|
ECONOMIC INDICATORS
THE BUSH JOBLESS/JOBLOSS
RECOVERY
The
DETAILS section on this page was last updated on 10/22/04
The SUMMARY section was updated on 3/7/05
The Bush tax cuts
did not work anywhere close to what was promised, regardless of hype
SUMMARY
As Election 2004 approaches,
it is instructive to review the Bush
administration's record on job creation, since this epitomizes their
"policy" on a wide variety of issues. Clearly, there has been
the re-emergence of jobs since late 2003. Nevertheless, one should not lose sight of
some key facts: (a)
[As of 10/22/04] Bush
has on the net lost almost a million jobs (940,000
or is it 821,000
- also see footnote)
during his tenure (and >1.6 million private sector
jobs). [See update in (f)]
(b)
The so-called "job growth" based on his tax cuts has been gigantically short of
his (administration's) own projections (c)
The so-called "job growth" under his watch has fallen well
short of even the minimum needed to keep up with population growth (the lowest
standard to judge the effectiveness of Bush's economic policy). As Angry
Bear has pointed
out: "Bush’s best year of job creation
can’t measure up to Clinton’s worst year". (d)
Claims of "low" unemployment rates deceptively hide the fact
that large numbers of people have left the job market (which is better
reflected in the high "underemployment" rate) and that many of
the unemployed have been in that position for record stretches of time (e)
Real (inflation-adjusted) wages are under significant
pressure and have been in decline of late, even dropping to where they
were at the start of the recovery (or below) (f)
Clearly some degree of job "growth" will
continue to exist
through Election 2004 but this is insufficient to erase Bush's record as
being the first U.S. President since Herbert Hoover (>70 years) to
lose jobs during his watch. [eRiposte
note on 3/7/05: I stand corrected on this one claim since the job
numbers + revisions announced since I posted this (10/22/04) showed that
by the end of January 2005, Bush "narrowly
escaped becoming the first president since Herbert Hoover to lose jobs
on his watch"] This is an astoundingly
unimpressive showing (to put it kindly), especially given that Bush is also the record
holder for the biggest budget deficits (in $) in American history. (g)
Faced
with this poor record, the Bush administration has been continuing to deceive
the public incessantly about its tax and jobs policies, including using
discredited metrics such as the job projections in the Household Survey (deemed
inaccurate by its own Federal Reserve) to claim that job growth is being
"understated". To understand
why the Bush administration has (negatively) broken the record of most
previous Republican and Democratic presidents in the context of job
creation (among numerous other things), it is instructive to take a walk
through the details.
DETAILS I. Bush
administration job projections - Fantasy v. Reality (7/5/04)
I-A: More Fantasy, Less Reality
(3/6/04)
I-B: Bush tax cuts not working
(10/11/04)
I-C: Bush administration does not
believe its own 2004 forecasts (3/6/04)
II. Bush administration job "creation"
compares very poorly to that in previous recessions/recoveries (10/11/04)
II.A: The limited job growth seen
to-date hides what might have been possible with better economic policy
- namely, far better job growth (10/11/04)
II-B: What
level of job growth would have been considered good? (10/11/04)
III.
GOP/Bush supporters and Bush administration trying desperately to make it appear like there
is job growth when there was/is NONE <OR> that job creation is
more than it IS/WAS (7/5/04)
III.A: The "Household
Survey" job creation myth (10/11/04) III.B: Redefining
manufacturing jobs (3/6/04)
IV. Official unemployment rates
understate (a) extent of job losses, (b) length of unemployment and (c) impact on women and minorities
(10/11/04)
V. Real wages,
not just jobs, under pressure, and in decline of late - while corporate
profits skyrocket (10/11/04) VI. Why
hasn't the job market come roaring back like in past recoveries, given the massive tax cuts and
spending? (10/11/04)
VI.A: Supply-side tax cutting with
massive defense spending fail to effectively stimulate broad-based
demand/output VI.B: Lack of
understanding of real problems and lack of interest in real policy ENDNOTE
on PRODUCTIVITY and JOB LOSSES
FOOTNOTE
on payroll data revisions
FOOTNOTE
on payroll data revisions
I.
BUSH ADMINISTRATION JOB PROJECTIONS - FANTASY vs. REALITY
I-A. MORE
FANTASY, LESS REALITY (2/24/04) Not unexpectedly, the optimistic forecasting
of job growth (aka economic fakery) by the Bush administration continued
into the election year
(see this link for some more discussion on why
I say this is " optimistic" - even though, from a historical
perspective their projections were about average). Economist Brad DeLong has
discussed this in a number of
posts - see his unemployment
archives here. But the bulk of the information on what has been
happening and what is likely to happen is best captured in a few papers from the Center
for Budget and Policy Priorities (CBPP) and the Economic
Policy Institute (EPI) and its employment research arm Jobwatch. CBPP/EPI
have published a joint study examining the history and accuracy of the
Bush administration's job growth projections over the years, including
their latest projections. The study's report is written by Jared
Bernstein, Lee Price and Isaac Shapiro. The PDF version of the report is
here and
an HTML version is here.
Some relevant figures are reproduced below, from this report - followed
by key extracts.
Here are some additional MUST-READ
comments taken directly from the report:
...
Job growth would have to improve
dramatically to meet the CEA's just-released prediction of an average
of 132.7 million jobs in 2004.
The administration's prediction would only be met if job growth
averaged more than 450,000 new jobs each month, about four times the
level of job growth in January.1
Actual employment
levels in recent years have fallen far below administration forecasts.
In its 2003 report, for example, the CEA predicted that the average
number of jobs in 2003 would be 1.7 million higher than its average in
2002. Instead, it was 400,000 lower. (See Table 1.)
Each successive year, the administration has
had to lower its starting point for jobs, but it has forecast strong
growth just around the corner. For instance,
in its 2002 report the CEA predicted there would be 138.3 million jobs
in 2004. Now its prediction of 132.7 million (which is also likely to
be too optimistic) is for 5.6 million fewer jobs than its 2002
forecast.
...
In part because job growth has
been tepid in the three months since the administration's projections
were made, to achieve the estimate of 132.7 million jobs during 2004,
an average of 460,000 jobs a month would need to be created from
February through December 2004. In other words, about five million
jobs will need to be created between now and the end of the year to
hit the administration's projection.4
It is quite unlikely that the administration's target will be
reached. In January 2004, jobs increased by 112,000—a modest
fraction of the necessary level for the next 11 months. Furthermore,
the January 2004 level of job creation was the largest single-month
gain since 2000.
...
Several news stories have
suggested that the administration may already be revising its
employment projections downward in the wake of the disappointing job
growth that has occurred since its predictions were formulated. A
February 10, 2004 story by Alan Beattie in the Financial Times,
for instance, said that "The [CEA] forecast, which used data
available in early December before figures were released showing
disappointing jobs growth at the end of the year, envisaged the
average level of payroll jobs rising 2.6 million in 2004 to 132.7
million. That target level has been affected by the weak figures
released since, but White House staff admitted their forecast still
implied job growth averaging about 325,000 a month this year—well in
excess of recent rates."...
If a new forecast becomes official, we will update this analysis
accordingly. In the meantime, it is worth noting that job creation of
325,000 a month is also highly optimistic, and would be more than four
times the average job creation during the past five months. See the
appendix for a detailed analysis of this issue.
...
The CEA projections and the
Bush Administration's explanation for job growth trends
The administration has been
attributing weaknesses in the economy and the job market to a variety
of factors, such as the events of September 11, the economy's
downturn, the bursting of the stock market bubble, corporate scandals,
and the wars in Afghanistan and Iraq. It has argued that its tax cuts
have made job growth and the economy better than it otherwise would
have been.
In assessing these arguments, the following points must be considered:
• The first CEA report of the Bush Administration was issued after
9/11, after the bursting of the stock market bubble, after the war in
Afghanistan, and after its first (and largest) round of tax cuts, yet
their employment projections still proved far too high.
• The second CEA report came after a second round of tax cuts, after
Enron and most of the other corporate misreporting scandals were
publicized, and with the knowledge that the war in Iraq was, in all
likelihood, about to commence. Nevertheless, the Bush Administration's
employment projections again proved remarkably optimistic.
• This year's predictions have occurred well after all the factors
to which the administration has attributed the weak economy, yet its
predictions, at first blush, also seem well off the mark.
In short, the CEA should have been accounting for these factors all
along in its job growth projections. Among other conclusions, this
suggests that Bush's CEA consistently has been far too optimistic
about the positive effects of the administration's tax cuts and other
economic policies on job growth [eRiposte emphasis].
...
Why the CEA's estimate
implies monthly job growth of 460,000 for February-December of 2004.
As emphasized in the text,
the CEA forecasts an average [eRiposte emphasis] employment level of 132.7 million in
2004. In January of this year, the level of payroll employment was
130.2 million. As the Appendix Table A shows, in order to
generate a 2004 employment level of 132.7 million, job growth will
have to average 463,000 per month from February to December 2004.
Updating CEA's prediction with more recent data.
...
The job levels for January
through October 2003 have, for technical reasons, been revised
slightly downwards since CEA locked in its prediction...
Column three
[of Appendix Table B] takes the new prediction of 2.5 million jobs,
which CEA would have made had they been able to account for the
technical revisions to the payroll data, and calculates what is needed
in terms of monthly job growth to meet that goal, given actual job
creation through January of this year. This column shows that CEA's
basic underlying assumptions mean that we will need 425,000 jobs
per month to hit their adjusted prediction for average payroll
employment of 132.5 million in 2004 [eRiposte emphasis].
...
Endnotes
...
4. There has been some confusion in the media on this issue, with many
stories incorrectly suggesting that the CEA projects a total of 2.6
million jobs to be created this year. In effect, these reports are
stating that the CEA has predicted there will be 132.7 million jobs at
the end of 2004 when, in fact, the CEA has predicted that the average
number of jobs for all of 2004 will be 132.7 million. To reach this
average figure, there will have to be many more jobs than 132.7
million in December 2004, as there are 2.5 million fewer jobs than
that right now (see Appendix Table A).
NOTE: The original CBPP/EPI
projection is also confirmed by economist Brad DeLong. However, Prof.
DeLong has updated his figures to include all the known shortfalls
to-date in employment and comes
up with the requirement that 320,000 jobs per month need to be created
if the administration's employment forecast is revised
accordingly (see this
post of his for further explanation).
I-B.
THE BUSH TAX
CUTS ARE NOT WORKING - NO SURPRISE HERE (10/11/04)
Jobwatch's monthly shortfall chart as of
September 2004 is below - which is all one needs to see to understand that
Bush's 2003 tax cuts are NOT working. As Jobwatch stated
on October 8, 2004:
The Bush
Administration called the tax cut package, which took effect in July
2003, its "Jobs and Growth Plan." The president's economics
staff, the Council of Economic Advisers (CEA, see background
documents), projected that the plan would result in the creation
of 5.5 million jobs by the end of 2004—306,000 new jobs each month
starting in July 2003. The CEA projected that the economy would
generate 228,000 jobs a month without a tax cut and 306,000
jobs a month with the tax cut. Thus, it projected that
4,590,000 jobs would be created over the last 15 months. In reality,
since the tax cuts took effect there are 2,882,000 fewer jobs than the
administration projected would be created by enactment of its tax
cuts. The September job growth of 96,000 fell 210,000 jobs short of
the administration's projection. As can be seen in the chart below,
job creation failed to meet the administration's projections in 13 of
the past 15 months.
I-C. BUSH ADMINISTRATION DOES
NOT BELIEVE ITS OWN FORECASTS (2/24/04) The
Bush administration's jobs forecast was so obviously inflated in
their own minds that they took pains to walk away from it (in early
2004). Here are some
articles on this. Matthew
Yglesias at TAPPED has reported briefly on CBS Marketwatch's criticism/disbelief on
the job forecast.
WATCH THOSE FOOTNOTES.
Marketwatch's Rex Nutting seems to have
the goods on the administration's dubious
job growth projections:
The
Council of Economic Advisers says its report isn't political. But
then why did the CEA inject itself into partisan politics by
unilaterally changing the starting date for the 2001 recession so
that it began during Bill Clinton's last weeks in the presidency,
rather than during Bush's second month in office, as determined by
the nonpartisan National Bureau of Economic Research? The CEA broke
the gentleman's agreement that the NBER's rulings are not to be
dragged into the mud of campaigns.
Asked whether the administration was really forecasting 5 million
new jobs in 2004, a senior administration official speaking on
condition of anonymity told us to read Footnote One very carefully.
Footnote One explains that the White House forecast is based on
information available to its economists on Dec. 2, a few days before
the November jobs report was released.
Asking us to rely on Footnote One means the White House no longer
believes the forecast it just released.
Footnote One says, in essence, that the White House doesn't want to
be judged on what will happen between now and December, but by
events that took place in an alternate universe in which job growth
was robust in November, December and January.
CNN
The White House backed away
Wednesday from its own prediction that the economy will add 2.6
million new jobs before the end of this year, saying the forecast was
the work of number-crunchers and that President Bush was not a
statistician.
White House press secretary Scott McClellan, asked repeatedly about
the forecast, declined to embrace the prediction which was contained
in the annual economic report of the White House Council of Economic
Advisers.
...
Asked about the 2.6 million jobs
forecast, McClellan said, "The president is interested in actual
jobs being created rather than economic modeling."
He quoted Bush as saying, "I'm not a statistician. I'm not a
predictor."
"We are interested in reality," McClellan said.
[eRiposte note: Ha ha ha ha! This is so NOT funny!]
Washington
Post
President Bush distanced himself
yesterday from a forecast made by his economic advisers predicting
that the U.S. economy will add 2.6 million jobs this year.
...
Asked Wednesday if he agreed with the prediction, Bush would not
endorse the figure, saying, "I think the economy is growing, and
I think it's going to get stronger." Treasury Secretary John W.
Snow and Commerce Secretary Donald L. Evans were similarly reluctant
to back the forecast, which was made by staff from the CEA, the
Treasury Department, and the Office of Management and Budget.
White House press secretary Scott McClellan, repeatedly asked about
the forecast, played down its significance. "It's an annual
economic report that is put out by the administration based on the
economic modeling and the data that's available at that point in
time," he said. "What the president stands behind is the
policies that he is implementing."
It was the second time that last week's report, sent to Congress with
Bush's signature, has caused political problems for the president.
Bush last week retreated from an argument made in the report and in
comments by CEA Chairman N. Gregory Mankiw that the expatriation of
service jobs could be beneficial. While economists generally supported
Mankiw's argument, Democrats pounced on the administration for
appearing to praise job loss.
In an interview yesterday, Mankiw said the 2.6 million job figure was
made Dec. 2 and not subsequently updated. "We still expect 2004
to be a robust year for the economy both in terms of economic growth
and in terms of jobs creation," he said. "But in terms of
our specific quantitative forecast, the forecasting team has not
gotten together to produce one since December 2."
...
The annual CEA report has had difficulty in the past with its
forecasts for jobs growth. Previous reports predicted the economy
would add 1.7 million to 3 million new jobs in 2003, but in fact the
nation lost 53,000 jobs.
Federal Reserve Chairman Alan Greenspan said Tuesday that the 2.6
million jobs forecast was "a credible forecast" if
productivity gains decrease this year. But the Fed issued a report
Tuesday saying rapid productivity gains are "likely to be
sustained" this year.
The creation of 2.6 million jobs would require an average of 226,000
per month for the rest of the year. In the past five months combined,
the economy has added 366,000 jobs.
J. Bradford DeLong, a Clinton administration economist now at the
University of California at Berkeley, said the Bush administration
forecast is even more optimistic than it appears because it is based
on year-average numbers. In fact, DeLong said on his Web site, the
White House is assuming the economy will create 3.8 million jobs by
the end of 2004...
[eRiposte note: See Brad
De Long's latest post for a summary of his position.]
Billmon
has posted a significant part of the transcript of a reporter
hounding White House Press Secretary Scott McClellan on the
administration's attempted fakery that backfired. Read his post in
full!
II. BUSH ADMINISTRATION JOB
CREATION compared to previous RECESSIONS (10/11/04) This
thorough report by Jared Bernstein and Lawrence Mishel of EPI reveal
relevant job figures that tell us about Bush Jr.'s astonishingly
poor job-creation legacy (note that Bush Sr. was second worst).
Jobwatch has additional
charts looking at the Bush Jr. record on job creation for 42 months after the recession
began. Note that the absolutely abysmal Bush record is shown by the bar in red
(negative).
II-A
LIMITED JOB GROWTH HIDES WHAT MAY HAVE BEEN POSSIBLE WITH BETTER
ECONOMIC POLICY - NAMELY, FAR BETTER JOB GROWTH (10/11/04)
Professor Brad DeLong has been saying
this repeatedly
for some time (bold text is my emphasis).
That the labor market
is finally improving--that it is no longer becoming harder and harder
month by month to find jobs--does not mean that the labor market is
good. A few months of employment gains are good news: they mean that
it is a little less bad out there in the labor market than it used to
be. But don't confuse rates of change with levels: there are still
perhaps 4 million people either unemployed or out of the labor force
who would have jobs if we had a labor market in equilibrium. (And
there are 6 million who would have jobs if we were in a boom like the
late 1990s.) It's still unusually hard for Americans to find
work--just not as unusually hard as it was six months ago.
But I already said this
yesterday:
He also points
us to this
piece by Daniel Gross is Slate that explains this (bold text is my
emphasis):
Daniel Gross of Slate's
"MoneyBox" writes about the employment situation:
Sunny
Side Down - Why 1.4 million new jobs haven't ended the jobless
recovery. By Daniel Gross: Posted Tuesday, June 29, 2004, at
1:26 PM PT : Since last fall, when the economy finally began adding
payroll jobs consistently, the Bush administration has embraced the
monthly Bureau of Labor Statistics release of the employment
situation report as evidence that its economic policies are working.
"Nationwide, the economy has posted steady job gains for each
of the last nine months—creating more than 1.4 million new jobs
since August," the White House crowed in early June, when news
came that 248,000 payroll jobs were added in May. That figure, 1.4
million new jobs, has become the default answer given by
administration officials when confronted with unpleasant economic
questions.
To the mystification of the Bush
administration and its allies, the American people aren't
particularly grateful.... Here's one possible explanation for the
disconnect between the administration's cheery rhetoric and the
population's gloomy disposition: The labor market is nowhere near
its late-1990s heyday.... Consider the employment–to-population
ratio.... The ratio rose steadily in the 1990s, from 61.4 percent in
January 1993 to 64.7 in the spring of 2000. In January 2001, it
stood at 64.4 percent, very close to an all-time high. Since then,
it has deteriorated steadily, even after the recession ended in
November 2001. In May 2004, it stood at 62.2 percent, more than 2
percentage points below the rate of January 2001....
If 64.4 percent of Americans had
jobs today, as they did in January 2001, there would be nearly 4.8
million more Americans employed. Or check out the labor-force
participation rate.... the figures are inconsistent with the concept
of a Bush Boom. The labor force participation rate stood at 65.9
percent in May 2004. That's down from 67.2 percent in January
2001.... In President Clinton's first term, the labor force grew by
about 5.2 percent. With just six months to go in Bush's term, the
labor force has risen by just 2.2 percent....
What gives?... [T]he stock answers
that conservatives give to employment problems are being proved
false. Are Americans lazier today than they were a few years ago?...
How about those generous unemployment and welfare benefits, which
are supposed to be a disincentive to work? There's less of a safety
net today than there was in the 1990s. Could it be John Kerry and
his relentless pessimism? If jobs can be willed into existence
through a sunny disposition, we should replace Elaine Chao with
Kelly Ripa.
The economic numbers show a
persistent underutilization of America's greatest asset—its
workforce. The addition of 1.4 million jobs in 10 months is paltry
by historical standards, and given the size of today's potential
workforce, it's anemic. All the happy talk in the world can't hide
that.
II-B WHAT
LEVEL OF JOB GROWTH WOULD HAVE BEEN CONSIDERED GOOD? (10/11/04)
Jobwatch
answers this question for us - and a review of this makes it clear
that job creation under the Bush administration has been appallingly
poor and continues to be below par even by the lowest standards
(~135000-150000 jobs a month required just to keep up with the working
population growth):
So how much job growth
is needed to get "high marks"? Certainly one minimal
benchmark is that jobs should grow as fast as the working-age
population, a rate that would normally keep unemployment from rising.
With the working-age population growing around 1.2% each year, the
economy needs to produce between 135,000 and 150,000 jobs each month
to hit this minimal benchmark. 1
A second benchmark for
evaluating job growth performance would be the number of jobs needed
to steadily reduce the current prevailing unemployment and
underemployment. Reducing labor slack is necessary to reverse the
family income declines of the last few years and to generate wage
growth that outpaces inflation. A new
study by the Cleveland Federal Reserve Board highlights the
decline in the employment-to-population ratio as a useful indicator of
the growth in labor slack. Given the employment-to-population ratio in
September 2004 (62.3%), restoring this ratio to its 2001 pre-recession
level (64.3%) would require payroll job growth of 275,000 to 290,000
per month.2
A third benchmark for
judging the rate of job growth would be the employment growth
projected by the President's Council of Economic Advisers (CEA) in
their annual report issued in February 2004, which projected 300,000
new jobs added per month. The chair of the CEA, Greg Mankiw, referred
to this projection as being "about
average for a recovery." This benchmark, used monthly by
JobWatch.org, is the number of jobs (306,000 per month) that the Bush
Administration projected would be created from June 2003 to December
2004 if its proposed tax cuts were legislated in 2003. The CEA
projections may seem high relative to the actual performance of the
last 42 months, but they reflect the normal pace of job creation in an
average labor market recovery.
III. GOP/BUSH SUPPORTERS TRYING
TO MAKE IT APPEAR LIKE JOB GROWTH IS ROBUST, WHEN THERE IS REALLY NO JOB
GROWTH
III-A THE
HOUSEHOLD SURVEY "JOB CREATION" MYTH The
Bush administration, at convenient times, has tried to emphasize the
Household Survey as opposed to the Payroll Survey - for counting job
gains. Via
Atrios, here's
Brad DeLong on this:
In this morning's New York Times,
I read the headline "A Prettier Jobs Picture?" The headline
writers are making a pun. Virginia Postrel is writing about
undercounting the number of people who are at work making things (and
people) prettier. The headline writers are referring to that and are
also saying that this undercount means that the overall jobs picture
is "prettier" than standard statistics suggest.
The headline writers are wrong. This is yet another example of
something every single reporter swears: that American journalism would
be much, much improved if editors would let reporters write their own
headlines.
Virginia Postrel writes: "It is tempting, of course, to treat
these undercounts as trivial. After all, what do 200,000 massage
therapists or 300,000 manicurists matter in a country of 290 million
people? But this list of occupations is hardly comprehensive. In every
booming job category I looked at, official surveys were missing
thousands of jobs. As the economy evolves, however, this bias against
small enterprises and self-employment becomes more and more
significant...." Virginia Postrel means that the detailed
occupational estimates are undercounting growth of employment in
aesthetic occupations. But the headline writers think she means more.
Let's go over the three different sources of data we have here:
- The first is the Survey of
Occupations. the Survey of Occupations mails questionnaires to
200,000 businesses every six months, and uses the responses to
construct estimates of employment and wages for specific
occupations. This is the survey that undercounts the "200,000
massage therapists... 300,000 manicurists."
- The second is the Household
Survey. The Household Survey knocks on the doors of 50,000
households every month, and uses the responses to construct
estimates of the unemployment rate, the employment-to-population
ratio, and other statistics. Household Survey interviewers ask
people whether they are at work or not. The Household Survey picks
up the massage therapists and manicurists (even though it does not
identify them as such). In the Household Survey, moreover, there
is no rise in the proportion of workers who are
self-employed--there has been an uptick in the proportion of
workers who say they are self-employed since its end-of-2001 low
point, but the medium- and long-run trend in self-employment is
down.
[eRiposte note: Chart below borrowed from Brad DeLong]
- The third is the Payroll Survey.
the Payroll Survey analyzes the monthly payroll records of 400,000
businesses employing 50 million people. The Payroll Survey does
not count the self-employed. The Payroll Survey does guess at the
number of new businesses that have been started whose payroll
records have not yet entered the system, and at least up through
the middle of 2003 retrospective analyses suggest that its guesses
have been rather good.
Thus there is no reason to think
that the totals of nationwide employment--which are derived from these
second and third of these data sources--are substantial undercounts
because of any significant "bias against small enterprises and
self-employment."
Prof. DeLong has more here.
Billmon has more:
The Cleveland Federal
Reserve published a very clear, non-jargony paper
on this topic just a couple of months ago, if you want chapter and
verse. But the short form is roughly this:
- Because the survey
is based on a relatively small sample, the BLS uses a population
estimate from the Census Bureau to extrapolate the survey into
results for the national population. If the census estimate is
wrong, the national results will be wrong, too.
- Some results,
however, will be more wrong than others. Because the unemployment
rate (and a related measure, the employment-to-population ratio)
have the Census Bureau's population estimate on both sides
of the equation (the numerator and the denominator) they're less
affected by an error in the census data. The estimate of total
employed individuals, however, can be thrown be wildly off..
This, as it turns out,
is exactly what happened during the 2001-2003 period, when the payroll
survey was showing huge job losses, while the household survey was
showing moderate job gains. As the Cleveland Fed explains:
In its most recent
review of the population, the U.S. Department of Census determined
that it had overestimated the U.S. population for the period from
2000 to 2003 primarily because of unanticipated changes in net
international migration patterns.
As a result, the BLS
notes that the upward trend in the employment estimates produced by
the household survey since the end of the 2001 recession is largely
a function of this overestimate.
In fact, through the
end of 2003, the accumulated overcount of the estimate of
employment in the household survey was nearly half a million
workers. (emphasis added).
The household survey,
in other words, was giving a reasonably accurate reading on the
unemployment rate, a reasonably accurate reading on the
employment-to-population ratio, and a completely bogus reading
on employment growth. And the conservative economists (or
pseudo-economists, in Larry Kudlow's case) who staked their
credibility on trashing the payroll survey and praising the household
survey (for something it was never designed to do) were shown to be
completely wrong. About as wrong as it's possible to be, in fact.
As Atrios
says:
And, people, even Uncle
Alan Greenspan isn't buying
this particular story.
As Billmon notes:
...the accuracy of the
household survey as a job creation measure has been disavowed even by
Alan Greenspan (who's also willing to put on the fishnet stockings for
his political masters, but not at the cost of his own reputation). As
the Great One himself told Congress last February:
“Having looked at both
sets of data … it’s our judgment that as much as we would like
the household data to be the more accurate, regrettably that turns
out not to be the case.”
More from the New York
Times, via
The Big Picture:
...Unfortunately for the optimists,
the Federal Reserve has just thrown cold water on the household data.
It concludes that the gloomy payroll data is essentially accurate and
that the household survey is probably off base.
"I wish I could say the household survey were the more
accurate,'' Alan Greenspan, the Fed chairman, said in his testimony at
a House hearing on Feb. 11. "Everything we've looked at suggests
that it's the payroll data which are the series which you have to
follow.''
To test the self-employment theory, the Fed adjusted the household
survey by taking out all the kinds of workers who do not show up on
the payroll survey - self-employed people, but also farm workers and
family workers in family-run companies. Even then, Mr. Greenspan said,
the discrepancy remains large.
The Fed's conclusion was that the household survey's results have been
inflated by overestimates of population growth.
Because the household survey is a sample, the Bureau of Labor
Statistics infers the total change in jobs by multiplying the ratio of
employed to unemployed workers in the household survey by its estimate
of the total population. If the population estimate is too high, the
estimated number of jobs will also be too high.
THE Bureau of Labor Statistics bases its population estimate on the
2000 census, but it updates that estimate yearly with data on births,
deaths and immigration. Immigration numbers are largely guesswork,
however, because so much immigration is illegal. Fed officials suspect
that the immigration estimate is inflated, because it fails to reflect
tighter immigration controls after Sept. 11, 2001, as well as declines
caused by the economic slowdown.
Indeed, the Bureau of Labor Statistics lowered its population estimate
in January. Plugging the new estimate into the previous household
surveys, the bureau found nearly half the apparent increase in jobs
during the last three years vanished.
Not content, Mr. Greenspan also devised a "synthetic'' population
estimate by crossing the household survey's ratio of employed workers
to work force data in the unemployment insurance system. The results?
"A significantly slower pace" of population growth,
according to the Fed chairman...
UPDATE 7/5/04: What is worse, the Bush
administration is not even bothering to think twice about using
unreliable data to push their case (what's new!). Here's Angry
Bear:
Bush & Snow on June
Employment Report
Treas. Sec. Snow told CNNFN’s Market Call that he is looking more at
the Household Survey because it supposedly picks up self-employed
workers more effectively than the separate payroll survey of employers
-- an issue on which there is some debate among economists -- and
showed a gain of 259,000 jobs in June. It wouldn’t be that the
259,000 reported increase is larger than the 112,000 reported increase
from the Payroll Survey – would it? But Snow was more focused on the
Payroll Survey for earlier months. Note over the past 5 months, this
Household Survey shows an increase of only 465,000 as opposed to the
1.1 million number being hyped by the White House.
I agree with the following statement from President Bush:
We're witnessing steady growth,
steady growth. And that's important. We don't need boom or bust type
growth. We want just steady, consistent growth so that our fellow
citizens will be able to find a job and so that the small business
sector will feel confident about expanding.
Compares this to: “The U.S. economy
is growing at its fastest rate in 20 years", which is often
tossed out in reference to one good quarter – 2003QIII where the
ANNUALIZED rate of growth. But real GDP in 2004QI was only 1.082 times
real GDP in 2000QIV, which means average annual growth of only 2.47%
over the past 3.25 years. Real GDP in 2000QIV was 1.327 times real GDP
in 1992QIV so the Clinton years saw an average annual growth rate
equal to 3.6%.
But Bush was talking employment. During the Clinton years, average
employment rose 240,000 per month. From January 2001 to now,
employment increases averaged NEGATIVE 32,000 per month.
I’m glad Bush is emphasizing the longer term as opposed to very
brief periods of time, but did his advisors brief him about what the
data really say?
III-B
REDEFINING MANUFACTURING JOBS (2/04)
Given the job losses, especially in
manufacturing the Bush administration is also testing out the waters
on other 'unconventional' means to make their record seem better.
Here's Nick
Confessore in TAPPED:
Rep. John Dingell (D-Mich.)
has sent N. Gregory Mankiew [sic], chairman of the president's
Council of Economic Advisers, a Dingellgram regarding the proposed
reclassification of fast-food jobs to the manufacturing sector. I
highly recommend reading
it. Preview: "Will special sauce now be counted as a durable
good?"
Here's Rep. Dingell hilarious letter to Mankiw.
Dear Dr. Mankiw:
I noticed in
the recently released Economic Report of the President that there was
some consternation
in the defining of manufacturing. It could be inferred from your
report that the administration is willing to recognize drink mixing,
hamburger garnishing, French/freedom fry cooking, and milk shake
mixing to be vital components of our manufacturing sector.
I am sure the 163,000 factory workers who have lost their jobs in
Michigan will find it heartening
to know that a world of opportunity awaits them in high growth
manufacturing careers like spatula operator, napkin restocking, and
lunch tray removal. I do have some questions of this new policy and I
hope you will help me provide answers for my constituents:
Will
federal student loans and Trade Adjustment Assistance grants be
applied to tuition costs at Burger College?
Will the administration commit to allowing the Manufacturing
Extension Partnership (MEP) to fund cutting edge burger research
such as new nugget ingredients or keeping the hot and cold sides of
burgers separate until consumption?
Will special sauce now be counted as a durable good?
Do you want fries with that?
Finally, at a
speech he gave in Michigan this past September, Secretary Evans
announced the
creation of a new Assistant Secretary for Manufacturing. While I
understand that it takes a while to find the right candidate to fill
these positions, I am concerned that five months after the
announcement no Assistant Secretary has yet been named. I do, however,
know of a public official who would be perfect for the job. He has
over thirty years of administrative and media experience, has a
remarkable record of working with diverse constituencies, and is
extraordinarily well qualified to understand this emerging
manufacturing sector: the Hon. Mayor McCheese.
With every
good wish...
IV. OFFICIAL UNEMPLOYMENT RATES
UNDERSTATE EXTENT AND LENGTH OF JOB LOSSES AND IMPACT ON WOMEN AND
MINORITIES (10/11/04)
(a) Extent of
Unemployment - Underemployment
As Jobwatch
pointed out in February 2004:
The
number of unemployed workers (currently 8.2 million) and the national
unemployment rate of 5.6% in February 2004 do not adequately convey the
true labor slack in the economy for several reasons. One major
understatement is that the unemployment rate does not reflect the
uniquely large 1.2% decline in labor force participation that has
occurred since the current recession began in early 2001. This decline
represents a stark contrast to the past three business cycles, when
labor force participation actually grew by an average of 0.4% of the
working-age population over similar lengths of time. Consequently, there
is what can be called a "missing labor force" of 2,808,000
workers who might otherwise be in the actual labor force but have either
dropped out entirely or failed to enter the labor market because of the
lack of jobs. If the unemployment rate in February 2004 took into
account this missing labor force, the unemployment rate would have been
7.4%, or 1.8% greater than the official rate of 5.6% (see chart below).
They also pointed out on July 2, 2004
that underemployment is higher now than at the start of the Bush II
recovery!
After
a few months of healthy job growth, employment grew by just 112,000 jobs
in June 2004. The employment growth that began in September 2003 has not
been vigorous enough to reduce unemployment, which has remained at 5.6%
since January 2004, the same rate as when the recovery began in November
2001 and far higher than the 4.2% level when the recession began in
March 2001. Unfortunately, underemployment in the form of involuntary
part-time work, discouraged workers, and other marginally attached
workers (i.e., those who have looked for work in the last year but are
not counted as unemployed) has increased. Specifically, the total
underemployment rate was 9.6% in June 2004, up from 9.4% in November
2001 when the recovery began, and far higher than the 7.3% in March 2001
when the recession began.
Here's their accompanying chart:
Another measure of
unemployment is the employment-to-population (working) ratio, which
reflects whether everyone who wants a job has a job.
Angry Bear summed
this up aptly:
Maybe the only way for Bush to spin the employment report is to
mention that the unemployment rate stayed at 5.4%. But this is
because the civilian labor force fell by 221,000 as the household
survey of employment fell by 201,000. The labor force participation
rate fell to 65.9 percent and the employment-to-population ratio
fell to 62.3%. By contrast, the employment-to-population ratio was
64.4% when Bush took office.
(b) Length of
unemployment
In October 2004, EPI
pointed out the length of time that the unemployed have remained in
that position:
The
lack of job creation is also evident in the data on long-term
unemployment, which show that 21.8% of the unemployed have been jobless
for at least half a year, up from 20.7% last month. Since October
2002, more than one-fifth of the unemployed have fallen into this
long-term jobless category, a range typically seen during periods of
much higher unemployment rates. This represents the longest stretch on
record in which at least one-fifth of the unemployed are long-termers.
EPI, had pointed this out in June 2004 as
well:
Continued slack
in the job market is evident in a number of indicators from today's
BLS report. First, even with the sharp gains of the past
few months, payroll employment remains down 1.3% from its level at the
end of the last business cycle in March 2001. The share of the
unemployed out of work for at least half a year remains at
recessionary levels: 21.9% in May, an increase of 0.5% from a year
ago. The average spell of unemployment ticked up last month, from 19.7
to 20 weeks, meaning it is taking five months for the average
unemployed worker to find a job. Finally, the number of part-time
workers who would rather have full-time jobs rose by 91,000, and at
4.7 million, remains 55,000 over its level one year ago. This
measure too is indicative of some problems with the quality of the
available jobs.
(c) Impact on women and
minorities
Additionally, in June 2004, Jobwatch noted that:
The
missing labor force includes workers from all demographic groups but
disproportionately consists of black men and women and Hispanic women.
Here's their chart:
The impact on
women has been particularly bad in the Bush II recession and
"recovery". As Jobwatch showed in June 2004 (report here):
V. REAL WAGES UNDER
SIGNIFICANT PRESSURE, AND RECENTLY IN DECLINE
(AND DEBT IS INCREASING) - WHILE CORPORATE PROFITS SKYROCKET (10/11/04) Wages
have seen significant downward pressure in the Bush II recession and
recovery. Jobwatch initially covered
this here, and the Center for American Progress (CAP) covered it
here.
One set of useful statistics to remember are the figures that EPI put
out here:
Average wages in
growing and contracting industries, end of recession through November
2003
| Country |
Average
Wage
Growing Industries |
Average
Wage
Contracting Industries |
Difference |
| UNITED
STATES |
$35,410 |
$44,570 |
-21% |
Here's a story
in the Washington Post:
"Despite the well-advertised
pick-up of job growth, recent trends in real wage income remain very
disappointing," lamented Stephen S. Roach, chief economist at
Morgan Stanley, in a June 7 memo to clients. "This, in my view,
underscores one of the most serious shortcomings of this recovery --
an unprecedented shortfall of the most important piece of personal
income growth," wages and salaries.
Over the first 29 months of the
economic recovery, total wages and salaries have risen less than 3
percent after adjusting for inflation -- a fraction of the 9 percent
gains of the previous six upturns, Roach said. That works out to a
$280 billion income gap between where workers are and where they
should be, he concluded.
Here's another, via
Dan Froomkin (Washington Post):
Terry
Weber writes in the Toronto Globe and Mail: "The U.S. labour
market – while finally experiencing increases in job creation –
has also seen a dramatic drop in employment quality, with low-paying
jobs elbowing aside higher-paying ones, CIBC World Markets [a major
Canadian investment bank] said yesterday."
"The brokerage's employment quality index – which measures the
overall tone of the market by looking at things such as compensation,
job stability and the mix of full-time and part-time employment –
fell by eight points between 2001 and 2004, a decline CIBC called
dramatic."
Brad Delong links
to this story:
Barry
Ritholz directs us to:
Displaced
workers’ earnings at new jobs, MLR: The Editor's Desk: Of the
3.2 million reemployed displaced workers who lost full-time wage and
salary jobs during the 2001-03 period, 2.6 million were working in
such jobs in January 2004. (The remaining reemployed workers had
part-time wage and salary jobs or were self-employed or unpaid
family workers.)
Of the reemployed
full-time wage and salary workers, 43 percent were earning as much
or more in their new jobs as they had earned on the job they lost.
About one-sixth experienced an increase in earnings of 20 percent or
more.
Fifty-seven percent
of workers who were displaced from full-time wage and salary jobs
and who were reemployed in such jobs had earnings that were lower
than those on the lost job. About one-third experienced earnings
losses of 20 percent or more.
These data come from
the Current Population Survey (CPS). To learn more about displaced
workers, see “Worker Displacement, 2001-03,” USDL 04-1381.
Displaced workers are defined as persons 20 years of age and older
who lost or left jobs because their plant or company closed or
moved, there was insufficient work for them to do, or their position
or shift was abolished. The data cited here are for
"long-tenured workers"—those who had worked for their
employer for 3 years or longer at the time of displacement.
EPI has clarified some apparent confusion
in the interpretation of wage decline data, here:
There are three factors
contributing to the decline of real wages in the current labor market.
The first and most important factor is the lingering effect of the
formerly jobless recovery. Though employment is growing again,
considerable slack remains in the labor market. The unemployment
rate, for example, at 5.6% in June 2004, is at the very same rate as in
November 2001 when the current recovery began. Under these labor
market conditions, with an oversupply of workers relative to
employers’ demands, there is little pressure to bid wages up.
Second, the quality of the net new jobs appears to be putting downward
pressure on wage growth. Specifically, industries and occupations
that are adding jobs most quickly pay less than those growing more
slowly. There is considerable confusion on this point. For
example, analysis published by factcheck.org reported that more job
growth has occurred in sectors paying above the median wage than below
that wage level.1
But this is not what drives wage growth. Instead, the average wage
is driven up when high-wage sectors grow faster than average and vice
versa. Over the past year, industries and occupations growing
faster than average pay 7% less than those that are growing more slowly.
Finally, faster inflation in recent months has meant that nominal wages
need to grow faster to beat price growth. Yet, because of the
factors noted above, nominal wage growth has slowed sharply, from an
annual average of 2.9% in the second quarter of last year to 2.1% in the
same quarter this year. Inflation over this same period has
accelerated from 2.2% to 2.8%. Thus, even if inflation were back
to its level of a year ago, wages would still be stagnant at best, with
real wage growth far behind the growth rate of productivity.
EPI responded
in detail to FactCheck.com's misleading analysis on wage decline and job
quality:
Factcheck.org's
shortfalls
There are several reasons why Factcheck.org's analysis is not an
appropriate metric for job quality:
Factcheck.org
analyzes changes in employment, not employment shares.
Factcheck.org examines changes in the absolute level of employment in
sectors. Thus, if a higher-wage sector adds a few jobs but is still
shrinking as a share of total employment (i.e., job growth was below
average), then the Factcheck.org analysis would show that sector
improving job quality, even though its declining share was actually
putting downward pressure on overall wage growth. As we have shown
with our analysis, examining the same data in terms of changing
employment shares gives the opposite conclusion, and one that is far
more reliable since this method weights each sector's pay by its
contribution to the overall wage. The difference is that Factcheck.org
analyzes sectors according to whether employment grew or did not grow,
when the appropriate question for job quality is whether sectors grew
faster than average or slower than average.
Industry sectors
are too aggregate.
The BLS data used by Factcheck.org are at too aggregate a level to
provide a thorough assessment of job quality. For one, there are only
14 industry categories. We have analyzed the industry dimension of job
quality and have found that the erosion of job quality is
underestimated with such aggregated industry sectors. This
underestimation occurs because there are important shifts occurring
within the large industry sectors, such as "temp work"
within the broader category of "professional services." For
example, when we perform our job quality calculation on the eight most
aggregated industries from June 2003 through June 2004, we find that
expanding industries pay slightly more than contracting ones,
that is, the opposite result than the one we've stressed throughout.
When we disaggregate to 20 industries, we find the expanders pay 10.4%
less than contracting industries.
Factcheck.org's
use of the data is too limited.
Examining job changes above and below one threshold is an inadequate
way to summarize changes in the economy. After all, there may be (and
are) large gains that occur among the sectors that have wages above
(or below) the median wage. Factcheck.org's analysis will not capture
such changes across the pay spectrum. Our method, however, relies on
changes in every sector and summarizes job quality changes
economy-wide. One way to illustrate this is to examine changes in job
quality within the two large sectoral groupings that are the basis of
Factcheck.org's analysis: all sectors with wages either below or above
the median. As shown in Table 3, the expanding and contracting
sectors with wages below the median had roughly the same wage ($408
versus $403). However, there is a very large wage gap of $164, or
-19.3%, between the expanding and contracting sectors whose wages are
above the median. Thus, the jobs being created in the sectors with
wages above the median (about 54% of all jobs) are declining in job
quality. Factcheck.org's analysis does not capture this important
dynamic.
...
Real wages are
declining within certain sectors.
All of the sector-based analysis, including that of Factcheck.org and
our own, misses the movement of real wages within the sectors.
Obviously, a job that pays less this year than last year is of lower
quality. So far, we have been looking at changing employment levels or
shares within industry/occupation sectors, but there has been a
striking decline in average hourly wages over the last year. In the
same period of time Factcheck.org frames their analysis, June 2003 to
June 2004, real average hourly wages have fallen from $15.83 to
$15.65. Similarly, real average weekly wages have fallen from $533.58
to $525.84. This decline is due to a combination of: (a) the lingering
effects of the jobless recovery and the considerable existing labor
slack that has lowered workers' bargaining power; (b) rising inflation
that lowers workers' purchasing power; and (c) the fact that
faster-growing industries pay less, on average, than shrinking or
slower-growing industries.
Though inflation has
picked up in recent months, this negative trend in real wages is
driven largely by the marked slowdown in the growth of wages
throughout the U.S. labor market. Nominal wage growth has slowed
sharply, from an annual average of 2.9% in the second quarter of last
year to 2.1% in the same quarter this year. Inflation over this same
period has accelerated from 2.2% to 2.8%. Thus, even if inflation were
back to its year-ago level, wages would still be stagnant at best.
[Brad DeLong has
more on FactCheck's "analysis".]
In mid-July, EPI also
highlighted how
corporate
tax collections have plummeted and corporate profits have skyrocketed
in the Bush "recovery", even though real
wages have been flat to down since the beginning of the recovery.
EPI pointed
out this worrisome trend in late May 2004 (bold text is eRiposte
emphasis):
Corporate profits have risen
62.2% since the peak, compared to average growth of 13.9% at the same
point in the last eight recoveries that have lasted as long as the
current one. This is the fastest rate of profit growth in a recovery
since World War II.
Total labor compensation has also turned in a historic performance:
growing only 2.8%, the slowest growth in any recovery since World War
II and well under the historical average of 9.9%.
Most of this growth in total labor compensation has been accounted for
by rising non-wage payments, like health care and pension benefits.
Rapidly rising health care costs and pension funding requirements
imply that these higher benefit payments are not translating into increased
living standards for workers, but are rather just covering the
higher costs of health care and pension funding. Growth in total wage
and salary income, the primary source of take-home pay for
workers, has actually been negative for private-sector workers: -0.6%,
versus the 7.2% gain that is the average increase in private wage and
salary income at this point in a recovery.
These are ominous signs, suggesting a new march toward greater
inequality in the American economy. Worse, the growth in profits
combined with a drop in wage and salary incomes suggest that the
recovery has a narrow base, with most American consumers only able to
increase their purchasing power through debt. Wage growth is not just
fair, it is also necessary for a more sustainable recovery.
This chart from EPI told the story graphically:
Significant gains from the Clinton years have, not surprisingly, been
reversed (a sample chart from the CAP report showing wages as a function
of GDP is shown below). At a time like this, the Bush administration's
proposal to allow illegal immigrants to legally work as temporary
workers and encouragement of outsourcing without free-trade-consistent balancing
actions - which will force
wages down even more - is ridiculous.
EPI points out that benefits
costs are rising as wages decline, and this impacts those with
lower incomes more severely since they tend to have less benefits paid
by their employers.
VI. WHY AREN'T JOBS ROARING
BACK LIKE IN PAST RECOVERIES GIVEN THE MASSIVE TAX CUTS AND MILITARY SPENDING WHICH HAVE
PRODUCED NEAR-RECORD BUDGET DEFICITS?
VI.A.
SUPPLY-SIDE TAX CUTTING WITH MASSIVE DEFENSE SPENDING FAIL TO
EFFECTIVELY STIMULATE BROAD-BASED DEMAND/OUTPUT
Jared Bernstein and Lawrence Mishel of
EPI suggested
what I believe is a part of the answer - in September 2003 - and it is largely unrelated
to high productivity (more on productivity here). The real reason is weaker demand; the
Bush fiscal policy of massive tax cuts that are predominantly
focused on the rich (so-called "supply-side" policy) with
defense-heavy spending, has been poor in EFFECTIVELY
stimulating broad-based demand.
A clarification: tax cuts
and spending - two things that Bush has been good at - are two of the
traditional responses to recessions. However, their effectiveness really
depends on the type of tax cuts and the type of spending. The
appropriate tax cutting and spending would be that which is tailored to
the recessionary environment and the causes of that. The
Bush team brazenly sold a tax cut largely dreamed up for a boom as a
cure for a recession (after modifying it a bit to slightly increase the
short-term bang-for-the-buck, based largely on the persistence of
Democrats in Congress). Is it any surprise that all the
"predictions" on its effectiveness didn't come true?
[Economist] Kash at Angry
Bear said
this recently:
As we all
know, Bush pushed through two massive tax cuts -- "the largest tax
relief in history," according to the Bush
campaign. Yet the current recovery is among the weakest in history,
as illustrated in the previous
post. Shouldn't the largest tax cuts in history have had more
effect? How could such massive tax cuts have such little impact on the
economy?
The answer is that it matters a great deal exactly how
you cut taxes. Some tax cuts have bigger effects on the economy than
others, for a given dollar amount of taxes cut. And clearly, the
specific types of taxes cut by the Bush administration had just about
the smallest bang for the buck imaginable.
Why? There are several ways in which those tax cuts were terribly
designed to stimulate the economy. I won't go into all of them here, but
let me address a couple of ways. First of all, the lion's share of the
tax cuts went to the richest housholds. Since the marginal propensity to
save is so much higher among high-income households than lower and
middle-income households, this meant that a large proportion of the tax
cut was simply saved, adding no demand to the US economy. The graph
below illustrates.
...
Much of the tax cut's
2003 effect was lumped into the third quarter of 2003. According to the BEA,
the 2003 tax cut, which took effect in July of 2003, reduced personal
income taxes by nearly $100 bn in the third quarter of 2003 compared to
the same quarter a year earlier. The graph above suggests that the
majority of that tax giveback was saved, not spent.
A recent piece in Slate
notes another way in which the specific tax cuts Bush enacted were not
helpful to the recovery, as described by Barry Ritholtz of the Maxim
Group. (Thanks, Barry.) His point is that because the tax cuts gave
preferential treatment to purchases of capital goods through the end of
2004, some businesses may be buying new machines instead of hiring back
workers as demand picks up. Casual observation of the continuing growth
in industrial capacity despite weak demand over the past two years
suggests that this analysis is plausible.
The Bush tax cuts were indeed big, and very, very expensive. But as many
economists predicted, they were ineffective. Bush made the Wrong policy
choices to try to get the economy moving, just as he has made so many
other Wrong choices.
The Bernstein/Mishel report said
this in Sep 2003:
Q:
Many commentators have argued that the biggest problem holding back
job growth right now is the fact that productivity is growing quickly.
Is that the problem?
A: No, faster productivity
growth is not the problem. The fact that we are producing more
efficiently now than we were a few years ago does mean that the U.S.
workforce can create the same amount of output in fewer hours, but
that is a positive development that should lead to higher living
standards than would otherwise be the case.12 The economy's
current problem is weak demand by consumers and investors.
Appendix Figure A shows that
productivity growth in the recovery has been only slightly (0.3%)
above the average of that of the past eight expansions. Employment
growth, on the other hand, has been much stronger in past recoveries
(3.3% vs. -0.5%). Productivity often accelerates as an expansion gets
underway, as output growth is typically faster than growth in hours,
and employers slowly expand their workforce to meet the return of
demand for their firms' goods and services. But in this recovery (and
in the last), demand has been too weak, outside of a few sectors, such
as health care, housing, and autos, to prompt employers to begin
hiring. As the last set of bars in Figure A shows, demand (output in
the nonfarm sector) grew more than twice as fast in past expansions
compared to this one.
Q:
Why has the jobless recovery persisted for so long?
A: Again, the main constraint
has been the persistence of weak demand for the goods and services the
U.S. economy produces, outside of those few sectors noted above.
Though consumption in these areas has kept the economy afloat,
consumers have not been spending as aggressively as they usually do
after a recession, and this in turn has made investors more cautious.
This vicious cycle has been reinforced by high debt levels. The result
is historically very weak hiring by employers who are reluctant to
build up their workforces in such an environment. As stressed in this
Briefing Paper's analysis, all of these trends are undermining wage
growth, which further constrains demand...
Instead of stimulating demand in the most
effective way, either through better targeted tax cuts especially
emphasizing the poor to
middle class, or more appropriate spending, or a combination
of both, the Bush economic policy has been a miserable failure
owing to
its reliance on discredited supply-side ideology. Not
to mention that all of this is happening at a time when the budget
deficits are exploding, thereby reducing the flexibility of bringing
more sanity without tax increases.
As some economists cited in
this Salon.com
article point out (bold text is my emphasis):
Part of why we should expect tepid
employment growth, says Mark Zandi, the chief economist at Economy.com,
is that there are "some major constraints on employment" in
the current economy. Zandi believes that some of Bush's economic
policies have made it more attractive for businesses to invest in
equipment rather than new people. The Bush tax cuts were
"improperly focused," Zandi says. "They're focused on
making it cheaper for businesses to invest. They're not designed to
lower the cost of labor, to make the labor force more skilled, or to
rein in the rising costs of healthcare premiums. One of the fruits of
that is job loss."
William Dickens, an economist at the Brookings Institution who worked
at the CEA under Bill Clinton, also faults the tax cuts. "There's
no doubt in my mind that the tax cuts had an effect" on economic
growth, he says. But "by directing the tax cuts at wealthy people
who don't spend as much money, the short-run impact was a lot less
than it could have been" if the tax cuts had been more targeted
toward poor and middle-class people.
Economist Max Sawicky (part of EPI)
wrote the following on his website in Feb 2004, and it provides a pictorial
confirmation of the ineffectiveness of the Bush administration's
fiscal/tax policy in actually stimulating demand (bold text is my
emphasis).
I was prepared to do battle with
Kevin Hassett on the question of whether the past three years of tax
cuts were great for investment, but he never made that claim. The
graph below compares investment recovery (fixed non-residential, for
connosseiurs) in the past two recessions. It shows annual growth
rates, adjusted for inflation. The vertical lines indicate the nadir
of the recession, a.k.a. the trough, as dated by National Bureau of
Economic Research.
You can see the trend in the chart on the left entitled "Bush
I." The recovery began in the second quarter of Poppy Bush's last
year in office. The axe I'm grinding is that there were no tax cuts to
goose the investment recovery in 1992. In fact there was a tax
increase in 1993 thanks to Bill Clinton and the Democratic Congress.
Recovery and a Republican Congress ensued, notwithstanding prophecies
of doom from the Republicans, proving the adage that no good turn goes
unstoned.
Investment has taken a bit longer to resume positive growth in the
current recovery, notwithstanding great claims of new incentives
implied by the reduction of marginal tax rates focused on high-income
persons and income from capital.
Note that the vertical scales in the charts are different, giving an
appearance biased against my argument. The jump in the earlier
recovery was larger, as you can see if you look at the numbers on each
scale, and it happend sooner after the trough period, as stated above.
There's a lot that could be done to
improve tax treatment of investment, but claims that the tax cuts are
some kind of wonderful in this regard remain to be demonstrated.
To add to this, you have even well-meaning people like
Noam Schreiber pretending to understand economics deeply (and straining
ridiculously to keep The New Republic's "contrarian" bent), but in fact writing
articles that fail miserably to even ask the right questions, let alone
attempt to know the right answers. As Brad
DeLong says:
The usually-reliable Noam Scheiber
drifts off base. He argues that because Bush administration fiscal
policies contributed perhaps 1.5% to growth last year, that the Bush
administration managed to "do enough" and should not be
blamed for stagnant employment:
The
New Republic Online: Whack Job: ...Liberals in Congress and at
places like the Economic Policy Institute complain that the Bushies
should have targeted the bulk of their tax cuts toward the working
poor and middle class, who were more likely to spend their tax
savings than more affluent beneficiaries were. They also argue that
more of the tax cut's benefits should have been delivered in the
short-term rather than over five or ten years, and that the
administration should have sent more help to the states, which were
cutting spending and raising taxes even as the federal government
was doing the opposite.
But, of these three criticisms, only the last one really holds water
if the goal is stimulating the economy. For one thing, there is
evidence that affluent people spend a higher proportion of their
income than economic models have traditionally predicted. And,
Democrats' complaints notwithstanding, the tax cuts provided plenty
of stimulus when it counted. In all, according to Stephen Roach,
Morgan Stanley's chief global economist, the tax cut provided about
1.5 percentage points of economic growth last year (which amounts to
about $150 billion in a $10 trillion economy). Meanwhile, though the
states did suck some of the stimulus out of the economy, that effect
was probably far overshadowed by the effect of the war, which most
liberals opposed. Roach estimates that war-related spending should
probably be credited with another 1 percentage point of economic
growth last year. (Though, as mentioned above, war-related anxiety
probably hurt the economy prior to the invasion.)
The broader point is that almost no serious economist argues that
the economy has lacked for stimulus during the last three years.
Between the tax cuts, additional spending, the falling dollar (which
makes U.S. exports more attractive abroad), and, perhaps most
importantly, the Fed's historically low interest-rates, the concern,
if anything, was that the Bushies and the Fed have done too much...
But why is 1.5% "enough
stimulus"? Why isn't "enough stimulus" defined as
"enough to get us back to full employment"? Why isn't
"enough stimulus" defined as "enough to insure us by
preventing the possibility that further bad shocks will leave the
Federal Reserve powerless"? The usual definition of "enough
stimulus," in fact, is "enough so that people start worrying
that inflation will accelerate." By that yardstick we're far
below "enough stimulus."
A fiscal policy that redirected tax-cut-for-the-rich money to the
states, that compressed the deficit and delivered more short-term
stimulus, and that did target more tax cuts at the non-rich would have
had no trouble delivering twice as much stimulus. Why--given the lousy
state of unemployment--wouldn't that have been a good thing?
VI.B. LACK OF UNDERSTANDING
OF REAL PROBLEMS AND LACK OF INTEREST IN REAL POLICY
Economist James K. Galbraith wrote an interesting
piece in Salon.com exploring the question of why Bush's jobs
forecast has been repeatedly way off. He points out that the reason is
NOT that the forecast is optimistic based on historical trends (indeed
the historical trajectory based on past recoveries would make the
forecast seem consistent with or even slightly pessimistic), but rather
that it was based on a lack of interest in understanding the real
problems that precipitated the 2001 recession and the real policy
solutions required to tackle it effectively. Galbraith's opinion is that
the tax cuts passed by Bush were not the major cause of the
jobless recovery although it contributed in part. I basically agree with
his position, as I have stated earlier.
Here is Galbraith:
Bush did cut taxes on the rich --
relentlessly, recklessly, wrongly. But most of those tax cuts have yet
to be phased in. They are part of the revenue losses still to come in
the decades ahead. They aren't the big thing behind deficits we're
seeing now. Therefore, reconfiguring the tax cuts already in place to
benefit only the middle class and poor would have helped some -- but
not that much.
Moreover, in 2001 and 2003, taxes were
cut for the middle class. Those cuts were the sweetener for the
enormous future giveaways to the rich. They happened first through
cash rebates and then through an expanded child credit. Taken entirely
alone, these cuts weren't bad policy. Without them -- and without the
short-term deficits they caused -- the recession and job losses would
have been much worse. And in 2003 the middle-class tax cuts did
deliver a burst of spending, leading to an 8 percent economic growth
rate in the third quarter.
But it didn't lead to new jobs.
And then too: In 2001 and 2003 Bush
took us to war. That entailed large increases in public spending,
boosting demand and economic growth. The macro effects of the Iraq war
were roughly sufficient to double the growth rate in the second
quarter of 2003, getting (as many thought) recovery underway.
But that didn't lead to new jobs
either.
[NOTE: I will briefly reiterate here that my own
characterization of the Bush administration's jobs forecast
as "optimistic" is based on my opinion that their
forecasting was based on poor economic policy prescriptions which are
unlikely to have (had) the effectiveness they claimed.]
Galbraith
(bold text is my emphasis):
We need only extend the historical
tail of the Krugman chart back in time, say to 1991 -- as in the chart
below. Our new chart shows that the Bush forecast did not imply
unusually rapid job growth for an economic expansion. To the contrary.
The growth track in the first set of Bush forecasts, published in
2002, is a bit lower than the actual rate of job growth under
Clinton. And it is considerably lower (though probably for good
reason) than the average growth rate of payroll jobs in non-recession
years since 1952.
(Source: Economagic.com
and my calculations.)
And so, the failure of the jobs
forecast did not occur because economic recovery forecasts were
abnormal. They were not. So far as we can tell, it did not occur
because someone cooked the books, under instruction or otherwise. No.
The true reason is worse than that.
...
Truth: The conditions for this
disaster were set by the tech debacle, by the enormous and
unsustainable accumulation of household debt, by the decline in our
trade competitiveness and trade balance (under the "high dollar
policy"), and by the unsustainability of regressive and
opportunistic state and local tax structures. Not since the 1920s had
growth been so dependent on speculative investment and mortgage
finance. Not in history has our trade position been so weak.
Most economists missed the
significance of this. Back in 1991, most of them just assumed that we
were facing an ordinary recession and that an ordinary recovery would
follow. Those who felt that way repeatedly made forecasts no less
wrong than those adopted by Bush's Council of Economic Advisers. And
that is why the official forecasts -- apart from their natural
obscurity -- attracted little attention at the time.
But a few did not go along. It was
possible to figure things out. The British economist Wynne Godley has
been writing strategic analyses for years on the Web site of the Levy
Institute.
What's the difference? In general
terms, it is that Godley is not engaged in the facile maneuver of the
forecasting trade, which is mechanically to predict an "average
recovery" starting some time in the near future. Rather, he
presents the implications of a very specific theory of financial
relations and behavior. And this approach, because it could pick up
the unique financial signature of the late 1990s, got the essentials
of our problem right.
(Godley was not alone, either --
though very few cared to listen. I lectured on Godley's thesis in the
summer of 2001 -- though in China, where no one could hear.)
The failure of Bush and his
economists does not lie in faking a prediction. It lies in failing to
understand what the underlying problems are. It lies in failing to
propose policies suitable to their cure. It lies in the wanton pursuit
of a strategy of tax cuts for the long term aimed at the political,
not economic, objective of exempting plutocrats and their fortunes
from federal tax. In lies in the rush into military adventures -- from
missile defense to Iraq -- that achieve little, waste vast resources
and make a proper jobs-and-security policy even more difficult down
the road. Most of all, it lies in failing to care, one way or another,
what might happen.
...
ENDNOTE
ON PRODUCTIVITY AND JOB LOSSES
As economist Max Sawicky points out, just because
productivity is high does not mean that job growth needs to be poor.
After all the productivity in the Clinton years was high compared to
historical trends, but job growth was remarkably good during that time.
Another point to remember is higher productivity is historically
expected to be accompanied by higher wages - which is not being seen in
the Bush II recovery.
Here's Max:
Comes the revelation from Business
Week, picked up by Drezner
and channeled by Sully,
that the reason job growth is slow is high productivity growth. These
guys really should steer clear of economics. We suggest the topic of
anti-semitism in modern films by aging Australian action heroes.
Their assertion has the same
explanatory power as Calvin Coolidge's "When a great many people
are unable to find work, unemployment results." Productivity is
output divided by labor input. To say one increased more than the
other says nothing. Why did one increase more than the other? Because
employers got more output from fewer workers? More nothing.
...
Another question: if productivity growth is so great, how come wage
growth is not? If you want to play sandbox economics, the worker gets
paid more when she becomes more productive since markets are
competitive. There's always another employer to bid up the worker's
wages to the point where marginal productivity equals marginal cost to
the boss (chiefly, compensation). Except when there isn't, like right
now for instance.
Max clarifies one of his remarks in his comments:
...the question is why output
relative to input should change. To say that fewer workers produce
more is to say output has increased relative to input. It doesn't
explain anything. It merely restates a fact. It's like saying the
patient died because he ceased to live.
FOOTNOTE
- PAYROLL DATA REVISION The
Bush administration will surely tout the potential "upward
revision" in the payroll numbers for the March 2003 to March 2004
timeframe (announced in the BLS report released in October 2004). When
absorbing the spin on this, keep the following facts in mind. EPINET:
As is
their practice, the BLS announced in today's report the preliminary
estimate of the so-called benchmark revision for the payroll survey.
According to this estimate, the employment level for March 2004 will
be 236,000 higher than the current published levels, meaning that this
many more jobs were added between March 2003 and March 2004 (the
Bureau "wedges" the revision in at a rate of just below
20,000 per month—236,000 jobs divided by 12 months—from April 2003
through March 2004). Thus, if this preliminary estimate holds up
(and such estimates can change significantly by the time the final
value is derived), payroll comparisons that cross the affected period
will reflect this higher level of job growth. For example, the
number of jobs lost since the recession began in March 2001 will equal
about 700,000, not 940,000. The latter number, noted above, is
still the official BLS estimate until the revision is officially
incorporated in the payroll series early next year.
Jobwatch:
The BLS
commissioner announced today that, based on preliminary analysis of
first quarter unemployment insurance tax reports, payroll employment for
March 2004 will be revised upward approximately 236,000. That is smaller
than the average revision. It does not materially change the picture for
job growth between March 2003 and March 2004. Revisions tend to go
upward when job growth is improving and downward when job growth is
slowing or negative. Given the weakness of job growth in the last four
months, one cannot assume that the level of employment for September
will ultimately be raised as much as 236,000.
As
also noted by JohnKerry.com:
Benchmark
revisions are a poor guide to actual revisions. In 2002 the preliminary
revision was -284,000 and the actual revision was -565,000. In 2003 the
preliminary revision was -145,000 and the actual revision was -6,000
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