by Bill McBride on 1/13/2005 09:29:00 PM
Thursday, January 13, 2005
An interesting post on macroblog started me thinking about something my father once told me: “The American economy floats on oil”. Now macroblog has suggested a possible link between our sluggish job creation and the recent spike in energy prices. He offers this theory as an alternative explanation to EPI’s view that sluggish job creation is the result of poor public policy; specifically Bush’s tax cuts.
While I think about issues like causation and timing, I would like to make a minor contribution by asking: What exactly is Sluggish Job Creation?
To be fair to Bush (admittedly hard for me), when he took office the economy was clearly overheated. All things being equal, we would expect the economy to add about 1.7 million jobs per year based on working age population growth. So we would expect on average about 6.8 million new jobs created over Bush’s first term. But all things are not equal.
In Jan 2001 there were 132.388 million Americans employed. Unemployment was 4.2% with a civilian labor force participation rate of 67.2%. In Dec 2004 there are 132.266 million Americans employed. Unemployment is 5.4% with a civilian labor force participation rate of 66.0%.
The BLS is the source for all statistics.
The average unemployment for the 10 year period before Bush took office was 5.6% so it is not unreasonable to expect the unemployment rate to rise during Bush’s first term from the historically low rate of 4.2%. But what is surprising is the significant drop in the civilian labor force participation rate – the average for the same 10 year period was 66.7%.
We would expect, with averages of 5.6% unemployment and 66.7% participation rate, approximately 1.2 million more jobs today. And that estimate is probably low since we are 3 years into a recovery (the recession ended in Nov 2001) and usually unemployment is falling (it is) and the participation rate is rising (it is not). For example, with 67% participation and 5% unemployment we are 2.6 million jobs short of expected employment. So job creation is disappointing (by 1.2 to 2.6 million jobs) and I guess that defines “sluggish”.