Tuesday, February 3, 2015

The Big Lie: 5.6% Unemployment by Jim Clifton

Here's something that many Americans -- including some of the smartest and most educated among us -- don't know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.
Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is "down" to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.
None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast "falling" unemployment.
There's another reason why the official rate is misleading. Say you're an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 -- maybe someone pays you to mow their lawn -- you're not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.
Yet another figure of importance that doesn't get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find -- in other words, you are severely underemployed -- the government doesn't count you in the 5.6%. Few Americans know this.
There's no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.
And it's a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual's primary identity, their very self-worth, their dignity -- it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen's talents, training and experience, we are failing the great American dream.
Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America's middle class.
I hear all the time that "unemployment is greatly reduced, but the people aren't feeling it." When the media, talking heads, the White House and Wall Street start reporting the truth -- the percent of Americans in good jobs; jobs that are full time and real -- then we will quit wondering why Americans aren't "feeling" something that doesn't remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.
Jim Clifton is Chairman and CEO at Gallup.

Monday, February 2, 2015

Apple Computer Reports Largest Profit in the History of Mankind

I was shocked recently when it was reported that Apple Computer reported it's largest profit ever... even in the history of mankind.  And it reminded me of an old blog I posted on August 27, 2013 (with help from my writing partner Allen Laudenslager).  Coincidentally, Forbes published an article soon-there-after in September 25, 2013: Forbes: If Apple Brought iPhone Manufacturing To The US It Would Cost Them $4.2 billion.



Let's pretend for a moment you're the guy in the three wishes joke stranded on a deserted island and you find an old bottle washed up on the beach; you pop the cork and out comes a genie who grants you three wishes.  What would you wish for?  

Well, you reply, the most logical choice is to be rescued from this deserted island.  

Good one; it’s our basic human need to survive or live.

Now what’s your second wish?

A good wife or husband, you answer.

Another good one; it’s our basic human need to love and to leave a legacy (children). 

You’ve made two good wishes.  Now for your third and final wish?

You think for a moment, well a million dollars would be good, a billion dollars would be better, but having all the money in the world would be the best!  Yes, I wish for all the money in the world.

BUUUUZZZZZZZZ!  Bad choice!  It’s our basic human vice of greed.

If you had all the money in the world then no one else would have any and it would become worthless.  By itself, money has no intrinsic value; it's only a medium of exchange for goods and services, a way to store and exchange your work for someone else’s without direct barter.

Corporate America is not much different than the foolish guy in the three wishes joke.  We all have a basic need to live, to love, and to leave a legacy.  Unfortunately, we’re all cursed with vices like greed (like wishing for all the money in the world).  How is Corporate America doing this?  Generally speaking, they pay their employees as little as possible, charge their customers as much as possible, hoard most of their cash, and avoid paying taxes.  Before they know it, they too will have all the money in the world but it will become worthless because no one else will have any to buy their products.

Apple epitomizes of what’s wrong with Corporate America today.  They pay their Chinese factory workers as little as possible (about $1.11 an hour), make them work as much as possible (twelve hours a day, six days a week), and treat them as poorly as possible.  Apple then charges their customers as much as possible for their products.  After this, they hoard their cash and do their level best to legally avoid paying taxes (mainly using overseas tax havens).  And before they know it, they too will have all the money in the world but it’ll become worthless because no one else will have any to buy their products.

According to the research firm iSuppli, they estimate the iPad2 (with 32Gb memory, WiFi and Cell) costs about $10 to assemble in China; the material costs about $325 for a total of $335 per unit for labor and material.  Apples then sells this device for $729, which gives them a gross profit margin of 54%. 

Now if Apple were to manufacture the iPad2 in the U.S. it would cost them about $292.77 to assemble (at a labor/benefit rate $32.53/hour); the material costs would be about the same $325 for a total of $617.77 per unit for labor and material.  Apple’s gross margin would then shrink to 15.25%.

Sure, manufacturing in the U.S. would shrink Apple’s gross margins.  It’s not a question of making a profit, but how BIG of a profit Apple would make.  They choose to manufacture in China because they can earn 54% gross margins instead of a measly 15% in the U.S.  The only problem is that consumers will no longer be able to afford Apple’s products because they’re earning much lower wages.

While Apple and the rest of Corporate America have not achieved their wish for all the money in the world they have purposely designed their business models to lock up as much cash as they can and sequester it at the corporate level as cash on hand or as bonuses to a few corporate mangers; in doing so their money is becoming worthless because no one else has any.

Much of today’s unemployment is caused by slow demand. People aren’t spending as much of their income for those products because they just don’t have the cash!  Flat salaries coupled with inflation have eroded the bulk of the buying public’s disposable income resulting in the slow recovery from the 2008 recession.  We'll be stuck in this quagmire unless and until the corporate mangers learn that their shortsighted wish for “all the money in the world” is the root cause of their financial woes.

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