The U.S. economy grew at a robust rate of 7 percent during the third quarter, yet growth in the job market still remains flat-almost stubbornly so-and that has left many employers puzzled about the true nature of the economic recovery.

While certain sectors of the job market, such as health care and retail, have had strong growth, the overall number of jobs declined by more than 41,000 during the first nine months of this year.
Still, economic indicators do look strong for the last quarter of this year and the beginning of 2004, and October's nonfarm payroll growth of 126,000 jobs exceeded the predictions of many economists and job market analysts. The signs have led some analysts to conclude that the persistently flat job market could signal a sea change in the U.S. economy and that job growth may no longer be an accurate predictor of economic performance.

"There definitely has been a paradigm shift in the way our economy performs and how it should be measured," said John Challenger, CEO of Challenger, Gray & Christmas Inc., a Chicago-based outplacement consulting firm. "Everyone has talked about a 'jobless recovery' for the past two years, but that clearly is a misnomer. I believe the U.S. economy is currently in a jobless expansion."

Challenger said that most employers and economists are having trouble accepting the idea of a jobless expansion but that technology, increasing productivity and the advent of a true global economy are altering the way the U.S. job market responds to economic cycles.
"Employers should not expect to see the tremendous job expansion like we saw in the early to mid-1990s," Challenger said. "Those days are clearly over, and I believe the job market will be much slower to react to the performance of the economy. Therefore, job expansions and losses through boom and bust cycles are going to be much less pronounced.

Impact of Technology

A major force driving the current jobless recovery is the dramatic impact that technology has had on the way that people work. During the 1990s workplace technology made a quantum leap, and employers are still adjusting to these changes, according to Jon Hockenyos, managing director of Texas Perspectives, an economic analysis and public policy consulting firm based in Austin, Texas.
"Much of the job loss that we are seeing now is structural instead of cyclical," said Hockenyos. "Employers have definitely made a tradeoff and opted to make capital investments in technology rather than increase their labor force." After making huge investments in technology, employers are restructuring and reducing staffing levels to meet performance goals, Hockenyos said.
Even if the economy continues to improve at its current pace, Hockenyos says, the strong growth still won't translate into a boom for the U.S. job market.

"As companies begin to grow again, they won't be hiring in the United States, but will outsource many of the jobs overseas," Hockenyos said. "Employers will try and maintain the status quo here in the U.S., so the job market should remain essentially flat."
"It takes very little capital expenditure to move high-tech or service-sector jobs to another country," said Challenger. "In fact, employers are finding it's much more cost-efficient to employ the workers overseas rather than recruit and bring them into the U.S. under H-1B visas."
Unpredictable labor costs and an emphasis on improving productivity also have had an effect, Hockenyos said.
"The cost of providing benefits in the United States is very volatile right now, especially health insurance, and that's definitely dampened the plans of many employers to add more people," Hockenyos added. "Productivity has been another factor. It's the holy grail for employers, as they search for ways to do more with less."

Apparently the search is working. According to the U.S. Bureau of Labor Statistics, productivity increased 6.8 percent during the third quarter of this year and nearly 8 percent in October.
"Technology has had a tremendous impact on productivity growth in this country," said Challenger. "Productivity actually decreased during recessions in the 1970s and early 1980s, but we witnessed big productivity gains of nearly 5.5 percent during the 2001 recession."
"Employers definitely have a wait-and-see attitude, because they just don't believe the economy has completely rebounded," said Hockenyos. "The lack of job growth is still troubling to employers, and most are holding off on adding staff until the first quarter of 2004."
Hockenyos and Challenger said that the lackluster job market does present employers with a great opportunity to acquire and develop talent within their organizations.

"It's an employer's market right now, and there's a large labor pool available with some very talented people in it," said Hockenyos. "Employers should take the opportunity to improve their bench strength right now, because they may not have a chance like this in a couple of years."