The Longest Sustained Labor Slump since the Great Depression Is Taking a Toll on Working Families Lee Price Economic Policy Institute March 10, 2004 http://www.epinet.org. First time since 1939 to go 35 months without recovering all lost job – jobs still down 1.8%
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The Longest Sustained Labor Slump since the Great Depression IsTaking a Toll on Working Families
Economic Policy Institute
March 10, 2004
First time since 1939 to go 35 months without recovering all lost job – jobs still down 1.8%
Actual “job gap” exceeds 7 million jobs
2.4 mn. jobs lost since March 2001
4.7 mn. jobs needed for 1.2% population growth
5.6% unemployment rate understates joblessness
Job shortage has caused unprecedented withdrawal from labor force
7.4% unemployment rate with inclusion of “missing labor force” of 2.8 million peopleDistress for those without jobs
Slowing pay gains – living standards now in decline lost job – jobs still down 1.8%
1.6% gain in last year slowest in 40 years
Slower than 1.9% inflation
Even lower gains for middle- and lower-paid
Working faster also contributes to productivity gains
Management says ‘We have to get the same work done with fewer people’ after firing or attrition
Acknowledged by both Chairman Greenspan and President’s CEADistress for those with jobs
from deficit increases
focus tax relief on low and middle income people
because they spend money faster
more timely and extensive state fiscal relief
accelerate federal spending on infrastructure
more generous and sustained UI extensions
Rein in deficits to stabilize future debt/GDP
Hike key Asian exchange rates to boost manufacturingHow could policy have done better?
"Missing“ Labor Force Effect
Percent of Labor Force
“Missing” labor force has larger effects on younger, Black and Hispanic workers
“A profit-friendly US labor market report Black and Hispanic workers
“There is no getting away from the fact that today’s US labor market report was weak….
“The report looks good for profits. We’d thought that the labor share of national income was in the process of bottoming out, but whether we’re talking outsourcing or just old-style downsizing, the effort by US business to pare costs (and extract productivity gains in services) continues apace.”JPMorgan “Daily Economic Briefing”March 5, 2004, 11:00 am EST
Chart from Paul Krugman column, NY Times, March 8, 2004
U.S. production of manufactured goods has fallen to 74% of demand for manufactured goods.
The U.S. trade deficit (and its correction) is largely driven by the deficit in manufacturing.
Correcting the $500+ bn. trade deficit
requires a major exchange rate adjustment and
would generate millions of manufacturing jobs.Many manufacturing jobs could be restoredwith effective trade and exchange rate policies
2 important new developments are driving increased imports of white collar work:
Revolutions in IT and telecom allow work shipped by electrons to be done anywhere.
Nations with millions of underemployed but well-educated people are rapidly joining the world market.Offshoring of U.S. white collar work presents whole new challenge
9/11 of white collar work:: after short term shock, has boosted overall demand through more security spending
Corporate accounting: set-backs to stock market did not hamper investment because credit available and cheap and cash flow strong
Iraq war: defense spending has also provided large boost to demand (Saddam statue fell 11 months ago)Problem is bad policy, not external events
Employers are unlikely to boost their hiring substantially until their confidence in strong medium term economic growth is restored.
Fiscal policy should boost jobs now but rein in future deficits to prevent explosive debt.
To revive manufacturing and restore external balance, Asian exchange rates must go up.Conclusion
Additional until their confidence in strong medium term economic growth is restored.
The population is growing 1.2% annually. until their confidence in strong medium term economic growth is restored.
If jobs had grown at that pace since March 2001, we would be adding 137,000 jobs a month.
It’s better to add jobs than lose them, but the labor market weakens every month that fewer than 137,000 new jobs are created.Jobs must grow, not just recover, to keep pace with working age population
34 Month Change in AggregateReal Wage and Salary Income
“One hypothesis is that some of the increase represents a temporary rise in the level of productivity reflecting a view that an unusual amount of caution is leading businesses to press workers and facilities to a greater degree than can be sustained over the longer haul.”
Federal Reserve Chairman Greenspan, November 6, 2003
“Another possibility is that firms somehow induced extra work effort for a time because they were hesitant to hire new workers until they were more confident that increases in final demand would persist.”
Economic Report of the President 2004, page 47
Change in GDP per $ of deficit change: technology improves
Federal UI benefits 1.73
Accelerate 10% bracket 1.34
Child credit rebate 1.04
Marriage penalty relief 0.74
Accelerate tax rate reductions 0.59
Dividend tax reduction 0.09
Source: Mark Zandi, Regional Financial Review, February 2003Bush deficit increases provided low “bang for the buck” stimulus
Congress created the President’s Council of Economic Advisers (and JEC) in the Employment Act of 1946 during a job slump caused by war demobilization.
The first statutory requirement of the Economic Report of the President is “setting forth the current and foreseeable trends in employment.” The report is also required to provide policy recommendations for achieving full employment.President should be held accountable for job forecasts and outcomes