Jobs, wages and the Goldilocks economy

In the business pages of newspapers last month, there was cautious talk of a Goldilocks economy: ‘…neither too hot nor too cold, but just right for steady growth.’ (1) The Bureau of Labor Statistics had just released employment figures for February, showing an ‘unusually strong’ gain of 262,000 jobs, according to a New York Times story. (2) Another story quoted the chief economist at Banc of America Securities that the job growth shows ‘the U.S. economy is growing solidly.’ (2a).

If the Wall Street analysts were really concerned about jobs, as opposed to corporate profits, they wouldn’t be so optimistic.

It takes about 150,000 new jobs per month just to keep up with the growing population (3). By this yardstick, February’s gain (later revised downward to 243,000) was barely respectable. It fell far short of the 300,000 jobs per month that would be typical for an economic recovery.(4) And in March, only 110,000 jobs were added,(5) pulling the monthly average for the first quarter of 2005 down to 159,000 jobs — even weaker than the 181,000/month average last year.

There are other disturbing trends.

Long-term unemployment has remained at unusually high levels. During 2004, more than 3.5 million workers exhausted their 6-month unemployment benefits without finding new jobs — the highest level (adjusting for population growth) since the Labor Department began keeping records.(4) And so far in 2005, the number of long-term unemployed is actually increasing. (5 table A7).

Even with a college education, laid-off workers are having a hard time finding new jobs. In February alone, ‘373,000 people with college degrees quit job hunting and dropped out of the labor force,’ according to a LA Times story. (8)

The official unemployment rate has been between 5.2% and 5.4% since last November. But that is deceptively low. Many jobless workers have giving up looking for work, and are not counted as unemployed. Taking that into account, the real unemployment rate is 7.0%. (6)

African American workers have been particularly hard hit in this recession, with many, particularly Black men, being forced out of the labor force from lack of jobs. Adjusting for those who have given up looking for work, my estimate of the unemployment rate for African American men is at least 13%, and could be as high as 19%, compared with 5.5% for whites. (7). And while employment is improving (very slowly) for white men, the real unemployment rate for African American men has worsened by 0.9% in the last three months, on top of 1.1% in 2004. (7) The real unemployment rate for African American women has been hovering around 12% for the past 15 months.
Because of the weak labor market, real wages (adjusted for inflation) fell during 2004, (4) and have continued to fall this year. (9) Most workers, except the very highest paid, have lost ground, and wage inequality has increased. (4).

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Some Wall Street pundits think the economy is ‘just right,’ not despite the weak job outlook, but because of it. Reacting to February’s employment report, the New York Times reported, ‘Investors were heartened by the absence of wage growth.’ And the AP reports that the ‘weaker-than-expected’ job creation in March ‘gave investors hope that economic growth would remain manageable.'(10) Slow job growth means lots of workers competing for jobs, which means low wages, which means higher profits. According to a report published by the Economic Policy Institute and Center for Budget and Policy Priorities, ‘The economic growth that has occurred [during this recovery] has flowed to corporate profits to a degree unseen in the post-World War II period.’ (4).

The increase in corporate profits at the expense of workers’ living standards is not simply the result of blind economic forces. Administration policies have played a significant role. Building on the 1990’s bipartisan welfare ‘reform,’ Bush policies include denying unemployment benefits after six months, reducing other safety-net programs, attacking unions, attacking Social Security, and forcing working families into debt slavery through the new bankruptcy bill. Policies also include starving government funding at all levels, preventing the public sector from picking up the slack in the job market.

The answer to high unemployment and the hardships it brings lies in a united struggle to change these policies.

Economics (at) cpusa.org

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Unemployed workers are giving up looking for work because they can’t find jobs. This recession has an unprecedented number of

(1). Loren Steffy, ‘In our current economy, we shouldn’t forget history’ Houston Chronicle, March 8, 2005. Typical of many similar articles at that time.

(2) Edmund L. Andrews and Eduardo Porter, As Businesses Step Up Spending, Some See a Just-Right Economy NY Times, March 8, 2005 (reprinted under a different title in Arizona Republic March 13).

(2a) Eduardo Porto, ‘Job Growth Rises to delight of Investors.’ NYT March 5, 2005.

(3) In the last year, the BLS household survey shows an increase of 224,000 per month in the ‘civilian non-institutional population 16 and older’ over the last year. Multiply by the labor force participation rate of 65.8% yields 147,282 jobs per month. (2a) uses the figure 140,000 per month, which may be more appropriate in relation to establishment data (which we are using here) for technical reasons I cannot recall.

(4) Sylvia Allegretto, Jared Bernstein and Isaac Shapiro, ‘The lukewarm 2004 labor market’, EPI/CBPP, 2/16/2005.

(5) Bureau of Labor Statistics, ‘The Employment Situation: March 2005’, April 1 2005.

(6) population (16+) 225236 (household survey 3/2005)
labor force participation rate, 1997-2001: 67.1% (EPI datazone)
Calculated labor force: 151133
Employed: 140501 (hhld survey)
Calculated unemployed: 10632
Calculated unemployment rate: 7.035%

(7) My estimate, based on BLS stats. To get ‘real’ unemployment for both white and black men, I calculate the true labor force assuming the LFPR for black men, then for white men from 2000Q1.

(8) Nicholas Riccardi, Long Term Jobless Find a Degree just Iosn’t Working, LA Times, 3/11/2005. Referring to the Labor Department monthly report.

(9) EPI, Jobs Picture, April 1, 2005.

(10) ‘Wall ST. retreats on mixed data,’ AP dispatch in CT Post, April 2, 2005.

(11) Jobs Byte, March 4, 2005, www.cepr.net. Baker does not use the term Goldilocks economy.