter stagnation was due mostly to winter weather and not a sign that the economy is stalling. The U.S. economy added 280,000 jobs in May according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate edged up slightly to 5.5% as more Americans returned to the labor pool and actively started looking for work. Wages increased 0.3% last month and have risen 2.3% over the last year, which may be luring some back to job searching again.

Industries that experienced the most growth in May included professional and business services (+63,000), leisure and hospitality (+57,000), health care (+47,000), retail trade (+31,000), and construction (+17,000). Temporary help services increased by 0.7% and created 20,000 new jobs.

Do New Grads’ Job Expectations Match Reality?

This is part 2 of our series examining the job market that the Class of 2015 will enter into after graduation. To read part 1, click here.

Millennials have officially surpassed other generations and become the largest share of workers in the American labor force. More than one in three employees now belong to Generation Y (Pew Research Center, 5/11/15), and even more young people will inundate companies after the Class of 2015 enters the workforce. New graduates are starting out in the "real world" with a firmly Millennial mindset about work, but their career expectations may not match up with the reality of what employers want or offer.

Optimism reigns for the Class of 2015. Some 80% of new graduates are confident that their education prepared them well for the labor force (Accenture, 2015); however, businesses don't share their positivity. Only 23% of employers reported that last year's graduates were prepared with real world knowledge (AAC&U, 1/20/15). Some 46% of employers believe that this year's college students do not have enough real-world learning (CareerBuilder, 4/28/15), and their concerns may be validated: four in 10 students about to leave school will do so without the complex reasoning skills necessary for white-collar work (The Wall Street Journal, 1/16/15).

Those in the Class of 2015 seem to think they will outperform their past peers and rank themselves highly in many areas necessary to succeed at work, while employers view new grads as under-prepared and lacking in many essential skills. For instance, when it comes to feeling prepared for (1) working well with others, (2) making good decisions at work, (3) organizing and evaluating information, and (4) analyzing and solving complex problems, new grads' perception differs greatly from their prospective employers'. Well over half of graduates think they are well prepared in each area, whereas well under half of employers agree (AAC&U, 1/20/15). It remains to be seen whether these new graduates have an elevated opinion of themselves or whether their future employers are underestimating their abilities.

The Class of 2015 has not only a high sense of self worth, but also high expectations for their future employers. However, when they enter the "real world" they may want to prepare themselves for disappointment. Some 77% of college graduates expect that their first job will provide formal training opportunities, but only a little more than half (53%) of those graduates from 2013 and 2014 received such training. They may also face frustration when they receive their first paychecks. Some 85% expect to earn more than $25,000 a year, while 41% of graduates from 2013 and 2014 are earning less than that (Accenture, 2015) and 49% are under-employed (CareerBuilder, 4/28/15).

High expectations may stem from the fact that the Class of 2015 will have more career options than the other graduates from the past few years. Rather than simply being grateful for a paying job, they have the opportunity to be more selective in where they choose to work. More than ever, new workers espouse a Millennial mindset and value work culture over pay. Some 69% of graduates prioritize positive social environment over compensation, and many are more concerned with meaningful work and flexible hours than their pay rate (Accenture, 2015).

New college graduates have high (some employers might say unrealistic) expectations for the workforce and may find themselves let down once they start their first job. However, an improved job market does promise more opportunities, better pay, and the luxury to be more selective as they enter the workforce.

Readers, is the Class of 2015 prepared for the "real world?" Comment and let us know!

Class of 2015 Graduates into Best Job Market since the Recession

The Class of 2015 is preparing to don their cap and cloaks, turn their tassels, and transition from college into the "real world" of the workplace. Commencement speakers will encourage new graduates to follow their dreams and change the world, but many soon-to-be grads are worrying more about the immediate question: "Will I be able to find a job?"

New graduates are no strangers to the effects of the Great Recession. When they started their college years in 2011, the graduating class had over 10% unemployment and 19% underemployment. Many of those in the Class of 2015 witnessed their siblings who graduated during the worst years of the recession founder, scrambling to find full-time employment and moving back in with their families.

This year's college graduates are entering into the best job market since the Recession; however, they will still be competing for entry-level jobs and may find it difficult to earn wages that will help chip away at their student debt. Employers expect to hire 9.6% more college graduates this year than in 2014; organizations also reported that they have more job openings for new graduates than the previous year (NACE, 4/15/15). The Class of 2015 may not be competing against each other as fiercely as in the past, but the market is still competitive, and employers receive an average of 23 applications per posting (The Wall Street Journal, 4/15/15). Despite several years of continued job growth, the unemployment rate for those in their 20s with a four-year degree actually rose last year to 12%, putting a damper on the optimistic expectations for this year's new graduates (CBS News, 4/16/15).

New graduates in certain fields face better prospects than others. Health care, STEM industries, and accounting and finance offer the best growth and some of the highest salaries for newly minted college grads. Health care careers are expected to grow by nearly 20% between now and 2020, engineering has a similar growth projection (and some of the highest starting salaries for new graduates), and accounting jobs are expected to grow by 17% (Fortune, 4/7/15). College graduates with degrees that are less in-demand may face more trouble finding a job with decent pay. Less than 10% of companies are making it a priority to interview and hire those with degrees in communication, journalism, liberal arts, and education (CareerBuilder, 4/28/15).

Members of the Class of 2015 have high hopes for themselves, despite the fact that nearly half (49%) of college graduates from 2013 and 2014 consider themselves underemployed or working in a job that does not require a college degree (MarketWatch, 5/12/15). In contrast to this and perhaps reflecting the optimism of youth, some 8 in 10 college graduates are confident about their working future and report that their education prepared them for the workforce (Accenture, 2015).

With 58% of new graduates reporting that they will leave college with more than $50,000 in student loans (MarketWatch, 5/12/15), wages are a concern for new graduates. Although 33% of employers plan to raise the starting salaries of college graduates that they hire, 57% have no plans to change starting salary offers, and 26% plan to offer less than $30,000 a year (CareerBuilder, 4/28/15). Just like hiring, the salary predictions for the Class of 2015 will vary widely depending on their degree. Those that leave college with an engineering degree can eagerly await starting pay upwards of $60,000 a year, while those carrying degrees in education, the arts, or communication can expect to make less than $40,000 per year (PayScale, 2015).

Although anyone graduating in 2008 or previous years would be envious of the job market for the Class of 2015, this year's new graduates will face still face a tough (although improved) job market. If companies hire as predicted, many new graduates will be able to answer the pressing question of whether they will find a job with a solid "Yes." However, will their presumptions about the working world match with the reality of what companies expect? Find out in Part 2 of our series next week.

Readers, what are your predictions for the Class of 2015? Comment and let us know!

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