Grassroots Commentary

The Case of the Missing Jobs

Bill Franklin · Jan. 20, 2014

Do you remember those cartoons in which Daffy Duck hands Elmer Fudd a bomb in the shape of a black ball with a lighted fuse on it? Elmer stares at it in disbelief before it explodes, blackening his face and shredding his clothes.

Well, that’s what Ben Bernanke just did to Janet Yellen, the incoming Chairwoman of the Federal Reserve. The bomb in this case is Bernanke’s failed experiment to do the impossible by stimulating the economy outside of its markets – the only true mechanism that can stimulate an economy – by flooding the economy with dollars. Somehow this monetary magic was supposed to create jobs using devalued currency. Tell me how that works. I think I missed that lecture in Economics 101.

Well, the economic chickens came home to roost last week in the surprise December jobs report announcing that instead of the 200,000 plus jobs that had been expected, only 74,000 net new jobs were produced by the economy, about half of them part-time. The mainstream media immediately went to DEFCON 1 flooding the airwaves and newsstands (does anyone buy newspapers anymore?) with misinformation, excuses, and “Ah, shucks, it’s just one month” analyses to hide the fact that the Obama recovery wasn’t recovering.

Over at the White House all you could see was rear ends and elbows as all the president’s men (and women) scrambled in a frenzy of activity to produce a new legislative initiative that would distract low information Democrat and Independent voters (I thought low information voters were permanently distracted) and prevent the 2014 mid-year elections from being screwed up. Presidential press boy, Jay Carney, announced they had found one – an extension of the expired 99 weeks of unemployment benefits, which had been extended toward the end of Obama’s first term. The extension of the already extended benefits would go to people who, ironically, were looking for the jobs which Obama’s policies had vaporized since he assumed office.

Don’t get me wrong. I feel badly when anyone is deprived of earning an income which would make him or her independent of a handout from the government. But extending unemployment benefits is like transfusing a person with a gaping wound without sewing up the wound. The problem the unemployed need is a new supply of jobs, not a new supply of blood plasma.

Only the private sector can create jobs, which the December figures show it’s disinclined to do because Obama policies create uncertainty, hamstring businesses with bureaucratic regulations, and expropriate the rewards of economic success in confiscatory taxes. If Obama has shown anything in his policies, it is that he is more concerned about redistributing income than allowing more of it to be produced.

The Labor Department, which is about as independent from the White House political machine as Bonnie was from Clyde, blamed the cold weather in December for the poor jobs report. The Labor Department smoke screen claimed 273,000 people in their monthly job survey said weather prevented them from working. Sorry, that dog won’t hunt. December did not have unusually bad weather – the polar vortex didn’t happen until January – and weather is factored into the seasonal adjustment of employment numbers.

The way the Bureau of Labor Statistics (BLS) compiles its unemployment data is to call a lot of people in a survey and ask about the household employment status. The unemployment rate is computed as a percentage of the number of people who say they are unemployed but have been looking for work versus the number who say they are employed. Obviously if people “have been” looking for work they are talking about the past. Was there extraordinarily cold weather in November and December? No.

The BLS specifies the economic sectors which gained jobs and those which lost jobs. Therefore we know that, despite recent high demand for housing, construction jobs were down in December by 16,000 – understandable since those jobs are susceptible to weather – but IT jobs were also down (12,000), so were healthcare jobs (6,000) and so were government jobs (13,000), not the kind of work affected by weather.

The jaw-dropper in the disappointing December jobs report was the unemployment rate. It fell from 7% to 6.7% despite the weak jobs environment. How can that be? Almost no new jobs were created yet the unemployment rate fell. Well, one way to do this trick is to undercount who is unemployed. When people stop looking for a job BLS considers them no longer unemployed and doesn’t count them even if they are able-bodied and 35 years old with a good education. This produces all sorts of number magic.

If not one new job were created, and people “drop out” of the workforce by giving up active job searching, the unemployment rate will go down. That’s a neat trick! The unemployment rate is the ratio of people actively looking for jobs – the unemployed – versus those who have a job, the employed. The unemployed figure is the numerator and the employed is the denominator. As people drop out of the workforce – the numerator – it gets smaller while the denominator is unchanged. So the ratio (which is expressed as a percentage) gets smaller. Employment appears to be improving, happy days are here again, and the president looks like Superman. And that is what has happened over the past five years of the Obama recovery as the long-term unemployed have gotten discouraged, exhausted unemployment benefits, and stopped looking for work.

In the BLS survey, the operative question is, if a person is unemployed, have you looked for a job in the past four weeks. (That’s what qualifies them to receive unemployment benefits for a certain period of time.) If the answer is no, the person isn’t counted in either the workforce numbers or in the unemployed numbers. In December, therefore, the workforce fell by 347,000. This made the workforce at the end of 2013 about 548,000 souls smaller than it was at the end of 2012. If dropouts continue, the unemployment rate theoretically would be zero at some time in the future. TAH-DAH!

How do we know the workforce shrinkage isn’t due to baby boomer retirements?

About 7,000 workers a day reach the traditional retirement age of 65. Many don’t retire – they are in good health or they can’t afford to. So they remain in the workforce in their current jobs or take part-time work to supplement retirement income and to stay busy. At the same time, about 11,000 babies born in the 1990’s reach the age of 16 each day and become available to enter the workforce, even if only for part-time work. Therefore, if all baby boomers retired at age 65, which they don’t, 4,000 people become available to work every day. This means the available workforce is growing by about 120,000 per month and that is the number of new jobs needed monthly. Some young people will defer work to attend college, of course, and some will work and go to college. But ultimately they graduate or drop out of college or reach age 21 or 22 and need full-time employment at a rate of more about 120,000 new jobs per month – which this economy isn’t producing.

Since the people who have given up looking for work aren’t counted in the BLS unemployment rate, the real unemployment rate is much higher. How much higher? Probably around 12% to 13%.

Here’s why.

If we counted all of the able-bodied people between 25 and 64 who aren’t in the armed forces or prison and labeled that number the “potential workforce,” we would have a pretty good idea of how many could work if there were jobs for them. And of course, we know how many people are actually working, because the BLS collects that number every month. So if we divide that number – the actual workforce – by the potential workforce we get a ratio that is called the “labor participation rate.” In other words, we would know the percentage of people who are working versus those who could work. That percentage in December 2013 was 58.6%.

What happened to the other 41.1%, you ask? They aren’t working – about 102 million able-bodied souls. Think of the value their work could be creating if employed, the increase in Gross Domestic Product that our economy is missing, the additional taxes that aren’t being paid and have to be made up by those of us who are working. Instead some, perhaps many, of these “not working” people receive unemployment benefits or public assistance. In other words, for lack of jobs, they are consumers, not producers.

According to the National Bureau of Economic Research’s business cycle dating committee The Great Recession which began in December 2007 ended 18 months later in June 2009. A graph of the labor participation rate shows a precipitous decrease after 2008 which has gone sideways since. The Obama administration took office in January 2009. To be fair, his policies didn’t cause the Great Recession of 2008. To be fair, his policies haven’t produced a recovery from the Great Recession of 2008 either. When Obama moved into the Oval Office, the number of able-bodied unemployed was 92.6 million souls. In December 2013 that number had grown by 10 million.

The labor participation rate has varied month-to-month in a narrow range around 58.5% for the past three years. That certainly can’t be blamed on the evil Bush. And if the potential workforce were accurately counted, the real unemployment rate is closer to 13% – almost double the official government figure. That wouldn’t go over well politically if widely known.

We are missing 8 million jobs if only to keep up with population growth, and arguably we need 10 million jobs to employ all of the able-bodied unemployed. If the economy produced 120,000 jobs per month – the figure stated above as the number driven by population growth – it would take 5 ½ to 8 years to close the gap from where we are to where we need to be on jobs.

What solution has Obama and the Democrat Congress proposed to address the fact the Obama recovery isn’t recovering? Scrubbing ObamaCare or its most egregious anti-jobs requirements? Nawh. Getting rid of the anti-jobs regulation that the administration’s shadow government network of government agencies by-passed Congress to impose? Nawh. Reducing taxes, especially C-corp taxes which gobble up capital businesses need to expand? Nawh.

The president and his congressional lackeys want the minimum wage to be raised. As I’ve blogged previously, that’s a sure-fire way to kill more jobs. And the Dems want to extend the unemployment benefits at an unbudgeted cost of $24 billion – the blood plasma approach. Both, of course, are good election year political issues. But neither solves the jobs problem.

Democrats hope that Republicans will push back giving them the brush to paint them as the heartless party. Republicans have indeed pushed back on the minimum wage because it’s a terrible idea and has never solved the problem lawmakers convince voters they are solving. The minimum wage is pure politics.

And the Republicans did push back on extending unemployment benefits until there are offsetting cuts elsewhere in government spending. The Democrats resisted the offsetting cuts counter-proposal and Dictator Reid tabled it in a parliamentary procedure this week.

Don’t expect much to happen on the jobs front for ten more months when we’ll have a chance to unemploy this Congress and employ a new one. In the run-up to the fall election the question I’d be asking every candidate – Republican or Democrat – is “what are you going to do to get government out of the way and let the private sector create jobs?”

One of the many ironies that Barack Obama embodies is his unending concern that some people aren’t paying “their fair share.” Well, the eight to ten million jobs Obama’s policies have eliminated certainly aren’t paying theirs!

Facts over Fear
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