Newsletter by Oregon Senator Doug Whitsett 4/9/14

The national employment report for March was both encouraging and misleading.

On the positive side, the rate of unemployment held steady at 6.7 percent. The report stated that nearly 200 thousand net new jobs had been created in the last month.

Are happy days here again? Perhaps we should delay the start of the celebration.

On the negative side, the rate of employment remains at only about 59 percent. The employment rate is the ratio of those who are working as a share of the total population of potential workers. This means that more than two of every five potential employees currently do not have a job.

Under normal economic conditions, the rate of employment has historically increased as the calculated rate of unemployment decreased. However, this inverse relationship has not been true since the economic crash of 2008 that was followed by unprecedented changes in government policies.

In 2007 US unemployment stood at 4.6 percent and 62.2 percent of the American potential workforce was employed. At the depth of the great recession in 2009, the unemployment was at 10 percent and the labor participation rate had dropped to a dismal 59.4 percent. Five years later the calculated unemployment rate has fallen to 6.7 percent. However, at the same time the percentage of the potential workforce with a job has actually been reduced to 58.9 percent, and now stands at 3.3 percent LESS THAN pre-recession levels.

To put the nation’s employment picture into true perspective, both the employment and unemployment rates must be considered together. Since 2009, the calculated rate of unemployment has improved about 3.3 percent. During the same period the rate of employment, the percentage of the potential workforce that are employed, has declined by 3.3 percent.

It appears that little has changed in the overall percentage of the workforce that has a job since the depths of the great recession. When we combine the 6.7 percent of the workforce who report being unemployed with the 3.3 percent who have dropped out of the workforce, it appears that about the same 10 percent of potential workers are currently without a job.

Historically, our national rate of growth in Gross Domestic Product is directly tied to the rate of employment. That growth in GDP has averaged only an anemic 2 percent since 2009. This prolonged stagnation in GDP growth may be best explained by our national lack of workforce participation.

Moreover, average household income is also directly related to the rate of employment. Average US household income stood at a little more than $49 thousand in 2007. Seven years later, it stands at a little more than $50 thousand. Corrected for inflation, average household income has actually decreased by about 8 percent during the past seven years. This dismal performance may also be best related to the lower percentage of potential workers who are employed.

Economists have attributed the lack of workforce participation to several factors.

Our “baby boomer” population is getting older. When older workers lose their jobs it may be much harder for them to find new employment. These discouraged workers may be more likely to drop out of the job market. Also, as the average age of the workforce increase the number that retire early may also increase.

The improvement in labor efficiency that is inherent in the development of electronic technologies may be reducing the number of available employment opportunities. The reduced consumer spending that resulted from negative financial experiences during the great recession may also be reducing demand for job placement. Moreover, potential employees may be unwilling or unable to move to the locations where the preponderance of new jobs are being created.

However, in my opinion, government policies that create disincentives to work are the greatest part of the employment problem. The rapid expansion of government food, housing, cash, disability, student loan and medical entitlements has made work an unnecessary commodity for too many families. To be clear, social security, Medicare, and the first 27 weeks of unemployment insurance benefits are not entitlements. Those are benefits that have been bought and paid for through payroll deductions.

The onset of the taxes and work restrictions inherent in the Affordable Care Act are a newer but major factor in lower national growth in GDP. The disincentive to produce that inherently results from increasing taxes always suppresses growth in GDP. The myriad hidden taxes in Obama Care are substantial and damaging. The ACA insurance requirements also creates a huge disincentive for an employer to hire more than 50 employees or to allow their employees to work more than 29 hours per week. These and other features of Obama Care will continue to depress GDP growth for the foreseeable future.

The government entitlement payments have become so pervasive and generous that the often exceed a potential employee’s ability to earn a living. There is something fundamentally wrong with a system that requires a potential employee to give up more income than they are able to earn in order to accept gainful employment.

University of Chicago economist Casey Mulligan’s research documents innumerable cases where starting to work, or taking a better paying job, actually causes families to lose more in government entitlements than the potential increase in income from taking a job. The disincentive is so pervasive that the potential worker experiences a “tax rate” of more than 100 percent for attempting to break the government welfare bond by starting gainful employment.

The continued downward pressure on national GDP is three-fold. First, the fewer people who are gainfully employed the slower our national economic growth. Second, the more people who are on the public dole the greater the tax burden necessary to impose on those who are willing to work for a living. Third, the incredible cost of all these entitlements causes the federal government to borrow more than four of every ten dollars that it is spending, causing significant restriction in the credit markets that enable private sector growth.

The Congressional Budget Office recently released a rather ominous long term economic outlook. They are predicting a prolonged period of very sluggish economic growth. The CBO says that the growth potential is “much slower than the average since 1980” and that the growth after 2017 “will diminish to a pace that is well below the average seen over the past several decades”. It mentions that “changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output …..lower than they would be otherwise”. I believe the CBO stops short of saying what really needs to be said. This country needs new leadership that values a workforce that is gainfully employed and that will create strong incentives for families to become self-sufficient by returning to the workforce. Our exceptional work ethic created a productive society made the United States the strongest and most revered nation on earth. It is time to take whatever steps are necessary to return to that greatness.

Please remember, if we do not stand up for rural Oregon no one will.

Best Regards,

Doug
 

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