Close Close

Portfolio > Economy & Markets > Economic Trends

We're heading for massively slower job growth unless immigration surges

Your article was successfully shared with the contacts you provided.

(Bloomberg Business) – There is a growing chorus of thoughtful economists of different backgrounds and different persuasions all coming to the same conclusion. The economy of America is permanently changing. Our future is one of lesser, subdued economic growth accompanied by starkly lower monthly employment gains.

Call it USsclerosis.

John Herrmann writes granular and detailed reports on interest rates and economics for Mitsubishi UFJ Securities. He worries about the here-and-immediate but also considers the America our children and grandchildren will know.

It will have elements of Eurosclerosis. The definition has changed over the years and from crisis-to-crisis, but the basic tone of a sclerotic Europe is of stuctural rigidities that limit growth and cause higher unemployment than need be. Eurosclerosis will come to America unless we boost immigration, increase our work force, enhance productivity, or find lightning in a bottle.(Lightning in a bottleis ascribed to the American philosophers, Benjamin Franklin or Leo Durocher; I can’t remember which).

Herrmann shows U.S. real GDP at the run-rate of your youth. Things will change. The new run-rate is 1.75 percent per year, according to Herrmann. This is a guesstimate of the growth of labor combined with the productivity improvement of said labor. Critically, this brings the “target” for the Federal Reserve lower. The outcome of this sclerotic view that matters to all Americans is, what does it mean for jobs? Grim. Over decades, the run-rate for monthly nonfarm payrolls has been 150,000, give or take Missouri. Herrmann stuns with a new run-rate: 51,000. This view is similar to that of Michael Feroli at JPMorgan, who forecasts a relatively optimistic run-rate of 75,000 jobs per month.

Anything under 100,000 won’t play well in Washington. America is supposed to be a job-creating machine. Herrmann suggests that tepid population growth, leading to lousy labor- force growth, combined with “labor-saving technological innovation” and a jumble of other events, will give us USsclerosis. What will derail his cautious view? Immigration and the salvation of technological progress and increased productivity. Wait: That’s what we’ve done for most of 239 years.