The harsh reality of a jobless recovery

The economy is, as always, the most critical issue in the upcoming presi- dential election: "It's the economy, stupid." If that point wasn't clear to the first President Bush, it certainly is clear to the second. The White House claims that Bush's tax cuts have helped put money in people's wallets and that 308,000 jobs were created in March. Democratic critics argue that 2.4 million jobs have been lost since Bush took office and that the national deficit has ballooned. Yet what relevance do these numbers have in our everyday lives?

Pundits from both sides try to make the statistics seem significant. Yet they do so in ways that reflect their political bias. Depending upon what statistics one looks at, the economy can be seen as improving or sinking. Not that economic statistics even in the best of times are easily read or understood, but the statistics today seem completely contradictory. They're harder to read than tea leaves. How is it that corporate profits are dramatically up but hiring flat to down? How does President Bush's tax cut really affect the economy? How many jobs does outsourcing actually affect per year? How is it that there are so many different versions of the truth?

Economics has been likened to driving a car by looking through a cloudy rear view mirror. You can only know what has happened behind you and the events of the present and even near past are going by too quickly to see. No one can predict the future. No one can adequately make sense of the present, at least in an unbiased manner. No one can say with a great deal of certainty how the economy is affecting you, dear Boise Weekly reader. But the truth of how the economy is doing is out there, somewhere.

It is perhaps easiest to think of the economy as a patient seeing a doctor. In trying to assess the patient's health, the doctor has to look at the patient's various body parts and systems. This is where bias comes in. Determining that the patient's heartbeat is strong does nothing to diagnose the pain in the patient's ankle. Checking the patient's vision doesn't help if the patient has bronchitis. Likewise, the state of the economy depends on what statistics are used. It is easy to say that everything is great if one only looks at certain statistics and ignores others. Just as a doctor must always assess certain factors at a check-up—weight, pulse, general physical appearance—certain factors must be discussed when assessing the economy's health. The three most important statistics from an economic perspective are the gross domestic product, the inflation rate and the unemployment rate.


The gross domestic product (GDP) is the total output of the nation's economy measured by the final purchase price of all goods and services produced in that country. The United States' GDP is approximately $11 trillion. It has been growing at a healthy clip, which is good. In the last quarter, the GDP went up by 4.1 percent, considered to be a very healthy amount. This has little meaning, though. GDP per capita is more significant; it can be viewed as a rough indicator of a nation's prosperity. In 2002, the Bureau of Labor Statistics estimated per capita GDP in the U.S. at $34,400. This means if all of the country's goods and services were purchased and the profits spread out evenly among all Americans, we'd each have $34,400. In Canada, it was $29,100 that year and in Britain, $24,800. The world average GDP per capita in 2002 was $7,900. If you limit the sharing of GDP to employed persons, it paints a general picture of a country's overall productivity. In 2002, this figure was $71,600 for the U.S., reflecting the fact that nearly half of the country's population is employed.

The inflation rate is the percentage rate of increase in the price level of goods and services; it's generally thought to be a bad thing. Prices have been relatively stable over the past two years, and the Federal Reserve even expressed concerns about possible deflation. However, consumer prices jumped much more sharply than expected in March, driven particularly by increases for gasoline. In a press release on April 14, the Bureau of Labor Statistics (BLS) reported: "For the first three months of 2004, consumer prices increased at a seasonally adjusted annual rate (SAAR) of 5.1 percent. This compares with an increase of 1.9 percent for all of 2003. The index for energy, which rose 6.9 percent in 2003, accelerated in the first quarter of 2004, advancing at a 38.6 percent SAAR and accounting for about half of the first quarter advance in the [consumer price index]."

Rounding out the basic economic indicators is the rate of unemployment. This rate represents the number of unemployed as a percent of the labor force. The BLS estimates the nation's unemployment rate, as of last month, at 5.7 percent. Since this is the most unhealthy of the three statistics, it is also the one most discussed. Politicians and pundits representing the full range of the political spectrum discuss the unemployment rate. Somehow, everyone spins it to argue for their particular side. They are able to do so because the unemployment rate is rather complicated and there are numerous problems inherent in how the government derives the number.


The official definition of unemployment contains several unavoidable complications. A person who loses a 40-hour-per-week job, but works for one hour mowing a lawn for pay is classified as employed. A person who simply expresses interest in having a job is classified as unemployed. "Discouraged workers" who have lost a job, but do not make an effort to find a new job in a given month are not classified as unemployed, or even as being in the labor force. Both possibilities mean the announced unemployment rate is not as definitive as it might sound.

Adding to this confusion are the two different employment surveys that are used. The first survey asks businesses how many workers they employ; this one yields the oft-repeated number of 2.4 million jobs lost in the last three years. The second survey is the household survey. It asks individuals whether they have a job. This survey says that the number of jobs has actually risen by 450,000 in the last three years. Although 450,000 is still a very small amount of job creation, it sounds much more sellable than the first survey's results. What both numbers fail to mention is that the U.S. population has risen by about three million people per year (according to the Census Bureau), so new jobs must be created just to keep present levels of employment.

These ambiguities leave room for every politician, economist and gas station attendant to use the same 5.7 percent unemployment rate statistic to paint the economy as being simultaneously at the brink of recovery and about to keel over dead. Republicans who are trying to be optimistic for President Bush's sake are saying the unemployment rate is down from 5.8 percent only two months ago. They also point out that in March, 308,000 jobs were added to the economy—the biggest improvement in four years.

That increase in jobs doesn't mean everything is now peachy. The number of Americans filing first-time claims for jobless benefits rose by a larger than expected amount during the first full week of April. The Labor Department said initial claims grew by 30,000, to a seasonally adjusted level of 360,000. Analysts were looking for a rise of only 7,000. This indicates the number of unemployed is still quite high, despite the dramatic number of jobs created during March.


In Idaho, the 2002 American Community Survey, conducted by the Census Bureau estimated that of the nearly million people aged 16 and over, 6.8 percent were unemployed. Due to different reporting methods, the Bureau of Labor Statistics estimated a lower number of unemployed in Idaho—5.8 percent—for that same year. For 2003, the BLS estimated the unemployment rate at 5.4 percent. Its most recent estimate of Idaho's unemployment rate show an increase of 0.1 percent between January and February of this year, to 6.1 percent in February.

In 2002, the Census Bureau estimated that 328,689 Idahoans were deemed "not in the labor force." That's a third of the population aged 16 and over. Some of that group would be in school. Others would be people, like stay at home moms, who choose not to work. Yet it is likely that a large percentage of that population are those who are not employed and have dropped out of the labor force, thus contributing to the drop in the unemployment rate. Democrats claim that the numbers of discouraged workers who no longer even attempt to find work and those who are underemployed are far higher than the number of unemployed. While this may be true, the exact figures are nearly impossible to prove, as there is no effective way to count the number of people who are unemployed but not seeking work.


Although not everyone has a job, most people do. President Bush claims that reductions in corporate taxes are helping revive corporate profits, leading to the increase in new jobs last month. However, the government's own figures don't bear this out. Figures from the Bureau of Economic Analysis show that corporate profits are indeed growing at a phenomenal pace. Corporate profits grew from $635 billion in the first quarter of 2001 to exactly $1.0 trillion in the fourth quarter of 2003 (the latest quarter of available data). This accounts for the rise in the stock market over the last year. Since the last expansion ended in the first quarter of 2001, corporate profits in the United States have expanded by 57.5 percent. While this sounds large, a historical comparison shows just how remarkable this rate actually is. During the last previous eight business cycles (dating back to 1948), in the eleven quarters after the cycle's peak, profits rose by an average of 14 percent and never more than 21 percent. Had current corporate profits grown at the average pace of the past, they would have been $278 billion lower.

Yet this pace isn't sustainable. The Federal Reserve will likely increase interest rates this summer in order to slow this growth to a more reasonable level. Furthermore, the increase in corporate profits has not meant that wages have grown at a similar rate. Total labor compensation increased by only 1.5 percent last year. The Economic Policy Institute, a liberal think tank, cites that this increase is far below the average 8.8 percent gain in past business cycles. What this means is that soaring corporate profits do not trickle down to workers. A recent paper by Lee Price of the Economic Policy Institute states: "This imbalance is potentially bad news for the economy. Labor compensation is more likely to be converted to demand for domestic production and fuel a sustained growth spiral. In contrast, when income goes to corporate profits, a larger share is likely to be spent abroad (on imports or investments abroad) or to pay down debt."

The increase in corporate profits also did not greatly improve the situation for Idaho workers. According to the Quarterly Census of Employment and Wages, the average annual wages for all Idaho workers in 2002 was $28,163, about 25 percent lower than the nation's average of $36,764. Also lower was the percent increase from the previous year. Idaho's average was up only 1.4 percent, compared with 1.5 percent nationally. For the Boise metropolitan area, the average annual wage in 2002 was $31,955. Though higher than for the state as a whole, the increase in annual wages was lower. Employed Boiseans saw their wages go up an average of only 1 percent in 2002.


President Bush has claimed that his tax cuts are spurring the current economic growth and recent job creation. The Internal Revenue Service says the average tax refund increased 5 percent this year to $2,090, and Bush claims that it is pumping more money into the economy. On April 15, he called on Congress to make the tax cuts permanent. The President argues that by "putting money in people's pockets" (a phrase frequently heard from President Bush) the tax cuts stimulated increased demand. The loss of jobs would have been much larger he claims, if it had not been for the tax cuts. Democrats, on the other hand, argue that the tax breaks were not an efficient method of creating jobs.

For now, the full effect of Bush's tax cuts remains to be seen. Prior to the surge in new job creation in March, the number of new jobs each month was far lower than the Bush administration projected. The February 2004 job gain of 21,000, for instance, was a significant 285,000 jobs below the projected monthly increase. Only in March did the number of new jobs meet the administration's projections. This could be the beginning of a new trend, and the tax refunds that many people will receive this spring could, as Bush hopes, fuel increased demand for products and thus more jobs.

Until then, the Bush administration focuses on the country's strong and improving productivity levels. In a February 2003 paper titled "Strengthening America's Economy: The President's Jobs and Growth Proposals," the Council of Economic Advisers wrote: "The long-run economic outlook remains solid—with low inflation, low interest rates, and strong productivity gains that suggest that the post-1995 acceleration in productivity will continue to raise real incomes and living standards."

The problem is that productivity gains do not equate with higher wages, nor more jobs. One often-cited reason for this is that companies are not hiring new workers, but rather demanding more from the ones they currently have. Federal Reserve Chairman Alan Greenspan told Congress in July of last year that productivity gains in a lackluster economy is unusual. "To some extent, companies under pressure to cut costs in an environment of still-tepid sales growth and an uncertain economic outlook might be expected to search aggressively for ways to employ resources more efficiently," Greenspan said. "That they have succeeded, in general, over a number of quarters suggests that a prior accumulation of inefficiencies was available to be eliminated," he added.

That is one way of looking at it. According to a report from the Project on Technology and the Workplace at the Century Foundation, an enormous gap has opened between the growth of employee productivity—measured by the value of employee output per hour—and the growth of employee compensation, measured by the value of hourly wages and benefits. Simon Head, director of the project, writes: "Even in the technology-driven boom of 1995 to 2000, the average annual growth of employee compensation was a dismal 0.7 percent, while worker productivity grew more than three times faster at 2.48 percent. The latest data show no narrowing of the gap." Much of the data about this is anecdotal; many people say that they are working harder than before and feel pressured to produce more so that they don't get laid off. Several studies argue that mandatory overtime is becoming the norm in many industries. Such suspicions are not easily proved through hard numbers, but it is clear that many American workers worry about job security and are willing to work harder, for less, if necessary to keep their jobs. In a vicious cycle, when workers increase productivity, there is less incentive to hire new workers.


One thing has remained constant amid fluctuating economic forecasts: Americans like to shop. The 2003 report from the Council of Economic Advisers says that household spending has played a key role in the recovery. "Spending has been supported by the continued growth of real personal income, which has been more resilient than in previous business cycles, as a result of both the 2001 tax cut and supportive monetary policy. Low interest rates have contributed to special financing incentives for automobile purchases and low mortgage interest rates." This has been particularly true in Idaho, where the strong housing market has been a continual source of jobs and tax revenue.

However, the record low interest rates that enable people to make such purchases have also caused people to go into debt. This has been particularly true for poor families. In a report from last October, the National Center for Children in Poverty cited an alarmingly high percentage of debt among poor families. "In families with total family income of less than 100 percent of the official poverty threshold, the percentage of families with debt has oscillated between 35 and 40 percent over the 1984 to 2001 period. In families with income between 100 and 200 percent of the official poverty threshold, the percentage with debts has fluctuated between 51 and 60 percent." The current federal poverty level for a family of four is $18,400 per year. Between 1984 and 2001, among those families with debt, the average amount of that debt doubled. "The median debt in the poorest families rose from just over $1,700 in 1984 to nearly $4,200 in 1994, before falling back to $3,000 in 2001." Among the nation's poorest families, 67 percent had total family debt equal to or greater than 40 percent of total family income.

Debt has also affected the booming housing market. According to figures from the Federal Deposit Insurance Corporation (FDIC), Idaho continued to report some of the nation's highest bankruptcy and foreclosure rates. In its 2004 state profiles, the FDIC reports that Idaho's personal bankruptcy rate rose 9 percent year-over-year as of third quarter 2003; the state filing rate was 40 percent higher than the national average. Bankruptcy trends contributed to an above-average foreclosure start rate in the state. The third quarter 2003 Idaho foreclosure start rate, according to the Mortgage Bankers Association, was 0.38 percent of all mortgages, down from the third quarter 2002 level of 0.41 percent. The report further states: "Underscoring the state's high bankruptcy and foreclosure rates, Idaho's home price appreciation trailed the nation. According to the Office of Federal Housing Enterprise Oversight, Idaho ranked 35th out of the 50 states and the District of Columbia in home price appreciation as of third quarter 2003, with a one-year appreciation rate of 3.89 percent."


The economy is slowly recovering, as measured in terms of GDP and recent hiring increases. Yet productivity increases have not led to more jobs. Unemployment still prevents many Americans from being optimistic about the future, no matter how much money they receive from their tax refund. The Bush administration should abandon its insistence that every problem can be solved through tax giveaways and try other solutions.

Tax giveaways try to cure the problem through indirect means—like giving a patient a back massage in order to stop his leg from bleeding. Liberal economist Paul Krugman recently pointed out the irony of Bush's solutions to our economic ills. "According to the Congressional Budget Office, half of this year's $400 billion budget deficit is due to Bush tax cuts," writes Krugman. "Now $200 billion is a lot of money; it is equivalent to the salaries of four million average workers. Even the administration doesn't claim its policies have created four million jobs. Surely some other policy—aid to state and local governments, tax breaks for the poor and middle class rather than the rich, maybe even W.P.A.-style public works—would have been more successful at getting the country back to work."

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