Tag: unemployment

The Government IS Creating Jobs

Federal government jobs that is. According to the president’s new budget, federal civilian employment in the executive branch will be 15 percent higher in 2011 than it was in 2007:

*I subtracted out the Department of Commerce because it’s temporary hiring of workers for the 2010 Census skews the chart.

Private sector unemployment remains high despite the the administration’s claim that massive deficit spending was necessary to return the economy to health. Instead of fostering private sector growth, the administration is fostering government growth at the expense of the private sector.

Obama’s SOTU Export Promise: Bold and Unrealistic

In his State of the Union speech, President Obama vowed to double U.S. exports in five years to (all together now) “create jobs.”

Exports are dandy, and they do support higher-paying jobs, but the president’s pledge was unrealistic and raises false hopes that it will make any dent in the unemployment rate.

U.S. exports have not doubled in dollar terms during a five-year period since the inflation-plagued 1970s, not exactly a golden era for the U.S. economy. In real terms, according to the U.S. Bureau of Economic Analysis, exports have not come close to doubling during any five-year stretch in the past 40 years. The fastest growth in inflation-adjusted exports came in the second half of the 1980s, when they grew by two-thirds from 1985 to 1990. Other periods of robust growth were the mid-1990s, and during the second term of George W. Bush, when five-year export growth approached 50 percent.

Export growth is certainly enhanced by a weaker dollar and lower trade barriers abroad, but the primary driver of export growth is rising GDP and demand abroad, and that is something outside even this president’s direct control. The key to reducing U.S. unemployment is not primarily selling more to growing markets abroad, but selling more in a robustly growing market at home.

Other Obama policies will actually make it more difficult to achieve his export pledge. The president renewed his misguided pledge last night to raise taxes on U.S. multinational companies that “ship jobs overseas.” Yet, as I pointed out in a Free Trade Bulletin last year, U.S.-owned affiliates in other countries sold $4 trillion worth of U.S. branded goods and services in 2006. A large chunk of our exports go to those affiliates to help them make their final products for sale. Forcing U.S. firms to cut back their foreign operations will douse an important source of demand for U.S. exports.

The only major foreign market that has recently doubled its demand for U.S. exports in a five-year span is China. Yet President Obama has needlessly antagonized potential customers in our fourth-largest export market by imposing tariffs on Chinese tire imports and threatening other trade-reducing actions.

We can best promote more open markets abroad by setting a good example ourselves.

Where Are the Jobs?

The Washington Post’s “Mega-Jobs” section, ballyhooed all week in radio ads and placards, turns out to be a pathetic six pages of classifieds. Not a great indication of recovery. At his December jobs summit, the president said, “I want to hear from CEOs about what’s holding back our business investment and how we can increase confidence and spur hiring.” Since then, and most recently in his Saturday radio address, he has promised to focus relentlessly on jobs.

But he refuses to take a serious look at the burdens he and his administration are placing on job creation. American businesses already face the highest corporate tax rate in the OECD. Labor Secretary Hilda Solis says her agency will seek to enact 90 rules and regulations this year to give more power to unions, and President Obama is appointing NLRB members who have said that that the NLRB could enact “card check” without congressional authorization. If Congress resists expensive “cap and trade” regulation, the EPA has announced that it can impose even costlier regulations on its own. The media blitz about state and local fiscal crises has employers worried that states will raise taxes and/or that the federal government will spend more to bail them out. The “health insurance excise tax” looks like a tax on hiring, especially for the biggest companies. Beyond any of these specific concerns is the general impact of uncertainty – employers and investors don’t know what might be coming down the pike, but none of the prospects look like making it cheaper or more profitable to hire new workers.

And in response to all this, the only idea President Obama and congressional Democrats put forward is to spend more money. There may be arguments for Keynesian stimulus. But it’s hard to imagine that the economy will benefit from a deficit larger than the currently projected $1.5 trillion, which is already a trillion dollars more than any previous deficit except for 2009. If $3 trillion in deficits in two years hasn’t stimulated the economy, it might be time to think about different strategies – like lifting the burdens on entrepreneurship, investment, and job creation.

Cross-posted at Politico Arena.

No, the ‘Real’ Unemployment Rate Isn’t 17.3%

Nearly every economic commentator from Fox News (on the fair and balanced side) to Paul Krugman (on the unfair and unbalanced side) is eager to tell you that the “real” unemployment rate is not 10% but 17.3%.  The latter figure is the largest of six offered by the Bureau of Labor Statistics.   But that does not make it more meaningful.

Many people believe (incorrectly) that unemployment is a measure of how many jobs were lost.   But people can also be unemployed because they quit their job, or because they never worked before, or haven’t worked in a long time.  Job losers accounted for 63.7% of the unemployed in December, down from 66.1% in September.  If we counted only those who were unemployed because they lost their jobs, that measure of unemployment was 6.3% in December — down from 6.7% in October.

The 17.3% figure, by contrast, starts with those looking for jobs during the past month and adds “all marginally attached workers, plus total employed part time for economic reasons.”   That phrase “marginally attached” means people who looked for work at some point during the past year, but not lately. Contrary to press reports, relatively few of the “marginally attached” are those discouraged about job prospects.  Adding discouraged workers would only push the unemployment rate up by half a percentage point, to 10.5%.   And even that small number of discouraged workers is not simply those who could not find work, but those who simply “think” no work is available, or think they are too young, too old, or that they lack the necessary schooling or training.

The rest of the “marginally attached” don’t even think they can’t find work.  Instead, they are not looking for work “for such reasons as school or family responsibilities, ill health, and transportation problems.”  To describe such people who are not available for work as “underemployed” (much less unemployed) is an abuse of the language.

As for those “working part-time for economic reasons,” only a fourth say they could only find part-time work.   Those who normally work a 9-to-5 schedule (35 hours a week) are counted as working part-time for economic reasons if they miss even one hour “for reasons such as holidays, illness and bad weather.”   That isn’t really underemployment, much less “real” unemployment.

What is unique about last year’s unemployment was its typical duration — doubling the number of weeks people remain on the dole.   Because those who have been unemployed 12–18 months do not leave the ranks of the unemployed until their benefits are about to run out (after an unprecedented 79 weeks or more), it doesn’t take many newly unemployed to push the rate above 10%.  Congress tripled the number of weeks people collect unemployment benefits (describing that and other transfer payments as a  “stimulus”) and now wonders why so many people take so long to accept a suitable job offer.   If you subsidize something, you get more of it — and that applies to unemployment too.   Many of those same clueless  legislators may be equally surprised to find themselves out of a job next November.

It’s the Obama Economy Now

Undoubtedly President Obama inherited an economic mess.  Also undoubtedly, he’s made it worse.  Barring substantial revisions to recent job loss estimates, we have now crossed the line where as many jobs have been lost during this recession under President Obama as under President Bush.  From the start of the recession, in December 2007, until President Obama took the oath of office at the end of January 2009, there have been 3.36 million nonfarm payroll jobs lost.  From February 2009 until now there have been about 3.36 million nonfarm payroll jobs lost (estimates from ADP employment report).

Even during the best of times, the economy experiences substantial job loss.  However, we consider those times good because the labor market is also creating lots of jobs, so that job losses are offset by job gains.  The early parts of a recession are generally characterized by large increases in job losses, with minor declines in job creation.  Eventually the job losses moderate and job creation picks up, bringing us out of the recession.  We are arguably past the worst of the job losses.  What has escaped us is job creation.

And it is on the job creation front that Obama takes ownership of the economy.  While there are certainly problems in the credit markets, the major reason behind the lack of job creation is the massive uncertainty being generated by Washington.  For any employer today, it is almost impossible to estimate what the future health care costs of new hires will be.  It’s impossible to gauge what your environment costs are going to be.  Same with the costs of the 90 new workplace rules that the Department of Labor promised would be forthcoming over the next year.

Sadly this administration learned the wrong lesson from the defeat of the Clinton health care plan.  The history lesson they should have learned is that Clinton inherited a recession as well (as did Bush for that matter), but that job creation was weak until the Clinton health care plan stalled. 

Until employers and investors feel it is safe once again to put their businesses and investments at risk, and Washington ends its war on the productive elements of our society, we will not have significant private sector job growth.

Government and GDP

The expansion in government and poor state of the economy got me thinking about how government growth is reflected in measured gross domestic product. So here is a wonky look at the treatment of government in the Bureau of Economic Analysis GDP data.

Data notes: By “government,” I mean total federal, state, and local. For 2009, I’m using the average of second and third quarter data. All data from BEA Tables here.

GDP measures total production. In 2009, government production was 20.7 percent of U.S. GDP.  Government production is roughly the sum of government value-added (the stuff it produces itself) and government purchases. The first item, government value-added, was 12.4 percent of GDP and mainly consists of employee compensation. For example, the Pentagon produces output by adding together fighter pilots, which it hires, and fighter jets, which it buys.

A more commonly cited measure of government is total government spending. In 2009, that was 38 percent of GDP. The difference between this number (38 percent) and the production number (20.7 percent) is 17.3 percent, and represents the sum of government interest payments and transfer payments to individuals and businesses.

Figure 1 shows how the three measurements of government size have changed over time. Government production has remained fairly stable as a share of the economy, but total government spending has soared. The growing gap between these two lines mainly represents the massive growth in transfer (or subsidy) programs, such as Social Security.

12-10-09 edwardschart

How Does Government Growth Affect Measured GDP?

Consider how the recent rise in government spending might have affected measured GDP. First, let’s look first at the production part of government spending. The important thing here is that we don’t know how much government workers actually produce because their output is generally not sold on the market. As a consequence, the BEA measures their output as the sum of their compensation amounts. Also, we know the dollar value of the things the government buys, but we don’t know how much those intermediate goods actually produce when in the hands of the government. So the government production portion of GDP seems kind of shaky, despite the superb efforts of the BEA to assemble all the data.

Anyway, let’s say the government adds a new worker with pay of $100,000, the BEA measures GDP being boosted by $100,000. But it might be that the worker doesn’t actually produce anything useful, and he adds zero to the economy’s actual output.

If the government hires that worker away from the private sector, private GDP would go down by about $100,000. As a result, overall measured GDP would be unchanged. But that would be incorrect because the economy’s actual output fell by $100,000.

So let’s say the government spent $100 billion to hire a million new government workers. Let’s say half of those workers produced as much value as their salaries, but the other half produced nothing of value. The result of this government expansion would be that the BEA would overestimate U.S. GDP by $50 billion. (I am assuming that the government’s hiring doesn’t change the unemployment rate. I’m also ignoring the distortionary effects of higher taxes).  

Now let’s look at the transfer or subsidy portion of government, which equals 17.3 percent of GDP.

Let’s say the government increases transfers by $100 billion, perhaps by increasing Social Security benefits, and funding it by higher taxes on wages.

If there are no behavioral responses among taxpayers and benefit recipients, measured GDP would be unchanged, which would be the correct answer.

But of course there would be behavioral responses. The higher taxes would induce people to work less and the higher Social Security benefits would induce people to save less and retire earlier. The results would be that output would fall, and that would be accurately reflected in measured GDP.

In sum, my purpose here was not to explore how a growing government affects the economy, which is a huge subject. Instead, it was to explore whether measured GDP accurately reflects changes in the size of government. The answer appears to be that the transfer part of government spending (17.3 percent of GDP) would be accurately reflected in a shrinking GDP, but that the production portion of government spending (20.7 percent of GDP) may not be. If workers produce less output when they work for government than when they work in the private economy, the latter portion of measured GDP will be overstated.

Is Keynesian Stimulus Working?

In his Brookings Institution speech yesterday, President Obama called for more Keynesian-style spending stimulus for the economy, including increased investment on government projects and expanded subsidy payments to the unemployed and state governments. The package might cost $150 billion or more.

The president said that we’ve had to “spend our way out of this recession.” We’ve certainly had massive spending, but it doesn’t seem to have helped the economy, as the 10 percent unemployment rate attests to.

It’s not just that the Obama “stimulus” package from February has apparently failed. The total Keynesian stimulus is not measured by the spending in that bill only, but by the total size of federal government deficits.

The chart shows that while the federal deficit (the total “stimulus” amount) has skyrocketed over the last three years, the unemployment rate has more than doubled. (The unemployment rate is the fiscal year average. Two months are included for FY2010.)


The total Keynesian stimulus of recent years has included the Bush stimulus bill in early 2008, TARP, large increases in regular appropriations, soaring entitlement spending, the Obama stimulus package from February, rising unemployment benefits, and falling revenues, which are “automatic stabilizers” according to Keynesian theory.

The deficit-fueled Keynesian approach to recovery is not working. The time is long overdue for the Democrats in Congress and advisers in the White House to reconsider their Keynesian beliefs and to start entertaining some market-oriented policies to get the economy moving again.