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What Private Sector Expansion? : We Need a Massive Federal Jobs Program Now! Ron Baiman Chicago Political Economy Group www.cpegonline.org June 30, 2010 Executive Summary • US employment and job growth data from the last three decades suggests that under the most “highly optimistic” scenario it will take about 31 years to get back to the employment levels of late 2007 (p. 14). • This “highly optimistic” scenario is highly unlikely as the longest continuous expansion on record is only 10 years (p. 14). • Under all other: “optimistic” (p. 11), “pessimistic” (p. 18), and “highly pessimistic” (p. 21), scenarios “real” unemployment rates that include discouraged and involuntary part-time workers increase from 16.9% (May 2010) to 23.8%, 26.7%, and 29.5%, respectively, by May 2020. • Recent (2010) private sector job growth has declined sharply, and as federal stimulus and Census work winds down more state and local government layoffs appear imminent (p. 23). • We can’t wait for a private sector driven economic recovery. We need a massive, federally funded, living wage, jobs program now (p. 10) ! 2 May 2010 Employment Conditions: The Worst Since the Great Depression • Employment in May, 2010 was 139.4 million, over 7 million less than the 146.5 million before the Great Recession in November, 2007 (all employment data in this section are from the CPS “household survey” conducted by the BLS). • Over this period the official Unemployment Rate has more than doubled from 4.7% to 9.7%, as the number of officially unemployed has climbed from 7.3 million to 15 million, with almost half unemployed for over 6 months - the largest share since data has been collected. 3 Percent of Civilian Labor Force Unemployed for 15 Weeks or More (BLS – Seasonalized) 4 Young People Need Jobs • Average annual 2008-2010 (May to May) over 16 Civilian Non-institutionalized Population growth in the U.S. was 2.047 million. • The average pre-Great Recession June 2006 to May 2007 “Labor Force Participation Rate” was 62.21%. • Projecting the most recent population growth forward at the pre-recession labor force participation rates gives us an average of 113,000 (66.21% of 2.047 million divided by 12) new entrants to the Labor Force every Month. 5 Employment Growth Over the Last Decade Over the last decade (May 2000 to May 2010) employment growth averaged 555,000 a year or about 46,000 a month: Figure 1: Annual Employment Change 2000 to 2010 4,000 3,000 2,000 0 Average 2010 -2,000 2009 2008 2007 2006 2005 2004 2003 2002 2001 -1,000 2000 Thousands Employed 1,000 -3,000 -4,000 -5,000 -6,000 -7,000 Year (May to May) Source: BLS CPS Employment Level 6 Using 2000-2010 Employment Growth to Estimate “Unadjusted Official” Unemployment Rates • If we assume employment growth of 46,000 a month (or 555,000 a year) and Labor Force growth of 113,000 a month (or 1.355 million an year) we get increasing “unadjusted official” future unemployment rates • These are “unadjusted” unemployment rates as they don’t adjust for more “discouraged workers” dropping out of the Labor Force. • They are also “official” unemployment rates because they don’t take into account involuntary part-timer and pre-existing (pre-recession) discouraged workers. 7 Estimating “Real” Unemployment Rates from “Unadjusted Official” Rates • Official U3 unemployment rates do not take into account persons without a job who have looked for work within the last year but not within the last 30 days (people who are “marginally attached” to the labor force) and those who have a part-time job but would like a full-time job (involuntary parttime for economic reasons.) • The “marginally attached” and “involuntary part-timers for economic reasons” are both included in BLS U6 unemployment rates that we will call “real” unemployment rates. • We will estimate “real” U6 unemployment rates by holding the U6/U3 ratio constant at its most recent pre-recession annual value of 1.74. This ratio has ranged from 1.63 to 1.86 since 8 1994. Optimistic Scenario • Assuming average (May to May) 2000 to 2010 Employment growth in the future is “optimistic” as our economy has become weaker since the beginning of the 2008 Great Recession: • We no longer have a “housing bubble.” • We no longer have a rapidly growing financial sector. • Since the 2001 recession the US has lost 42,400 factories including 36% of plants employing more than 1000 workers (which declined from 1,479 to 947) and 38% of factories employing between 500 and 999 workers which declined from 3,198 to 1,972. An additional 90,000 factories are now at risk of going out of business.1 When plants close they cannot reemploy workers even if demand picks up. 9 What will Propel a Private Sector Driven Economic Expansion? • There are four major sources of economic demand: consumption, investment, government spending, and exports minus imports. • As households (that are not experiencing unemployment) are currently saving more of their income, increased household consumption is not likely to drive an economic expansion. • But with consumption demand sluggish at best and a persistent and massive trade deficit, its hard to see what would propel increased real (employment generating) private sector investment in the U.S. • At this point, it appears that only a very large scale, permanent, living wage, federal funded jobs program (requiring large increases in government spending), that would complemented by major changes in trade policy leading to reduced imports and increased exports) will be able to get our economy started.2 • This is not “pie in the sky,” a modest financial transactions tax could raise about $1 Trillion and finance most if not all of 20 million new 10 jobs at today’s median wages.3 Figure 2: Optimistic Scenario - Future Unemployment Rates Assuming 2000-2010 Average Employment Growth (Employment and Labor Force data in thousands) Employment New Employment 139,420 139,975 140,530 141,085 141,640 142,195 142,750 143,305 143,860 144,415 144,970 555 555 555 555 555 555 555 555 555 555 Labor Force 154,393 155,748 157,103 158,458 159,813 161,168 162,523 163,878 165,233 166,588 167,943 New Labor Force Entrants 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 "Unadjusted Official" U3 Unemployment Rate 4.4% 5.4% 9.4% 9.7% 10.1% 10.5% 11.0% 11.4% 11.8% 12.2% 12.6% 12.9% 13.3% 13.7% "Real" U6 Unemployment Rate 8.2% 8.8% 13.2% 16.9% 17.6% 18.4% 19.1% 19.8% 20.5% 21.2% 21.8% 22.5% 23.2% 23.8% Ratio U6/U3 1.86 1.62 1.40 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 Year (May) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 11 Figure 3: Optimistic Scenario - Projected Unemployment Rates Assuming a Revival of 2000 -2010 Emp Growth for a Decade 25.0% Unemployment Rate 20.0% "Unadjusted Of f icial" U3 Unemployment Rate "Real" U6 Unemployment Rate 15.0% 10.0% 5.0% 0.0% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Year (May) Source: Calculations from BLS data, see Figure 2 12 Employment Growth During the Last Economic Expansion If we just look at years of employment expansion during the last decade from 2003 to 2008 (May to May), we get employment growth of 1,581 thousand jobs a year, or about 132,000 a month. Figure 4: Annual Employment Change 2003 to 2008 3,000 Thousands Employed 2,500 2,000 1,500 1,000 500 0 Average 2008 2007 2006 2005 2004 2003 Year (May to May) Source: BLS CPS Em ploym ent Level 13 Highly Optimistic Scenario: Using 2003-2008 Employment Growth to Project Future Employment Growth • If we assume monthly employment growth of 132,000 and Labor Force growth of 113,000 we get a net employment increase of about 19,000 jobs a month. • At this rate making up for the 7.1 million jobs lost since November 2007 and employing new labor force entrants would take 376 months (7.1 million divided by 19,000) or 31 years. • This is “highly optimistic” as the longest period of continuous U.S. economic expansion on record is only 10 years (March 1991 to November 2001). 14 Figure 5: Highly Optimistic Scenario - Future Unemployment Rates Assuming 2003 to 2008 Average Employment Growth (Employment and Labor Force Data in Thousands) Employment 139,420 141,001 142,581 144,162 145,743 147,323 148,904 150,485 152,065 153,646 155,227 New Employment 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 Labor Force 154,393 155,748 157,103 158,458 159,813 161,168 162,523 163,878 165,233 166,588 167,943 New Labor Force Entrants "Unadjusted Official" Unemployment Rate "Real" U6 Unemployment Rate Ratio U6/U3 Year (May) 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 4.4% 5.4% 9.4% 9.7% 9.5% 9.2% 9.0% 8.8% 8.6% 8.4% 8.2% 8.0% 7.8% 7.6% 8.2% 8.8% 13.2% 16.9% 16.5% 16.1% 15.7% 15.3% 14.9% 14.6% 14.2% 13.9% 13.5% 13.2% 1.86 1.62 1.40 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 15 Figure 6: Highly Optimistic Scenario - Projected Unemployment Rates Assuming 2003-2008 Employment Growth for a Decade 18.0% 16.0% Unemployment Rate 14.0% "Unadjusted Official" U3 Unemployment Rate 12.0% 10.0% "Real" U6 Unemployment Rate 8.0% 6.0% 4.0% 2.0% 0.0% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Year (May) 16 Pessimistic Scenario • If we try to take into account the weakening of the economy since 2008, • And note that since 1982 (the beginning of continuous and growing trade deficits and “deindustrialization”), every economic expansion has generated less monthly employment growth (Nov 1982 to Jul 1990 228,000 a month, Mar 1991 to Mar 2001 200,000 a month, Nov 2001 to Dec 2007 97,000 a month). • It seems reasonable to assume, as a “pessimistic” scenario, that in the next decade an unaided (private sector driven) expansion will generate about half of the average employment growth of the last decade, or May 2010 to May 2020 average employment growth of about 278,000 a year (=555,000/2, see Figure 1). Note that as this is average employment growth over the previous decade and not just during expansion months, it assumes some months of employment contraction in the coming decade. 17 Figure 7: Pessimistic Scenario - Future Unemployment Rates Assuming 50% of Average 2000 to 2010 Employment Growth (Employment and Labor Force Data in thousands) Employment 139,420 139,698 139,975 140,253 140,530 140,808 141,085 141,363 141,640 141,918 142,195 New Employment 278 278 278 278 278 278 278 278 278 278 Labor Force 154,393 155,748 157,103 158,458 159,813 161,168 162,523 163,878 165,233 166,588 167,943 New Labor Force Entrants "Unadjusted Official" Unemployment Rate "Real" U6 Unemployment Rate Ratio U6/U3 Year (May) 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 4.4% 5.4% 9.4% 9.7% 10.3% 10.9% 11.5% 12.1% 12.6% 13.2% 13.7% 14.3% 14.8% 15.3% 8.2% 8.8% 13.2% 16.9% 17.9% 19.0% 20.0% 21.0% 22.0% 22.9% 23.9% 24.8% 25.8% 26.7% 1.86 1.62 1.40 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 18 Figure 8: Pessimistic Scenario - Projected "Real" Unemployment Rates Assuming Emp Growth Equal to 50% of 2000-2010 Average for a Decade 30.0% Unemployment Rate 25.0% 20.0% "Unadjusted Official" U3 Unemployment Rate 15.0% "Real" U6 Unemployment Rate 10.0% 5.0% 0.0% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Year (May) 19 Highly Pessimistic Scenario • In this case we assume a near future “double dip,” recession, and/or a farther away but within the next decade recession, that result in employment declines that completely off-set employment growth. • This scenario thus assumes zero average employment growth for the next decade. • This is not what any of us wish for, but the current obsession with cutting federal deficits (which was $ -1.4 Trillion or -9.9% of GDP in 2009, and is estimated at $ -1.35 T or -9.2% of GDP in 2010), leaves in doubt continued employment expansion, as 9-10% of current economic output is dependent on federal deficit spending.4 20 Figure 9: Highly Pessimistic Scenario - Future Unemployment Rates Assuming 0% Average 2000 to 2010 Employment Growth (Employment and Labor Force Data in thousands) Employment New Employment Labor Force New Labor Force Entrants 0 0 0 0 0 0 0 0 0 0 154,393 155,748 157,103 158,458 159,813 161,168 162,523 163,878 165,233 166,588 167,943 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 1,355 139420 139,420 139,420 139,420 139,420 139,420 139,420 139,420 139,420 139,420 139,420 "Unajusted Official" "Real" U6 Unemployment Unemployment Rate Rate 4.4% 8.2% 5.4% 8.8% 9.4% 13.2% 9.7% 16.9% 10.5% 18.2% 11.3% 19.6% 12.0% 20.9% 12.8% 22.2% 13.5% 23.5% 14.2% 24.7% 14.9% 26.0% 15.6% 27.2% 16.3% 28.4% 17.0% 29.5% Ratio U6/U3 1.86 1.62 1.40 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 1.74 Year (May) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 21 Figure 10: Highly Pessimistic Scenario - Projected Unemployment Rates Assuming No Employment Growth on Average for a Decade 35.0% Unemployment Rate 30.0% "Unadjusted Official" U3 Unemployment Rate 25.0% "Real" U6 Unemployment Rate 20.0% 15.0% 10.0% 5.0% 0.0% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Year (May) 22 Employment and Job Growth Since January 2010 • Though employment began to increase again in January 2010 at a fairly rapid pace, this does not appear to be sustainable. Note that the Official NBER business cycle dating group has not yet designated this as an “expansion”. • In June 2010 private sector (payroll) jobs growth was just 83,000, which coupled with a loss of 208,000 jobs, led to a net job decline of 125,000. Overall employment (from household survey) dropped by 301,000 – see Figures 11 and 12. • These recent declines suggest that much of the earlier growth was dependent on the massive run-up in federal “stimulus,” direct and indirect Federal Reserve subsidies, and temporary Census jobs (in May), that are now being cut back. 23 Figure 11: BLS Data on Employment and Job Growth in 2010 (Change from Prior Month in Thousands) Month CPS Household Survey Total Employment (Household Survey) Jan Feb Mar Apr May June Average 541 308 264 550 -35 -301 221.2 CES Payroll Survey Total Private Total Total NonJobs Government Farm Jobs (Payroll) Jobs (Payroll) (Payroll) 16 62 158 218 41 83 96.3 -2 -23 50 72 390 -208 46.5 14 39 208 290 431 -125 142.8 24 Figure 11: Monthly Employment and Job Change January to June 2010 600 500 300 Total Employment (Household Survey) 200 Total Private Jobs (Payroll) 100 0 Average -200 June May Apr Mar Feb -100 Jan Thousands Employed 400 Total Government Jobs (Payroll) -300 -400 Source: BLS CPS and CES Data 25 References: 1) 2) 3) 4) Richard McCormick, “The Plight of American Manufacturing,” American Prospect, Jan/Feb 2010. “Toward a New Political Economy for the U.S.” at: http://www.cpegonline.org/workingpapers/CPEGWP20101.pdf “A permanent Jobs Program for the U.S.: Economic Restructuring to Meet Human Needs,” at: http://www.cpegonline.org/jobsprogram.html and for financial transactions tax estimates: http://www.cpegonline.org/workingpapers/CPEGWP20102.pdf “The Linkage Between the Three Types of National Economic Deficits,” at: http://www.cpegonline.org/multimedia/DeficitLinkages.ppt. 26