Conservative Principles Now

The Bureau of Labor and Statistics released their November employment report showing the nation’s unemployment rate dropped all the way to 10%. While it is encouraging to see that the economy is beginning to recover, there are still some worrying data in the report. Heritage fellows James Sherk and Rea Hederman explain:

The unemployment rate fell from 10.2 to 10 percent in part because 98,000 workers left the labor force. Most of these workers were teenagers: 62,000 teens left the labor force. About 70,000 men age 20 and over left the labor force, but 35,000 women of the same age entered the labor force. These numbers reflect the difficulty that labor force entrants have had in finding new jobs. Since teenagers are far more likely to be unemployed, this helped reduce the unemployment rate. It is likely that the unemployment rate will climb once potential workers reenter the labor force.
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The sourest note in the jobs report was the 293,000 increase in the number of workers unemployed for more than six months. The average duration of unemployment also rose from 26.9 to 28.5 weeks. Unemployed workers continue to have great difficulty in finding new jobs.

Hederman and Sherk go on to explain why the unemployment rate has remained so stubbornly high:

Despite this relatively good news, the nature of job losses in this recession suggests that the labor market recovery will be slow. Media coverage of net job losses in the recession gives the impression that unemployment has risen primarily because layoffs have increased. That is partly true: Layoffs have increased over the past year and a half, and they are painful for the workers involved. But the main reason unemployment has risen is because job creation has fallen.
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Since the recession started, quarterly job losses have increased by 15 percent (1.1 million jobs) while job creation has fallen by 25 percent (1.9 million jobs). The number of workers laid off at companies going out of business rose by 7 percent (91,000 jobs) and the number of workers hired at newly formed businesses fell by 22 percent (313,000 jobs). Like the proverbial “dog that did not bark,” unemployment has risen primarily because of the private-sector jobs that are not being created. Research into past economic downturns suggests that lower job creation will continue to account for most of the net job losses throughout this recession.[3]

Why has private-sector job creation fallen so sharply? Businesses are retrenching wherever they can, taking measures to survive the immediate downturn such as laying off workers and conserving cash. The policy agenda in Washington–the health care legislation, cap-and-trade legislation, higher taxes to pay for more spending–has also contributed to businesses’ unease about the future. Entrepreneurs are reluctant to invest when they fear that federal legislation could make their business projects unviable.

When President Barack Obama was pitching his $787 billion economic stimulus package, the White House produced a report claiming their plan would keep unemployment under a peak of 8%.

Reality has not been kind to President Obama’s promises. On November 6, the Bureau of Labor Statistics released their Employment Situation Summary showing that the nation’s unemployment rate had soared from 9.8% to 10.2% in October. You can see how President Obama’s promises compare to reality to the right.

Reading the BLS report more closely, Heritage fellows Rea Hederman and James Sherk note:

Jobs losses in October–190,000–were higher than expected. … The unemployment rate for males is 10.7 percent while the teenage unemployment rate is 27.6 percent. These are the highest levels of unemployment for these groups since the Great Depression.

The unemployment rate increased even as 31,000 potential workers left the labor force. The labor force participation rate has now fallen to 65.1 percent–the lowest since 1986. When people reenter the labor market to find work, the unemployment rate will further increase.
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Despite this ongoing deterioration in the job market, the Obama Administration continues to argue that the $800 billion stimulus bill has improved the economy. On October 30, the Administration released data claiming that the stimulus has created or saved 640,000 jobs. These claims are mistaken, as demonstrated by the 2.8 million jobs that have been lost since the stimulus became law. The Administration’s figures greatly exaggerate the positive effect of the stimulus for two reasons:

1. The data used to create these estimates contains serious flaws. The Administration provided unclear guidelines for how to report jobs created or saved. Media analyses of these jobs reports have found severe errors. For instance, the Associated Press found that two-thirds of the 15,000 jobs one agency reported creating or saving did not really exist. Rather, the agency reported workers who received raises with stimulus funding as having their jobs “saved.” In another case, a shoe store in Kentucky that provided nine pairs of boots to the Army Corps of Engineers for $889.60 reported saving nine jobs. Such errors pervade the stimulus job creation estimates.
2. A deeper problem with the Administration’s numbers is that they estimate the wrong figures. The Administration estimates the jobs directly funded by stimulus spending. However, they ignore the jobs that the money spent on the stimulus would have otherwise created. Congressional spending does not create wealth; it redistributes it. Had Congress not passed the stimulus bill, the private sector would have used those funds on other projects that would have also created jobs.