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Federal Budget

Where Are The Jobs, Mr. President?


Back in January 2012, I predicted that if unemployment was below 8% on Election Day, President Obama would be reelected (with some additional caveats). Dutifully enough, the Bureau of Labor Statistics reported that unemployment stood at 7.9% in October and the President never looked back. In an election where social and foreign policy issues were arrayed against the Republican challenger, Mitt Romney could only play on the weak economy; yet this card could have trumped all others. If he failed, it was because the President convinced the electorate that he cared more about the jobless and the struggling middle class, and because the private sector delivered just enough growth to cross the psychological threshold of 8%.

Fast forward to April 2013. The preceding 6 months have been busy ones for the Administration: dealing with the fiscal cliff negotiations; promoting sweeping immigration reform; dealing with the tragedy of Newton with new firearms legislation. All of these initiatives are critical, of course, and I don’t mean to dismiss any of them. But where are the jobs, Mr. President?

Where Are the Jobs, Mr. President?

The American labor market has been more or less stagnant since November. Like a horse ridden hard and whipped over the finish line, the poor beast has simply collapsed and refused its duty. A cursory glance at the Civilian Unemployment Ratio[1] would seem to contradict this assertion: after hovering around 7.9% between September 2012 and January 2013, unemployment fell to 7.7% in February and to 7.6% in March.


Those numbers hide the fact that some of the seeming decline in unemployment has been from workers dropping out of the labor market, not from their rehiring. As unemployment benefits reach their statutory end, despite extensions by Congress, some job seekers no longer have an incentive to keep looking. These “hard core” unemployed are the most difficult to reintegrate into the labor market and have the perverse effect of making the jobs situation look better than it is. So while new weekly claims for unemployment benefits[2] have fallen from their previous highs of over 500,000 in 2009 to average around 375,000 since early 2012, it is not all due to new hiring. If we take into account the decline in the employment-to-population ratio[3], the adjusted unemployment rate would be closer to 8.2% of the January 2008 labor force, substantially worse than the 7.6% reported this March.


There are many reasons why people leave their jobs or stop looking for work. It is not exclusively a question of giving up and joining the long-term, passive unemployed. While we can estimate the overall size of the potential workforce (based on the total population and the working age cadres) and how much of it is actively engaged (the employment-population ratio) it is still hard to disaggregate all of the underlying causes. People retire; others take a few years off to have kids or study: these have different impacts on the overall jobs picture. Nevertheless, it is a concern when the overall participation rate in the economy falls. Below is a simple schematic of the worker flows that contribute to the situation of the labor market at any time: it is perhaps helpful in understanding why we shouldn’t just look at the civilian unemployment rate.


The employment-population ratio (EPR) fell very substantially during the Great Recession from its 2000 peak (64.7% in April 2000); it has not yet recovered. I should note that the EPR also fell after the DotCom bubble and never recovered its previous high. There are many reasons to expect that it might not regain that high anytime soon, if ever.   


For one thing, we have reasons to believe that he peak period of growth in labor force participation is ended. During the late 1980’s and early 1990´s, there was a secular shift in the growth of labor force participation. Part of this was the ever-increasing participation of women in the economy since the 1950’s. This has risen from around 30% in that decade to over 55% since the 1990’s. Meanwhile, male participation has fallen from highs of 85% in the male-dominated, single provider market of the 1950’s, to around 70% in the 1990’s and 2000’s. It now stands at 65% since the Great Recession[4]. These massive gains are not likely to be repeated, though we might expect some increase in the male participation rate back up to around 70% and a smaller gain in the female rate up to 55%.

On a positive note, almost all of the net job creation has come from the private sector. The growth in employment has not been due to government largesse: both federal and state/local governments have been shedding jobs for the past 4 years. Since January 2011, government at all levels has shrunk by 391,000 jobs, with 55% of this coming from local governments and about equal amounts from the federal and state governments. That’s grand news for fans of shrinking the “bloated public sector”, but local government employs mostly teachers, firemen and police: hardly the bloat that most people are referring to[5].


Given the severe and self-imposed restraints on spending, the public sector will continue to be a drag on the economy and the jobs market will soften even further. With uncertainty continuing to emanate from a depressed (but virtuously austere) Europe, there is no reason to expect the picture to brighten any time before the fall.

Adjusting Priorities

The White House has not been idle since the election; however, the President’s focus has been continuously distracted from the stated pre-election goal of job creation. Of the issues the President has addressed since November 7th, only one of them can be said to directly impact jobs: namely, immigration reform. Yet as urgent as immigration reform is for the 11 million undocumented workers, and as vital in the long-term to sustain the American economy and social programs[6], the impacts will not be felt for many years. It is a critical and overdue reform, but it doesn’t create jobs now.

The long and acrimonious debate to avert the fiscal cliff had, if anything, a negative impact: both through the uncertainty it introduced into private sector investment and budgeting decisions, as well as the perhaps unavoidable reduction in federal spending.

Additionally, the President has been distracted and spent considerable political capital as well as Congressional time and energy, on responding to the Newton tragedy by drafting a whole raft of new firearms legislation. Without the least intention of disparaging the victims of Netwon, or of any of the tragic shootings in recent years, these proposals stand little chance of being enacted (with the exception of universal background checks) and their potential impact is microscopic. Rhetoric aside (“if even one life is saved…”), the President must balance the interests of the thousands touched by gun violence against the tens of millions who are facing grinding poverty from prolonged unemployment.

Full disclosure: I support the principal measures of the pending firearms legislation with the exception of the so-called “assault rifle” ban. But I believe the timing to be very bad given the urgency of stimulating the job market.

On Wednesday, April 10th, the Obama Administration finally presented the long awaited and long-overdue budget[7]. Here was an opportunity to return to the task of getting Americans back to work. A preliminary examination of the White House proposal finds very little in the way of stimulus. The Fiscal 2014 budget is far less ambitious than the previous years’ budget in this regard. The emphasis is all on justifying further tax increases (necessary) through cuts in entitlements like health care (also necessary) and Social Security (not necessary).

Gone are the ambitious investments in transportation and an Infrastructure Bank.  Gone too are much of the supports for advanced manufacturing and energy investment that were included in the FY2013 proposal. From the $350 billion proposed to “jump start” job creation last year, the Administration would dedicate only about $60 billion to infrastructure, R&D and workforce training.  If the new budget were enacted “as is”, the Federal Government would have abdicate any role in job creation. It is not a question of having lost the fiscal debate to the House Republicans, there has been no debate at all. The White House seems to have agreed with the opposition’s major propositions a priori and focused on a misguided and damaging fiscal rectitude. Has nothing been learned from the ongoing spectacle of Europe’s never-ending austerity suicide?


To be fair to the President, there is no chance whatsoever of his budget being enacted as is; it is has been written to undermine the position of the GOP and to force them into voting against a budget which hews to “the center” and seems designed for compromise. Thus the President scores points with the American people and independents. Unfortunately, the President scores no points with American workers waiting to get their jobs back, or their families who are desperate after years of struggling to make ends meet.

I can’t help feeling that he has wasted an opportunity to lead by example with his budget. He has spoken passionately about gun violence and supported measures which are idealistic, despite having little chance of seeing the light of day, because he believes in them and is willing to put a moral stake in the ground. Do American workers deserve less? This budget should have been all about job creation – let Republicans defend themselves for voting against that­ – but the President has devoted almost no time or energy to this goal. The promises of October 2012 are beginning to ring hollow.

Sources and Notes:

[1] Economic Research Division, Federal Reserve Bank of St. Louis (FRED). Civilian Unemployment Rate (UNRATE).
[2] Ibid. 4-Week Moving Average of Initial Claims (IC4WSA).
[3] Ibid. Indexed to January 2008. Civilian Employment-Population Ratio (EMRATIO).
[4] Ibid. Employment-Population Ratio – Women (LNS12300002); Employment-Population Ratio – Men (LNS12300001).
[5] Ibid. Total Nonfarm Private Payroll Employment (NPPTTL); All Employees: Government: Federal (CES9091000001); All Employees: Government: State Government (CES9092000001); All Employees: Government: Local Government (CES9093000001). The graph below clearly shows how women have fundamentally changed and sustained the U.S. labor market.epr_malefemale

[6] Given that the birth rate amongst non-immigrant populations is below the replacement rate, as it is in Europe.
[7] The White House Budget is usually submitted on or before the end of February. This year it was delayed due to the fiscal implications and lateness of the fiscal cliff deal.

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“Our obligations to our country never cease but with our lives.“

John Adams


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