v'ܩ U.S. Unemployment: When Can We Expect to See Real Job Growth Again?
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U.S. Unemployment: When Can We Expect to See Real Job Growth Again?

July 13th, 2010

The following is a guest post from Cesar Zambrano. If you are interested in guest posting at Geek Politics, check out the guidelines here.

The Bureau of Labor Statistics published a discouraging jobs report before the July 4th holiday weekend. For the first time in 2010, the U.S. economy actually shed, instead of gaining, 125,000 jobs in the month of June. The primary reason given was the termination of 225,000 temporary Census Bureau jobs. The “silver lining” in the report, however, was that the unemployment rate actually dropped from 9.7 to 9.5%, driven by disappointed workers who gave up looking for jobs.

Excuses from government officials, followed by accusatory attacks from the conservative right, emphasized once more that the politics of unemployment are alive and well. Liberals point fingers at Republicans for blocking new jobs initiatives and extensions of unemployment benefits. Conservatives are crying for heads to role in the Obama Administration since over $1.5 trillion have been spent on bank bailouts and economic stimulus packages with little job growth in the balance. The Congressional Budget Office, the official arbiter of numbers that both parties have agreed to support, has found that the stimulus actually created up to 1.6 million jobs.

Why is unemployment data so contentious and difficult to understand? Job growth has not been material and permanent, as we would prefer. Pain is particularly acute at lower income levels and for minorities, as was detailed in a recent study produced by the Center for Labor Market Studies at Northwestern University. The Northwestern study highlights the key political issue in our society, the growing differences between the haves and the have-nots. Battle lines are already being drawn early for this November’s campaign, still four months away and counting. Fear and obfuscation will reign down on a public that only wants results, not political infighting.

The economic fact is that unemployment rates have leveled off. However, during the recession, 8.4 million jobs have been lost. Trying to reconcile a rate with total jobs is like comparing apples with oranges, or from a purely financial perspective, like comparing a balance sheet with a revenue and expense statement. An unemployment rate is like a snapshot in time, when the public is more concerned and impacted by job gains (revenue) and job losses (expense). Net earnings, or net job gains, are what is really important. However, the rate announcements each month draw all the publicity. The relevant data is buried in the small print and left to a diligent reporter to perform his real investigative duty and let everyone know what is really happening.

In any event, job recovery of late has been painfully slow. Is this economic recession that much different than others? We have had two other recessions since 1990. In 90/91, unemployment peaked at 7.8%, versus a GDP drop from peak-to-trough of 1.4%. In 2000/2001, the relative figures were 6.3% and 0.3%. Our recent recession had unemployment peak at 10.2% versus a 3.9% GDP drop, definitely larger in magnitude on all counts. However, strong capital flows from forex trading and have helped to bolster the economy this time around. In both previous recoveries, it took well over three years in both cases for the unemployment rate to return below 5%. Employment is a lagging indicator during recovery. Material hiring returns gradually, only after confidence markedly returns.

The “elephant in the room”, however, is that many of the 8.4 million jobs lost will never return due to outsourcing trends. The IMF’s recent “World Outlook Report” highlights what is transpiring on a global stage in the following chart:

Although many may argue the finer points, the impact of outsourcing can be visibly seen following 1990 as the GDP for emerging and developing economies began to eclipse and double the respective growth rates of advanced economies. The human eye can easily craft a trend line for the blue line above, and the future direction is disconcerting as well. Jobs sent overseas were not burger-flipping jobs at McDonald’s. They were hardcore, middle class jobs that are gone forever.

Elections are less than four months away. The political rhetoric is already heating up daily. The focus will be jobs and which party do you trust to generate them. Hopefully, the economy will not be held hostage for the next four months while campaign slogans and political finger pointing dominate the airwaves pre-November. Our elections cannot come quickly enough.

Author: Derek Clark Categories: Uncategorized Tags:
  1. Ray White
    July 27th, 2010 at 20:59 | #1

    Any politician from any political party who wants to know what the Government can do to create jobs should read Milton Friedman’s timeless advice in Free To Choose.

    The governments of Estonia and Czechoslovakia saw the writing on the wall in Europe and chose to follow his advice and their economies are thriving while the rest of Europe is in big trouble. We should do the same.

    In a nutshell he says to get Government out of the way and let free individuals choose how best to pursue their own happiness. Let businesses compete with each other in a free market. It’s a time tested formula that worked to pull the US out of the depression of 1920 (which you’ve probably never heard of) and the recession of 1984. It involves both cutting taxes AND government spending.

    The Great Depression of 1929 was aggravated and lengthened by FDR’s progressive tax big/spend big policies. It took a combination of WWII and Harry Truman cutting spending and taxes to bring us out of those economic doldrums.

    The mess we’re in now largely occured because Clinton, in his second term when Democrats regained control of both houses, massively increased spending, then Bush got it half right by cutting taxes but aggravated the situation by increasing spending and now Obama is only interested in increasing both taxes and spending. We’re all in big trouble.

    Raising taxes, even if by simply allowing tax cuts to expire, and increasing spending when we don’t have the revenue to pay for it is simply robbing Peter to pay Paul. As a policy it is a criminally short-sighted path to destroying the ability of companies to create jobs. As a bleak reality it means we are selling our children’s futures to support our own failures.

    The only way to fix this is to vote out all incumbents, be they Republicans or Democrats, who voted to increase spending and vote for people who will exercise fiscal responsibility. Then maybe we can get the government out of the way and allow American entrepreneurs to create the jobs necessary to insure our future prosperity.

  2. August 10th, 2010 at 11:39 | #2

    Small business and family farms are the bedrock of the American Economy. These were built not on bank loans but on hard work and an industrious spirit. The current economic situation is a great and God given opportunity to get back to the basics. Christians have long had to follow the mandates of non Christian business practices and just as Abraham was called alone so are we. Some of the 14 million unemployed may have the opportunity to find a job within an established company, for others now is the time to grab hold of the opportunity.