Jobs Growth Improves, but It’s Still Not Enough

Job creation has improved in 2014, but it remains far short of the 390,000 additional jobs needed each month to keep up with population growth and genuinely reduce unemployment. 

The jobless rate for June, reported by the Labor Department last Thursday, is down to 6.1 percent from the recession peak of 10 percent, but most of the reduction has been accomplished by adults quitting the labor market—neither working nor looking for work. 

If the same percentage of adults were in the labor force today as when Presidents Obama or Bush took office, the jobless rate would be 10.4 percent and 12.4 percent, respectively. 

Three problems have limited job creation during the Bush and Obama years—slow economic growth overall, a disinclination to control the border with Latin America or disappoint businesses’ appetite for cheaper skilled labor from Asia, and the work disincentives imposed by social programs intended to redress income inequality and help the disadvantaged. 

In this century, gross domestic product growth has averaged 1.7 percent per year, whereas during the Reagan–Clinton period, it was 3.4 percent. The reluctance of both Presidents Bush and Obama to confront Chinese protectionism and currency manipulation and open up offshore oil for development has created a huge trade deficit, which sends consumer demand and jobs abroad. 

Efforts to bring jobs back to the United States are often frustrated by government regulations that are more burdensome than necessary to accomplish their legitimate objectives and by skilled labor shortages. 

Paradoxically, in an economy with 9.8 million people unemployed and actively looking for work, too many lack skills appropriate for the 21st-century economy, and seem to lack adequate incentives to acquire those skills. 

The combination of free and subsidized health care, the earned income tax credit and other government programs whose benefits phase out as incomes rise imposes high effective marginal tax rates on lower-income working families. The government benefits along with the high marginal rates often encourage prime-working-age adults to forgo full-time employment or not work at all. 

Many have simply made little effort or have lacked the opportunity to acquire skills in demand. Efforts to improve primary and secondary education and access to college have been focused too much on basic skills and granting degrees without much concern for the course of study selected. 

Those efforts have simply not adequately emphasized creating skill-ready graduates for a rapidly changing economy. 

Immigrants—legal and illegal combined—are all too eager to fill the void and have captured all 5.6 million jobs created since 2000. Meanwhile, the share of the working-age native-born population holding a job has fallen from 74 percent to 68 percent, and many have not made the effort to acquire the skills necessary to land a good-paying job in a quickly changing economy and labor market. 

Baby boomer retirements are not appreciably driving down the adult employment rate: The percentage of Americans between the ages 65 to 69 working has risen from 23 percent to 32 percent since 2000. 

It’s prime-working-age Americans who are not showing up; for example, one in six adult males between ages 25 and 64 is not working. Twenty-six million Americans are working part time, in large part because of poor economic conditions and government disincentives to work full time. 

Adding in the adults working part time who want full-time work but can’t find it, and adults not currently in the workforce but who say they would return were conditions better, and the unemployment rate rises from 6.3 percent to more than 12 percent. 

These forces combine to cap wages for workers making goods and services that primarily serve U.S. markets and compete with imports, while wages rise for workers with skills needed in industries selling products in global markets, such as in advanced manufacturing, international finance and technology services. 

Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Previously he served as director of the office of economics at the U.S. International Trade Commission. Follow @pmorici1