Thank Obama for the Recovery?
The unemployment rate has dropped to 5.3 percent, which is near the level some economists consider "full employment" and is substantially lower than the 10 percent peak in October 2009. Total nonfarm job creation has been 11.9 million since then, for an average annual job creation of almost 2 million.
In the Obama administration's telling, these numbers prove that liberal policies of spending, taxing, and regulating create jobs. Unfortunately, a closer look at the data shows otherwise.
Many Americans have dropped out of the labor force, bringing the labor-force participation rate to a 40-year low of 62.6 percent after declining by 2.4 percentage points since October 2009. The broader "U-6" unemployment rate — which includes involuntary part-timers and those "marginally attached to the labor force" — now stands at 10.5 percent. It was below 9 percent for all of 2006 and 2007. These weak labor-market signals more accurately reflect Americans’ attitudes: A majority believe the economy is "getting worse," according to a recent Gallup poll.
Historical context is also important. Consider that after a severe recession in the early 1980s, the unemployment rate peaked at 10.8 percent in December 1982. But during the next six years, average annual job creation was 2.8 million, for a total of about 17 million — 5 million more than during the last six years, despite the fact that the U.S. population was only 80 percent of what it is now — while the participation rate increased by 2.4 percentage points, to 69 percent.
Austan Goolsbee, former chairman of the Council of Economic Advisers, and other liberal policy wonks claim that today's declining labor-force participation rate is simply a natural demographic phenomenon from an aging population. However, the share of the labor force that is at least 55 years old has not changed, and the share of the total civilian non-institutional population in that demographic has actually increased 1.5 percentage points since October 2009.
Further, the participation decline since October 2009 is not limited to the aging. The 16-19 age group's participation rate has fallen by 1.6 percentage points, the 20-24 age group's by 0.7 percentage points. Declining labor participation reduces the on-the-job training that is vital to increasing these groups’ lifetime earning potential.
The federal minimum-wage increase in 2009 and a host of other liberal policies arbitrarily increased the cost of employing the least educated and least skilled, and pushed many of them out of the labor market. This in turn forced many of them into government assistance, which starts a downward spiral of dependency that’s difficult to escape.
Perhaps an even greater threat to the nation’s future prosperity is seen in those in their prime earning (and childrearing) years: 25 to 54. Their labor-force participation rate declined 1.7 percentage points. While some rationally choose to stay home or go to college after unsuccessful job searches, loss of lifetime earnings and students loans (which are made artificially attractive by federal assistance) could have long-term consequences for many.
The increased cost of doing business from higher income-tax rates, Obamacare, stifling banking and environmental regulations, and other big-government policies have contributed to many Americans living in their parents' garage. This is in stark contrast to the Reagan administration’s pro-growth policies of lowering taxes and lessening regulation when people started businesses in their garage.
Variations of these policies, along with a sensible lawsuit climate, have led to the successful model in Texas that has created 40 percent of all U.S. net nonfarm jobs since the start of the Great Recession, with a 64.4 percent participation rate.
It’s time to implement time-tested, pro-growth policies that will invigorate the economy by getting government out of the way so Americans have the opportunity to fulfill their hopes and dreams.
Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at email@example.com.