Six Years Later, Obama's Policies Still Aren't Creating Jobs
The latest unemployment report from the Bureau of Labor Statistics suggests the economy may be slowly clawing its way out of a slump, but it does little to show whether the administration's policies have been an effective response to the economic downturn. According to the report, total non-farm payroll employment increased by 175,000, but these new jobs did little to move the needle on the unemployment rate, which remains at 6.7 percent. This is due, in part, to the fact that the number of long-term unemployed increased by 203,000, bringing the total number of individuals who have been unemployed for 27 weeks or more to 3.8 million-37 percent of all the unemployed. Indeed, the labor force participation rate remains at only 63 percent, a level not seen since the stagflation of the 1970s, and well below the rate when President Obama took office.
Yet, since taking office, the Obama administration has pushed through an $833 billion stimulus package, and the Federal Reserve has undertaken extraordinary measures through a series of quantitative easings that have swelled its balance sheet to almost $4.2 trillion. Nonetheless, economic growth remains anemic, with recent data suggesting a slowdown. In the fourth quarter of 2013, GDP grew at only 2.4 percent, down from third-quarter growth of 4.1 percent, and economic forecasters are predicting only modest growth for the near future. In fact, the Congressional Budget Office recently revised its projections for economic output. The 2014 estimate of potential output in 2017 includes a 7.3 percent downward adjustment over CBO's estimate in 2007.
The CBO's assessment of labor markets is actually somewhat bleak: "All told, CBO projects, the employment-to-population ratio will only edge upward, reaching 58.9 percent at the end of 2017-just 0.4 percentage points above the ratio at the end of 2013 and well below the peak of 63.3 percent reached at the end of 2006 and the beginning of 2007, before the recession." The employment-to-population ratio is a measure of the working age population that is actually employed, and many economists view it as the most reliable assessment of the labor market. Because it is a measure of workers as a percentage of the population, it is a broad measure that includes everyone-even those who have stopped looking for work.
University of Chicago economics professor John Cochrane provides more insight on the labor market and the sluggish economy. Professor Cochrane notes that 10 million people lost their jobs in the Great Recession, yet after the administration's stimulus program and the Federal Reserve's quantitative easing program, the employment-to-population ratio hasn't changed. So even with non-farm payroll increasing and some new workers finding jobs, the labor market still struggles with 10 million unemployed, who for whatever reason have fallen out of the workforce.
To add perspective, Cochrane includes a chart that shows not just the employment to population ratio, but also the share of 25- to 54-year-olds as a share of the population. He notes that the two curves track each other, which suggests that workers age 55 - 65 either have the resources to live off retirement investments, or, more likely, have dropped out of the workforce in light of weak labor markets and a potential mismatch between the worker skillsets and labor demand. Professor Cochrane suggests that the Federal Reserve implicitly comes to the same conclusion in its recent steps toward tapering rather than ramping up its quantitative easing.
So rather than cheer the slight uptick in non-farm payroll employment, it is more important to address longer-term trends in the labor market. More and more economists are suggesting that fundamental economic changes are underway that may pose significant challenges to labor markets. Ultimately, worker productivity must increase, which means workers must possess the skills that are valued in today's economy. The administration's proposals to increase the minimum wage or extend unemployment benefits focus exclusively on symptoms rather than the underlying fundamentals of labor markets.
And President Obama's new $3.9 trillion budget offers little to address such concerns. Instead, the proposed budget includes a host of public-private partnerships, public infrastructure spending, and investments in human capital that appear to do more to assuage politically powerful teachers' unions and public sector bureaucrats than promote economic growth. And this grab-bag of spending initiatives is funded by a trillion-dollar tax hike. Perhaps it is time to return to the basics. Rather than seeking new ways the government can tinker with markets, it may be more prudent to revisit the broken tax code and the regulatory barriers to economic activity.