How 1.4 million new workers can be wrong.

Commentary about business and finance.
June 29 2004 4:26 PM

Sunny Side Down

Why 1.4 million new jobs haven't ended the jobless recovery.

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 for this bounty of new employment opportunities. For example, a recent Washington Post/ABC poll showed that Americans disapproved, by a 53-46 margin, of President Bush's economic stewardship. 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—and it may still be deteriorating.

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Consider the employment–to-population ratio, a broad gauge that measures the percentage of Americans over the age of 16 who have a job. (Data is available going back to 1948. To see the history, go here and click on the box that reads "Civilian-Employment Population Ratio" and then "retrieve data.") 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. *

Two percent may not sound like much. But we're working with very large numbers. The population is greater than 293 million, as the Census Bureau estimates today. 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. (Go here, and click on "labor-force participation rate.") That gauges the percentage of the population in the labor force—the people who have jobs or want one. Because the decision to enter the labor force is a voluntary one, this figure is pretty tightly levered to perceptions of the economy. When jobs are plentiful, and when people are optimistic that they can land jobs, the proportion of the population in the labor force rises.

Again, 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, and it's lower than last summer's readings. 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—slower than the rate of population growth over the same period.

What gives? As the population ages, you might expect the percentage of the population that is working to fall. But the graying of the Baby Boomers is being offset by a continual influx of younger immigrants, legal and illegal, who want to work. And a broad trend like aging wouldn't be likely to cause the type of movement we've seen in these indices.

Perhaps—and all those who hold the memory of Robert Bartley dear should avert their eyes—the relationship between taxes and job growth isn't what supply-siders believe it is. This administration and its economic amen corner believe that people wake up every morning and decide whether and how much to work based on marginal tax rates. By that logic, relatively fewer people would have entered the workforce, sought jobs, and created jobs in the 1990s, when marginal rates were higher, and far more people would do so today when rates are lower, as they have been for the last few years. But the employment-population ratio and the labor force participation numbers from the past 10 years paint exactly the opposite picture.

Something has plainly broken down in the American job creation machine. The supply of new jobs has been nowhere near sufficient to keep up with the supply of new workers—not for the past three years and not for the past 10 months. I don't claim to have a good explanation. Productivity growth, globalization, outsourcing, and widespread excess capacity probably have something to do with it.

But the stock answers that conservatives give to employment problems are being proved false. Are Americans lazier today than they were a few years ago? If so, why aren't low marginal tax rates making them less lazy? 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.

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