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FREE Economic Update, Underemployment and Birth/Death Rates

Economic Update As reported on WhatTheyThink last Friday,

By Dr. Joe Webb
Published: May 13, 2005

Economic Update

As reported on WhatTheyThink last Friday, I just had to comment on the superb unemployment report which stymied the “experts.” The economy is still creating jobs, and still growing new businesses. The Financial Times of London selectively chose statistics to complain that wages are not keeping up with inflation, which we have reported here numerous times. They failed to mention that benefits costs are rising rapidly and total compensation is growing rather significantly. Proprietor’s income is growing faster than GDP as well, something that is almost never reported by the business press. Tax collections are growing three times faster than GDP, and many states are restoring budget cuts or talking about cutting tax rates because of surpluses. And most importantly, household wealth is increasing at about twice the GDP’s rate. Last week, employers reported that they’re having trouble finding workers, and are even resorting to…(gasp!) … training. Wonder if I’ll ever read that in the Financial Times.

On the Web

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Underemployment and Birth/Death Data for Printing Businesses

I received a call from Bill Lamparter of PrintCom about my unemployment report comments, asking about the issue often referred to as “underemployment.” Bill lives in North Carolina, and I am in Rhode Island. The latter lost its textile industry to the Carolinas and has the empty mill buildings to prove it. The Carolinas ultimately lost those businesses, too, and are now in process of losing their furniture industry. Bill was concerned that unemployment data don’t accurately reflect those displaced workers, who may have earned a good wage and are now forced to accept alternative employment at lower wages.

These changes are not as sudden as they are often perceived, and there are growing industries that routinely absorb many of those workers over time. Remember the column late last year where I showed how declines in publishing jobs were more than offset by increases in Internet and broadcast jobs? The same happens in other challenged industries. People lose their jobs, and their skill sets, if they were specific, are no longer marketable. Basically, they have to find new skills, move to a new area, or in some other way change their marketability. Sometimes people do quite well, in hindsight reflecting that getting fired or losing their jobs was the best thing that ever happened to them (yours truly and my editor included).

I remember when “Big 6,” the International Typographers Union, made a deal that “saved the jobs” of its workers at New York City newspapers when computer typesetting emerged. Yes, it saved jobs of those very specific workers (they would show up to work and mill around until retirement) because newspapers calculated that the savings incurred by moving to computer typesetting would pay for retaining those obsolete workers on staff, even if they were doing nothing. But that action also prevented those workers from being deployed elsewhere—for example, into the growing world of digital prepress. Sure, they were employed; and they certainly were underemployed. But there were no telltale signs of underemployment such as reduced hours or lower pay in their case. In economic statistics, featherbedding is just the same as a regular job.

In a free marketplace, workers are able to pursue the work that they choose within the parameters that the marketplace and their own skills allow. Underemployment is therefore hard to define and has continued to perplex economists and policy makers. Take me, for example. Am I underemployed because I have lost my desire for an academic career? Surely there are those who feel that I am wasting my time writing a column and being highly selective about what consulting work I do, believing that I should be in a classroom full time, or in some high academic administrative position (no thanks). What about my father, who in 1966 when he was 40, decided that he would get his GED then go to night classes to learn to be a computer programmer. When he finished the course, he found that the only jobs available paid just $90 a week and he was earning $110 at the time (in today’s terms that would be the difference between a $27,000 job and a $35,000 job). Instead of taking a risk, he decided he would stay where he was as a bench technician at Agfa repairing cameras, a job he knew with a steady paycheck. He chose security over a growing but uncertain opportunity. I don’t know if he would have been a good programmer, but even as a bad programmer, he would have made up the salary difference in a couple of years and would have had a significantly higher salary as time went on. Twelve years later, yours truly would be hired by that same company; if my father had decided to become a computer programmer, he would not have given my resume to the Agfa personnel department, and you would be reading someone else’s column at this very moment. The ramifications of my father’s decision made me decide to make riskier, long-term decisions, and I’m glad I did. Was what my father did “underemployment?” Not to the economists, and maybe not even to him; but because he did not use his newly acquired training, I would classify it as such. But that was his carefully considered choice in a free marketplace; security was worth more than an unsure payoff as far as he was concerned.

The issue of underemployment also comes up in the “company town” scenario, which is, in my mind, the most unfortunate situation. That is, a large employer closes or leaves a “middle of nowhere” town—as has happened with military base closures, and is about to happen again—and its departure trickles through families and local retailers, displacing many skilled workers and their families. Think of what has happened in Rochester with Kodak’s and Xerox’ seemingly perpetual downsizing, or other towns in upstate New York where IBM had significant facilities. Typically, this is why workers move, hence the growth in the Sunbelt, Southwest, and West Coast fueled by escapees from the Midwestern “rust belt” and the Northeast. The U.S. highway system makes the free flow of labor all the more free, but it helps to be a reasonable distance from other opportunities. In our little corner of Rhode Island, nothing was done to retrain workers or attract entrepreneurs when the mills left. Fifty years later, the locals still seem shocked, and this has become a low-cost bedroom community for Worcester and Providence and even Boston, with no major employers in the area. We export workers to nearby places that don’t have enough, it seems.

There are no simple prescriptions for displaced workers, but training them certainly doesn’t hurt. Changing location and/or changing industries is what ultimately “solves” the problem for these workers. According to an article I recently read, 60% of the Internet workers who lost their jobs in the “bursting of the bubble” are no longer around: they are employed elsewhere. My favorite webmaster now sells real estate with his wife in the San Francisco area; his HTML-savvy business partner decided to pursue a career in architectural design in Atlanta. Both are doing very well. Just when new media has its feet firmly planted, it is experiencing a shortage of workers, having trouble getting “the Internet bubble people” to go back to what was once considered Nirvana.

Economists have difficulty defining underemployment, nor can they define overemployment. Is baseball star Alex Rodriguez “overemployed”? How about movie stars who make a film every other year? Are they underemployed? Other than by looking at average hours worked and whether that falls below an historical average, can economic data accurately reflect whether someone is underemployed? Data say nothing about the nature or “value” of the work being performed. (Somehow that always reminds me of the George Burns joke: “It’s too bad the people who know how to solve the all world’s problems are so busy cutting hair and driving taxis.”)

What happens to displaced workers in the printing industry? Very few workers these days have skills that are specific to print, except perhaps press operators. Our sales, shipping dock, warehouse, administrative, and other positions all have equivalents in other businesses. Prepress workers find work in multimedia, ad agencies, graphic design, and other markets. If anyone has a difficult time finding new positions, it’s usually the owners. It is often difficult for people who have owned their own businesses to adjust to working as employees in someone else’s company.

And that brings us to the latest release of data about the births and deaths of businesses. Though 2002 seems like a long time ago, the 2002 Census data were just released. In order to interpret them, we need to think back to what 2002 was like. It was a slow year, with the economy sputtering after 9/11. Though somehow the economy managed to grow 3.5% that year, it seemed like it was painful to get there. That December, unemployment peaked at 6%, the highest of the year, and it seemed like it was heading higher (it didn’t, luckily). Print shipments had peaked in August 2000, and were still falling in 2002.

Net Change in Printing Establishments

Ending Year

Total Establishments Net Change

% Change






















As you can see from the table, we lost 4% of our establishments in 2002, and we continued the decline of more than 1000 plants closed annually that we had been experiencing for the previous several years. The bulk of these businesses were small, but we don’t know if they were small because they had downsized or because they were always small. I suspect the former, not the latter. 2002 was also a bad year for leased presses and other equipment being returned to their guarantors. The pattern of 2,000 openings and 3,000 closures continued, which implies to me that there was a lot of restructuring going on, and those owners who have trouble being employees just started up again, often in conjunction with someone else in the business, sometimes a former competitor. There were 17,000 “job births” and 39,000 “job deaths,” to net out at 22,000 displaced workers in that year within the printing industry.

What about “underemployment” in the April 2005 employment report? The unemployment rate was 5.2%, and adding discouraged workers (those who gave up looking for work) raises the rate to 5.4%. Adding “marginally attached workers,” those in temporary jobs looking for full-time work, increases that to 6.1%. The latter number is down from its peak on July 2003.. Isn’t it funny that it’s steadily declined with the simultaneous stimulus of the tax cuts and an accommodative Fed policy. Around the time net new business numbers started to creep up. Small business growth is what “fixes” displaced workers, but it unfortunately takes time. It is, of course, always better to lose your job in a growing economy, but that takes luck, a commodity that I’m sure some displaced workers are not expecting on this Friday the 13 th of May.

On the Web:

Birth-death data

Unemployment data detail

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Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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