The May jobs report illustrates the mismatch between the magnitude of our unemployment problem and the incremental policy levers Washington is pulling to respond to it.
In recent months we have had a nice break from the grim relativity of less catastrophic job losses, but it's a far cry from the upbeat rhetoric we hear whenever the numbers tick up. In March, when census hiring kicked in and pent up labor demand left over from the snows of February combined to post modest jobs gains, Treasury Secretary Geitner said, "we're just on the verge now of ... a sustained period of job creation, finally."
But that verge keeps receding. This week Fed chairman Ben Bernanke said unemployment "will stay high for some time." We're still barely creating any jobs relative to the millions of unemployed who need them. Of the 431,000 new jobs counted in the May report, 411,000 were government census jobs, which will shortly disappear. Our current trajectory of job loss vs. job recovery is worse than the early eighties, worse than 1948, worse in fact than anytime since the Depression.
Other than expand its own workforce, what has the federal government done lately to create lasting jobs? Not nearly what it could be doing, for all its "jobs, jobs, jobs" rhetoric. The New York Times' David Leonhardt and Mother Jones' Kevin Drum both have smart analyses of political reasons why the White House is pulling punches on job creation.
In March President Obama did sign a modest $38 billion jobs bill, $20 billion of which consisted of highway and transit spending. The rest went to extending unemployment benefits, offering temporary payroll tax breaks and other small business hiring incentives. In May Congress killed $24 billion in fiscal relief to prevent state workers from being furloughed. This week the Senate will vote on a new jobs bill that would further extend unemployment benefits and pay state governments not to lay off their workers.
But very little of this has anything to do with permanent, private-sector job creation. Infrastructure spending is a notoriously inefficient job creator. Extending unemployment benefits may be warranted, but it does nothing for job market. Payroll tax breaks are helpful in reducing hiring costs and stimulating labor demand, but to date we have spent relatively little on them (the March, 2010 HIRE act spends $13 billion on a one-year payroll-tax holiday for businesses hiring unemployed workers).
The steps we've taken so far, even if the Senate passes the current jobs bill, are at best incremental half-measures. They can't do more than make a dent in the current overhang of unemployed and underemployed Americans, which is measured in the tens of millions. Massive unemployment is structural and fundamental; addressing it at the scale of the problem demands structural, fundamental reform.
To appreciate why, we need to get past the disingenuousness of the "turn-the-corner" rhetoric which says the economy is showing signs of fragile recovery, so job recovery is a lagging indicator that must follow inevitably behind like spring lambs. The fact is, absent radical reform, high unemployment will remain a serious problem for many, many years to come.
As Paul Krugman pointed out in December 2009, we would need to create 300,000 jobs every month for five years to get back to pre-crisis employment levels. Five months into in 2010 we're already running half a million jobs behind that benchmark even with federal jobs, and well over a million jobs behind if they're excluded (on the theory that we can't solve mass unemployment by forever expanding the federal workforce). If you don't count all the government jobs, we're not even meeting the White House's own forecast of about 100,000 new jobs per month in 2010. Even if we do manage to meet it this year, official unemployment rates might actually climb, because it takes gains of 100,000 permanent jobs per month just to keep pace with the growing population and expanding potential workforce. After 2010 the Administration projects about 200,000 new jobs per month in 2011, and about 250,000 per month in 2012. That would gain back 6.6 million jobs -- most but not all the jobs lost since the end of 2007 -- by the time Obama ends a second term.
Those numbers stretch credulity. Job creation during the Clinton administration averaged 237,000 a month, but that was a historically hot job market, riding the tailwind of a historic expansion. This Administration faces a historic headwind, and it's hard to see how its current initiatives will enable the job growth it projects.
For example the HIRE Act might get us between 104,000 and 234,000 jobs, analysts say. We lost 8 million jobs lost since the end of 2007, and given growth of population and workforce size since then, we would need 11 million new jobs to get back to pre-downturn employment levels. That would require the equivalent of something like 50 or 100 HIRE Acts - a trillion-dollar intervention.
We won't get spending of that size for job creation, of course. We've spent $700 billion to bail out the financial system and $787 billion on the stimulus package, with famously tangential and disputed job creation effects. The trauma of deciding to spend another $940 billion on health care reform rules out going back to the well on that scale a fourth time. In fact, the political focus has already shifted from jobs and stimulus spending to the deficit.
Not incidentally, health care reform has raised the Medicare payroll tax for employers and well-paid employees, and the employer mandate imposes significant new per-employee costs on firms that the HIRE Act will only partly erase. Whatever you think of the justice or necessity of these new tax increases and costs as the price of covering the uninsured, there is no denying that they are driving hiring costs up, at least until such time as they drive insurance premiums down, which may not be anytime soon.
This complicates the outlook for job growth generally, as well as for official claims that health reform will create 4 million jobs and lower federal deficits by $138 billion. Among those who question the accounting is former CBO director Douglas Holtz-Eakin, now on the White House deficit commission.
But supposing for the sake of argument it's all true, would it be enough? Let's credit the White House projections that we gain back most of the jobs lost since the downturn by 2012, bringing unemployment down to 7.9%, without seriously aggravating the deficit. Even this scenario, rosey as it sounds, is still roughly an order of magnitude less job growth than we need to put under- and unemployed Americans back to work. I explain why, and suggest what Washington could realistically do about it, in Part 2 of this blog.