Friday’s U.S. unemployment report might have been an aberration due to the severe winter with just 74,000 nonfarm payroll jobs created, according to the Bureau of Labor Statistics, but how many of those workers who left the labor force might never return? The civilian participation rate fell to 62.8 percent, which is a 35-year low.
We are now in the 71st month of the recovery without employment having returned to its prior peak (red line in graph). It was the GW Bush recovery that held the record of 47 months until then (brown line on graph), which highlights just why tried and true New Deal era measures, such as expanding social welfare programs and reviving public sector jobs, are needed to revive economic growth for Main Street workers.
The lack of jobs is the real problem. Discouraged workers no longer looking for work (down 347,000) dropped the December unemployment rate to 6.7 percent from 7 percent, rather than more workers entering the workforce. And this highlights the 700,000 government jobs lost from the Great Recession, instead of public sector jobs being added or retained to help the recovery, as was done during Roosevelt’s New Deal. It also highlights the growing popularity for extending unemployment and food stamps benefits to middle class workers that have lost jobs and income, as well as the poorest reported in Paul Krugman’s latest NY Times column.
So this hardly shows the need for more Fed tapering at the moment. It is the low interest rates and cheap money that have enabled soaring auto sales, and yes, housing construction to rebound with private construction adding the most jobs since 2006, according to ADP and Moody’s Analytic’s Mark Zandi.
As much as Fed Chairman Bernanke tried to sound optimistic during his most recent speech, government and both political parties are only now beginning to think about how to create more jobs. The problem won’t be economic growth, as productivity is soaring thanks to technology, but political policies that shed the public sector of jobs and public projects that pay forward for future growth.
Growth can’t become sustainable unless highways and bridges are improved, more teachers are hired, and spending on the research and development of future products is boosted. And that can only happen if governments are solvent again, which means increasing tax revenues, either with higher minimum wage rates and/or a more equitable tax rate structure.
Right now, wage and salary earners pay a rising portion of their incomes in taxes, whereas investors’ share of capital gains and income tax has shrunk, which allows wealthy investors to have effective tax rates in the teens. And workers can’t buy more products, unless wages are rising again.
It’s the Henry Ford story all over again. His workers couldn’t buy enough of his cars until he raised their wages to $5 per day. So it will take the middle class rising up again to claim their benefits from the forces that took them away, claiming the profits from increased labor productivity for themselves.
Harlan Green © 2013
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen