Seven years after the partial real estate correction that tanked America’s debt-fueled paper economy, the head of President Obama’s economic brain trust claims that the U.S. is “finishing 2013 in a stronger place” — ignoring a 30-year low in job participation and unprecedented weakness in job growth.
“The strengthening of the economy over the course of 2013 is a testament to America’s resilient private sector and America’s workers,” Council of Economic Advisers Chairman Jason Furman wrote Thursday. “Businesses have added 8.1 million jobs over the past 45 months, and are on track to register the third consecutive year of job growth in excess of two million.”
This level of job creation, which comes to 180,000 jobs per month, means that the United States would not return to a pre-recession level of employment until close to the end of this decade.
According to HamiltonProject.org’s chart of the so-called jobs gap, this rate of job creation would not return the U.S. economy to the January 2008 level of employment until October of 2019.
Job creation picked up somewhat in October and November, when the effects of the government shutdown and the now-dead budget sequester where at their peak. Some 204,000 jobs were created in October and 203,000 in November.
However, the monthly average over the last six months has been a paltry 182,500, a rate that would return us to pre-recession employment in August 2019. This level of job creation hardly qualifies as a recovery for Americans — 80 percent of whom believe the economy is still in recession, according to a recent ABC News/Washington Post poll. (RELATED: Rich get richer, rest stagnate in economic ‘recovery’)
Furman also bypasses a long-term drop in the labor force participation rate that has left the U.S. work force, as a percentage of the total population, smaller than it was during the administration of President Jimmy Carter.
Labor force participation, the Labor Department’s measure of how many American adults are in the job market (even if they are only seeking employment but not employed), has dropped precipitously during the Obama administration. Despite a slight uptick in November, and despite widespread talk of an economic recovery, the labor force participation rate has tanked through most of 2013.
The low labor force participation rate can’t be blamed entirely on the sitting president, because it has been in steady decline for most of the last ten years.
More ominously, labor force participation, which increased strongly throughout the second half of the 20th century, peaked in the late 1990s and has declined more or less steadily ever since — raising the strong possibility that the weak jobs market has no relation to the president at all but results from forces Obama can neither comprehend nor control.
Economists offer a range of explanations for why labor force participation is so awful. In a March study for the American Enterprise Institute, University of Michigan economist Mark J. Perry suggested long-term economic trends, including the aging of the workforce and retirement of the baby boomers, account for about half of the low rate.
“A headline like ‘And yet the labor force participation rate is still falling’ would be accurate today even without the recession and seems to ignore the importance of the demographic trends of an aging population and an increase in the number of retirees that have contributed to a decline in the LFPR for more than a decade,” Perry wrote.
Contacted for this article, Perry suggested the anemic rate of post-recession job recovery reflects a shift in productivity that doesn’t bode well for job creation.
“The U.S. is now producing 5.5 percent more output (real GDP) than in Q4 2007, with 1.277 percent fewer payroll employees (today vs. Dec. 2007),” Perry told The Daily Caller. “Partly because of this, corporate profits are at an all-time high and 42 percent above pre-recession levels. So we may have just gone through one of the greatest productivity surges in U.S. history, and are able to now produce 5.5 percent more output with 1 percent fewer workers. Companies and organizations have figured out how to produce more with fewer workers, and that could explain the sluggish job growth, with record output and record profits.”
However, this year’s movement in labor force participation, which dropped almost a full percentage point between November 2012 and November 2013, raises serious short-term questions, according to Tara Sinclair, an economist at George Washington University.
“Some people have put off retirement due to the recession,” Sinclair told TheDC. “This is all people’s choice. Some were looking for value from their homes, which dropped substantially and haven’t fully recovered. Even though the stock market recovered, they’re not getting annuities because interest rates so low. It’s true we’re seeing baby boomers retiring. But the big numbers of baby boomer retirements haven’t happened yet.”
Labor force participation by American men has been in remarkably consistent decline since 1949, suggesting that the rise in the rate in the second half of the last century is attributable entirely to the entry of women into the work force. By this explanation, the full effects of increasing female work force participation were felt by the 1990s and the labor economy is now in a long post-peak decline.
Furman made no references to labor force participation in his comments, a boring tissue of demonstrably false claims about the effects of federal fiscal policy, faith-based Keynesian assumptions unsupported by earthly reality, and calls for increased spending of precious taxpayer dollars.
“The economy is finishing 2013 in a stronger place than where it began the year, though more work remains to grow the economy, create jobs, and strengthen the middle class,” the CEA chairman wrote. “This is especially notable given the general fiscal environment, including the onset of the sequester in March, and the government shutdown and debt limit brinksmanship in October. The recent budget bill passed by Congress on a bipartisan basis will contribute to certainty, a better fiscal stance over the next year, and more funding for the critical ingredients of longer run growth. But more needs to be done, most immediately extending Unemployment Insurance benefits, and beyond that increasing investments to strengthen growth and making sure that growth is shared.”
The long-term decline in job prospects and other indicators leads some economists to wonder if the 2007-2009 recession should more correctly be considered one part of a much longer stagnation that dates to the beginning of the 21st century and was partly masked by easy credit.
“Some people are taking this broader view,” Sinclair told TheDC. “It’s certainly possible economists are dating too much from 2007, and some people say we should date it from 2003, when the Fed sharply lowered interest rates, which might have led to people taking on too much risk. There’s lots of argument back and forth. [Outgoing Federal Reserve Chairman Ben] Bernanke is against that idea, obviously, because he supported and continued that policy. [Stanford University economist] John Taylor is for it. And some people have looked back further: From 1984 on, GDP, inflation, consumption, investment, all became less volatile. They called it the Great Moderation. That may have caused people to take on too much risk.”
The real estate market peaked in June 2006. That peak was followed by a steep decline that politicians and the media described through hysterical terms like “meltdown,” “financial catastrophe” and so on.
But even at the bottom of the market median real estate prices, as a multiple of median annual income, remained higher than they had been through most of American history until the 1990s. Thanks to massive stimuli, bailouts, money creation and effectively negative interest rates under both the Bush and Obama and administrations, real estate and the stock market have since re-inflated.
While that Keynesian intervention is credited with having “rescued” the global economy, this version of history overlooks the essential value of time — specifically the cost of trading a deep crash and speedy recovery for an apparently endless period of stagnation. Americans have now experienced nearly a decade of sideways movement in the economy. In effect, you are now seven years closer to your death, and if you’re like the vast majority of Americans you are doing no better than you were doing in 2006.
This level of wasted opportunity is tough to calculate, and it resulted from policy choices. But the long-term decline in job prospects is clear, and it is not susceptible to the kind of suasion the Obama administration is offering.
“You’re going to see a higher dependency ratio,” Sinclair told TheDC. “More people will not be working relative to the working-age population. It’s not going to be as difficult for the U.S. as for other countries. Our population is not as old, and immigration has helped. But why labor force participation rate is dropping so low right now is a mystery. Some of it may just be people dropping out of labor force for economic reasons, and wanting to come back.”
Furman’s comments Thursday concluded that unemployment “remains unacceptably high, which is almost entirely due to a large number of long-term unemployed.”