Houston Democrats

Bush’s weak poll numbers regarding the economy further confirms this trend. The Republicans believe these numbers are the result of weak PR. If the President simply got out in front of the public and repeatedly said the economy was in “boom times”, the poll numbers would change for the better. According to Republican thinking, there is also (as usual) a liberal plot to undermine the President’s standing on the economy. However, as the following papers demonstrate, PR is not the problem. The underlying trends in employment are the contributory factors in the public’s weak reaction to the economy, not the lack of PR.

For any Republican Pundit reading this, I issue this challenge: prove me wrong. If you provide solid economic analysis that is empirically rigid and demonstrates the falsity of the following analysis, I will happily admit my analysis (and the analysis of the Federal Reserve and CBO) is wrong. However, this challenge demands intellectual rigor; it will not suffice to state: “this number says this”. That is weak. The response demands detail and depth, not a click PR job.

Jobs Lost in the last 5 years.

According to the Bureau of Labor Statistics, the US has lost approximately 3.4 million high-paying jobs in the last 5 years: 2.8 million in manufacturing and 600,000 in high-tech and information services. Despite recent gains in the employment numbers, these industries are still losing employees.

The CBO notes that some of the loss in high-tech is a natural result of the unsustainable high-tech build-out in the 1990s. From 1993-2000, high-tech employment increased 50%, while only 9% of these jobs were lost during the recession. High-Tech employment decreased an additional 14% after the recession, indicating some shake out from over-capacity was necessary. Given the furor over Y2K and NASDAQ that occurred during the 1990s, some of this loss is probably the result of overcapacity.

Something the CBO does not mention is the loss of jobs to outsourcing to countries with lower labor costs. Outsourcing is incredibly difficult to document. Currently, the US has no official statistic for jobs outsourced in its labor reporting methods. However, I think it is fair to say that some of these positions were shipped overseas.

Lack of Robust Job Growth

Despite claiming an economic recovery is at hand or that the US in experiencing “boom times”, the New York Federal Reserve notes: “Our current recovery has been the worst in US economic history in terms of jobs creation.” Bush started his term in January of 2001 with 132,454,000 million jobs. The total non-farm payroll number for July 2005 is 133,786,000. This means Bush’s economic policies have created 1,332,000 jobs over 4 and a half years. However, the economy must create 150,000 a month to keep up with natural economic attrition – people changing jobs, businesses going under, people entering the workforce etc… Therefore, over the same time span, the economy should have created 8,100,000 new jobs to simply keep up with natural economic conditions. That means Bush is 6,768,000 jobs behind what the economy should create.

The New York Federal Reserve study notes the overall lack of robust jobs creation. Compared to the last 6 recoveries, all major economic areas are creating fewer jobs than in preceding recoveries.

Labor Participation

The Boston Federal Reserve studied the divergence between the unemployment rate and the labor participation rate. Although the unemployment rate is currently 5%, the labor participation rate is 66.1%. In January 2001, the participation rate was 67.2%. The study looks at the difference between the two numbers and tries to explain the difference.

The Study breaks the workforce down into sex and age group categories – for example, men age 16-17, men age 18 – 19 and so on. In total they have 14 different groups. There are 7 for each sex. In addition, the study breaks down each sex into the following age groups: 16-17, 18-19, 20-24, 25-34, 35-44, 45-55 and 55+. It might help at this point to either go to the study at the link below or draw out columns of a sheet of paper.

The study looks at each group’s labor participation rate in March 2001 and compares it to each group’s participation rate from November 2004 – February 2005. March 2001 was the final month before the last recession began. The percentage from November 2004—February 2005 provides as example of how each group is doing in the current cycle.

Here are the basic results. men and women over 55+ are the only group that is participating at a higher participation rate in November 2004 – February 2005 compared to March 2001. All other age groups are participating at a lower rate, particularly women. This drop in participation is most pronounced in both sexes teenage and early 20s categories. The report states it thusly:

“What leaps out … is the below-average recovery of participation in the current business cycle to date. The depth of the shortfall is most pronounced among teens and for women of all ages.”

Here is the report’s kicker. If all of the groups returned to their usual labor participation rate, the labor force would increase by 1.6 million people. Because these people are not in the workforce, the 5.4% unemployment rate for November 2004 – February 2005 is too low and should be revised upwards by 1.1%. This would make the unemployment rate at the beginning of the year 6.5%.

Increased Length of Unemployment

Perhaps one reason for the low labor participation rate is the longer time that people are unemployed during the current recovery. The New York Federal Reserve study notes: “The duration of joblessness has been high three years into the recovery and an exceptional proportion of people not participating in the job market want to work.”

According to these tables from the Bureau of Labor Statistics, the number of people 16 years and over who were unemployed for 5-14 weeks increased about 1,850,000 on average at the end of 2000 to 2,250,000 – 2,500,000 during the recovery. The number of unemployed for 15 weeks or longer topped at 3,500,000 in mid-2003 dropping to 2,500,000 in the most recent survey. The number of unemployed for more than 27 weeks topped at 2 million in mid-2003 and is currently about 1,400,000. These figures have been persistently high, especially considering the economy “turned the corner” in the first quarter of 2003.

Lack of Meaningful Wage Growth

If the unemployment rate were in fact correct, we would see meaningful increases in wages as the result of simple supply and demand principles. If there are fewer people available for work, companies must increase wages to attract employees.

According to the Bureau of Labor Statistics, the average earnings increase from 2000-2004 was 3.86%, 3.22%, 3.12%, 1.71% and 2.39% respectively. However wages have to be compared to inflation to determine the real rate of wage growth. For the same years, annual inflation was 3.4%, 2.8%, 1.6%, 2.3% and 2.7% respectively. When inflation is subtracted from wages, overall wage growth becomes .46%, .42%, 1.52%, -.59% and-.31% respectively for 2000-2004.

Put simply, despite all of the PR and spin, the jobs situation is terrible. Republicans can't simply point to the numbers and say over and over they are solid numbers, because the numbers don't stand up to serious scrutiny.

It's time the Democrats started talking about this in a big way. Remind people their wages increased in the 1990s. Remind people they could find a better paying job in the 1990s. Remind people the economy grew in a healthy way during the 1990s. Remind them the economy performs better when Democrats run the country.