Frank de Libero on The Jobs Shortfall
We’ve been having issues with blogger lately. Don’t ask… they’re pretty hard to describe. Frank de Libero just sent me a post… he’s been trying and trying to log in to put it up himself but what can you do? Anyway, this is his post. Apologies if I messed it up…
In spite of repeated assertions by the administration, media and related that the jobs situation is strong, empirically the big picture is not confirmatory. The following uses working-age population trends to show there is currently between a 5 million and 12.3 million jobs shortfall.
But first I want to be clear about my motives for this and other posts. I believe government can make a difference, so I am more often aligned with Democrats than Republicans. However, my posts are not meant to be partisan. They are in opposition to deception, untruths, disinformation and propaganda, regardless of the source. My goal is to help promote clarity through numbers.
Others have also argued that there is a significant jobs deficit (e.g., CBPP referenced below). These are demonstrated by comparing job growth or time to job recovery in past business cycles with the 2001 recession. The following chart shows the 2001 recession’s unusually long lag till the jobs recovery.
Monthly BLS payroll data goes back to January 1948. From then till now, there have been 10 recessions. The average time between the end of a recession and the jobs recovery for the first nine business cycles is one month, with a standard deviation of 1.12 months. The 2001 recession is almost 19 standard deviations away from that average. Unless there had been hugely dramatic job growth after its 21 month lag, we would not expect the present jobs situation to be salutary.
We can use the JPT (see previous post) to evaluate post-recovery job creation. The last jobs recession ended August 2003. The mean JPT since August 2003 is one, which is also the long-term average JPT. Thus job growth since recovery has not been dramatic at all, just average. Given this evidence, a jobs shortfall is expected. The question then is what is its magnitude?
From 1948 to the present we have had wars, recessions, major technological changes, increased immigration, more women and fewer men in the work force, social disruptions, increased foreign competition, deregulation, declining union membership, a shift from manufacturing to service industries, increased levels of education, and globalization. Through all of that and whatever was missed, the working age population correlates strongly (r>0.99) with non-farm civilian job growth. It is most likely the major driver of job growth. Taking advantage of available data and this tight relationship, we estimate the range of jobs lost relative to the nation’s potential for job creation.
To estimate the low end of the shortfall, we fit the entire monthly population data, ages 18-64, to the payroll data, from January 1948 through March 2007, and then look at the end-point difference. One reason this estimate is low is because not everybody stops work at age 65. Another is we have fitted all the data, including the extended downturn which is the focus of this post. From the following chart we see the shortfall is at least 5 million jobs.
To estimate a cap on the jobs shortfall, working-age is redefined as all ages from 16-years old and up. This is what the Bureau of Labor Statistics (BLS) often refers to as working age. This alternate population trend is fitted to the 20-year employment interval, January 1981 – December 2000. As the next chart shows, the two trend lines track very closely in that interval.
Following the population trend beyond the 20-year interval to March 2007, gives a jobs shortfall of 12.3 million, which is viewed as an upper estimate. Thus the range for the current shortfall is between 5 and 12.3 million jobs.
As confirmation and a comparison, the Center for Budget and Policy Priorities (CBPP) using different methodology estimated the shortfall at 10 million jobs. That is within the 5 to 12.3 million range above.
Current job levels fall short of historical employment-population trends. And that gap has consequences. Rounding numbers for easy top-of-the-head calculations, assume a 10 million jobs shortfall. For perspective, that is more than 5% of the ages 18-64 population. Further, assume average individual annual income to be $30,000. Totaled, that is a $300 billion potential loss to the economy. If the average effective federal tax rate is 10%, then that is a $30 billion loss in annual tax revenue. This does not take into account Social Security contributions, state and local tax revenues, multiplier effects, or the long-term consequences of changes to the dependency ratio, the ratio of non-workers to workers. Nor does it take into account the kinds of jobs created or the impact on 10 million people’s lives.
Again, this post was by Frank de Libero, not cactus. Blogger has been causing us issues. Apologies.