Last Friday, the Bureau of Labor Statistics released the February employment numbers. Once again, most economists had forecasted big gains in jobs; once again, their forecasts were way off. The report dashed expectations regarding the arrival of healthy job growth, painting a stark picture of a labor market stuck in neutral.
While the government added 21,000 new jobs last month, no private sector jobs were created. Although unemployment remained at 5.6 percent, it did so only because 392,000 people stopped looking for work and left the labor force. To top it off, the persistently weak job market has led to slower wage growth; wages advanced by only 1.6 percent over the last year, tying with the wages of 1986 for the weakest growth rate since 1964. Even with the current low inflation rate of about 2 percent, wages are falling behind inflation.
This disappointing report raises concerns beyond the labor market. Despite blather about the “ownership society” -- a reference to the fact that half of all households have some, albeit mostly minimal, stock holdings -- most families depend on their earnings. The overall recovery will be tough to sustain without a real jobs recovery, because continued consumption growth depends on adding jobs, reducing unemployment, and boosting wages. You simply can't build a recovery on tax cuts and refinanced mortgages -- you need jobs.
Politically, the report will lead to a continued focus on the jobs crisis and keep the Bush administration on the defensive. All the administration seems able to say is that the national unemployment rate of 5.6 percent “looks pretty good” or is “a good national number.” Meanwhile, the Secretary of Labor moans about workers needing more training, as if the lack of jobs is due to poor skills. In this way, the administration is not only talking past the American people (“The economy's good, so what's it matter if workers aren't doing well?”), it is insulting them by saying it's their own unskilled fault.
The statement about skills is particularly nonsensical given the weak hiring in sectors where college grads work, like information technology and financial services. In fact, the share of college grads at work remains well below its level at the beginning of the recession and has fallen during the recovery, a clear sign that the problem is lack of jobs rather than lack of skills. And there has been a 300 percent increase in the number of college grads suffering long-term unemployment (at least half a year looking for work).
This failure to create jobs was not unforeseen. In February 2003 we joined 400 economists and ten Nobel laureates in a statement that said the Bush administration's tax cuts would not be effective as a short-term stimulus. Unfortunately, we were right. Had just some of those tax cuts been dedicated to immediate tax relief for low- and middle-income families, rebuilding roads and bridges, renovating schools, and providing fiscal relief to the states, we could have many more jobs today.
The Administration has some explaining to do. Since the recession began in March 2001, the economy has lost 3 million private sector jobs (a drop of 2.5 percent); even including the jobs created in the public sector, we still have a net loss of 2.4 million jobs (a 1.8 percent contraction). In fact, there's been only 60,000 jobs created per month since September, following two and a half years of losses of nearly 100,000 jobs per month. In every other post-war business cycle, the job base had been restored and expanded by the 35th month. In fact, over the last four business cycles, jobs had grown by 2.6 percent by this point in the cycle.
Some analysts seem to think that once the labor market finally starts living up to expectations, the economy and jobs will diminish as an election issue.
That's wishful Republican thinking. First, we need at least 150,000 new jobs each month just to absorb the natural growth of the population and keep unemployment from rising. Second, the labor market always has a lot of inertia; it will take many months of strong job growth to boost wage gains and give families a sense of growing prosperity. Even if impressive job growth started now, it would probably be too late to help the President's election campaign over the next eight months.
Job anxiety goes beyond blue-collar workers, pervading the white-collar workforce as well and making the issue even more potent. This has fueled the debate over the outsourcing of work to India, China, Eastern Europe, and so on. When we lose white-collar jobs in this way, we not only make workers nervous about their own jobs, but also raise concerns among those who aspire to send their children to college in hopes of better job prospects. Remember those statistics cited above about college grads? As long as the labor market stays weak for college grads, people will continue to trace the problem to overseas outsourcing. This issue may have bite for years to come.
We seem to be stuck in a situation where firms refuse to hire, preferring to meet any rise in demand by squeezing more out of the existing workforce or by moving operations overseas. The result is a large pickup in profits, some gains in the stock market, and stagnant job growth. Once again, too many are being left behind. The challenge is to build an economy where the firms do well when people do well. That'd be a change.
Lawrence Mishel is president of the Economic Policy Institute (EPI) in Washington, D.C. Jared Bernstein is a senior economist at EPI.
You need to be logged in to comment.
(If there's one thing we know about comment trolls, it's that they're lazy)