Unemployment in the United States

US Employment statistics (changes in unemployment rate and net employment change per month) 2009-2013[1][2]

Unemployment in the United States discusses the causes and measures of U.S. unemployment and strategies for reducing it. Job creation and unemployment are affected by factors such as economic conditions, global competition, education, automation, and demographics. These factors can affect the number of workers, the duration of unemployment, and wage levels.

Employment expanded consistently during the 1990s, but has been inconsistent since due to recessions in 2001 and 2007-2009. By some measures, the number of persons employed regained its 2007 pre-crisis peak only in 2014, but the labor force participation rate remained below its 2007 level.[3] Unemployment generally falls during periods of economic prosperity and rises during recessions, creating significant pressure on public finances as tax revenue falls and social safety net costs increase. The major political parties debate appropriate solutions for improving the job creation rate, with liberals arguing for more government stimulus spending and conservatives arguing for lower taxes and less regulation. Polls indicate that Americans believe job creation is the most important government priority, with not sending jobs overseas the primary solution.[4]

Much of the 2012 Presidential campaign focused on job creation as a first priority, but the fiscal cliff and other budgetary debates took precedence in 2012 and early 2013. Critics argue prioritizing deficit reduction is misplaced, as there is no immediate fiscal crisis but there is a high level of unemployment, particularly long-term unemployment.[5] Job creation during 2014 was the best since 1999, averaging over 200,000 jobs created per month. There were 10.9 million jobs created over a 57-month period ending November 2014.[6]

Unemployment can be measured in several ways. A person is unemployed if they are jobless but looking for a job and available for work. People who are neither employed nor unemployed are not in the labor force. For example, as of September 2014, the unemployment rate in the United States was 5.9%[7] or 9.2 million people,[8] while the government's broader U-6 unemployment rate, which includes the part-time underemployed was 11.8%[9] or 14.8 million people. These figures were calculated with a civilian labor force of approximately 155.9 million people,[10] relative to a U.S. population of approximately 320 million people.[11]

Rates of unemployment by US states in May, 2014.[12]
Historical seasonal unemployment rates, showing the variance between the fifty states.
The rate of U.S. unemployment under various definitions.

Definitions of unemployment

Key employment statistics and ratios for March 2015
Number of persons in U.S. labor force and number employed. The gap is the number unemployed, which peaked at 15.4 million in October 2009 and fell to 9.3 million by September 2014.

The U.S. Bureau of Labor Statistics has defined the basic employment concepts as follows:[13]

Employed

Employed persons consist of:

Unemployed

Who is counted as unemployed?

Labor force

Who is not in the labor force?

Recent employment trends

Unemployment rate and ratio of employment to civilian population (EM ratio)

There are a variety of measures used to track the state of the U.S. labor market. Each provides insight into the factors affecting employment.

The U.S. Federal Reserve tracks a variety of labor market metrics, which affect how it sets monetary policy. One "dashboard" includes nine measures, only three of which have returned to their pre-crisis (2007) levels as of June 2014.[23][24]

From October 2010 to June 2014, the U.S. added a total of 8.5 million jobs, with positive job growth over each of those 45 months averaging 189,000 jobs. During January to June 2014, the U.S. added an average of 231,000 jobs per month, a robust rate by historical standards.[15][25]

Each month, The Hamilton Project examines the "jobs gap," which is the number of jobs that the U.S. economy needs to create to return to pre-recession employment levels while also absorbing the people who enter the labor force each month. Job creation would have to average 208,000 per month to close the gap by 2020; 320,000 by 2017; or 472,000 by mid-2015.[26] During the prosperous 1990's decade, the U.S. created an average of 182,000 jobs/month.[25]

Domestic factors

There are many domestic factors affecting the U.S. labor force and employment levels. These include: economic growth; cyclical and structural factors; demographics; education and training; innovation; labor unions; and industry consolidation. Ben Bernanke discussed several factors during a March 2012 speech.[27]

Economist Laura D'Andrea Tyson wrote in July 2011: "Like many economists, I believe that the immediate crisis facing the United States economy is the jobs deficit, not the budget deficit. The magnitude of the jobs crisis is clearly illustrated by the jobs gap—currently around 12.3 million jobs. That is how many jobs the economy must add to return to its peak employment level before the 2008-9 recession and to absorb the 125,000 people who enter the labor force each month. At the current pace of recovery, the gap will be not closed until 2020 or later." She explained further that job growth between 2000 and 2007 was only half what it had been in the preceding three decades, pointing to several studies by other economists indicating globalization and technology change had highly negative effects on certain sectors of the U.S. workforce and overall wage levels.[28]

Cyclical vs. structural unemployment

The US Labor Participation Rate from 1948 to 2011 by gender. Men are represented in light blue, women in pink, and the total in black.

There is ongoing debate among economists regarding the extent to which unemployment is cyclical (i.e., temporary and related to economic cycles, and therefore responsive to stimulus measures that spur demand) or structural (i.e., longer-term and independent of the economic cycle, and therefore requiring process reforms and re-allocation of workers among industries and geographies).[29]

For example, a general reduction in employment across multiple industries would likely be cyclical, while a skills or geographic mismatch for available jobs would be structural. Ben Bernanke stated in November 2012: "[T]he slow pace of employment growth has been widespread across industries and regions of the country. That pattern suggests a broad-based shortfall in demand rather than a substantial increase in mismatch between available jobs and workers, because greater mismatch would imply that the demand for workers would be strong in some regions and industries, not weak almost across the board. Likewise, if a mismatch of jobs and workers is the predominant problem, we would expect to see wage pressures developing in those regions and industries where labor demand is strong; in fact, wage gains have been quite subdued in most industries and parts of the country."[30]

The Congressional Research Service summarized a variety of studies that indicated changes in unemployment between 2007 and 2010 were 65-80% cyclical, thus mainly due to reduced aggregate demand for goods and services. Labor mobility was not a key issue due to the widespread nature of job losses across geographies and industries. Cyclically sensitive industries such as manufacturing and construction had the most significant job losses. One study referenced in the CRS research indicated that long-term unemployment can convert cyclical to structural unemployment through loss of skills.[31]

Mohamed El-Erian wrote in May 2011: "Unemployment must be seen as much more than a cyclical problem; it's a structural one that requires concurrent progress on job retraining, housing reform, education, social safety nets and private-sector competitiveness...America's political parties must jointly agree [to make] progress on the structural-reform agenda..."[32][33] Several tools, such as the Beveridge curve are used to help analyze the extent of structural unemployment.[34]

The term frictional unemployment refers to the period when workers are searching for a job or changing jobs. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual. Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment.

The Natural rate of unemployment refers to the rate of unemployment due to structural or supply-side factors alone. Cyclical factors, such as government stimulus or austerity policies, cause the actual unemployment rate to vary around the natural rate. Economists debate the natural rate of unemployment. During February 2011, Federal Reserve economists estimated it may have increased from the historical rate of around 5% to as high as 6.7%. CBO estimated the rate of a closely related measure called NAIRU at 5.2%, up from 4.8%.[35][36]

Demographics and labor force participation rate

U.S. labor force and employment measured as percentages of the civilian non-institutional population (aged 16+)

Demographics have a significant impact on the labor force and therefore employment statistics. The U.S. population is aging and the Baby Boomers are moving into retirement, so a greater share of the population is either leaving the labor force (retired) or moving into an age bracket with a lower typical labor force participation rate.[37][38][39]

There are two primary measures of labor force participation:

Reasons for the decline in labor force participation vary. One Federal Reserve economist estimated that demographics accounted for two-thirds of the decline since 2000. Other Federal Reserve studies place the blame primarily on the recession of 2008-2009.[40][41]

For example, a Federal Reserve study reported in October 2013 that: "The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population."[42]

Analyzing the 25-54 prime working age range can help correct for the effects of aging Boomers leaving the workforce. The jobs created since the end of the recession (2009) have not been sufficient to show a significant improvement in employment for the 25-54 age range.[43] In the 16-64 age range, from mid-2008 to March 2013 the ratios of employed men and women have declined by approximately 6 and 3 percentage points, respectively.[44]

The Hamilton Project reported in March 2012 that: "As the Baby Boomers retire, immigration flows change, and the number of young people entering the labor force declines, the number of new jobs needed to maintain pre-recession employment norms will decline...One result of this aging of the population is that overall labor force participation rates (and therefore the number of new jobs required to keep up with the labor force) are expected to decline."[45][46]

The Bureau of Labor Statistics provides a monthly employment situation summary. For June 2014: "Among the major worker groups, the unemployment rates for adult women (5.3 percent) and blacks (10.7 percent) declined in June, and the rate increased for teenagers (21.0 percent). The rates for adult men (5.7 percent), whites (5.3 percent), and Hispanics (7.8 percent) showed little change. The jobless rate for Asians was 5.1 percent (not seasonally adjusted), little changed from a year earlier. The number of long-term unemployed (those jobless for 27 weeks or more) declined by 293,000 in June to 3.1 million; these individuals accounted for 32.8 percent of the unemployed. Over the past 12 months, the number of long-term unemployed has decreased by 1.2 million."[47]

Education and training

The U.S. unemployment rate by education level.

Workers with higher levels of education face considerably lower rates of unemployment. As of September 2012, for workers of age 25 or older, unemployment was approximately: 12% for those with less than a high school diploma; 9% for high school graduates; 6% for those with some college or an associate degree; and 4% for those with a bachelor's degree or higher.[48]

The Pew Research Center estimated in 2012 that the average college graduate earns as much as $650,000 more than the average high school graduate over the course of a 40-year career, roughly $1.4 million versus $770,000. Factoring in the cost of college and foregone investment income, the average college graduate still ends up an estimated $550,000 ahead. This difference depends significantly on the type of major and type of employment.[49]

The American Enterprise Institute reported in September 2011 that: "...the evidence that the quality of a nation's education system is a key determinant of the future growth of its economy is increasingly strong." In 2010, America's high-school graduation rate trailed the average for European Union countries and ranked no better than eighteenth among the 26 OECD countries for which comparable data was available. President Obama often has stated that education is a key driver of international competitiveness and employment.[50]

U.S. companies cut employee training programs approximately 11% in 2008 and again in 2009 in an effort to cut costs during the 2008-2009 recession, but increased their training costs thereafter.[51] According to 2012 Society for Human Resource Management (SHRM) industry survey, 63% of employees learn the skills required to do their job while on the job. Approximately 38% of companies said they cross-train employees to develop skills not directly related to their job, down from 43% in 2011 and 55% in 2008. Some companies believe that with high unemployment, they can find the skills necessary should job openings arise.[52]

A variety of experts have proposed education reforms to improve U.S. competitiveness. Ideas relate to better qualified and incentivized teachers, less reliance on standardized testing, better feedback systems to help struggling teachers and students, more investment, paying for performance, employing data systems that track how much a child learns from a teacher, measuring teacher quality, giving local administrators the ability to manage staff and finances, and comparing results to the best education systems in the world.[53]

The rapid pace of technology change and global competition are rewarding those who continuously improve their skills and education. Futurist Alvin Toffler wrote: "The illiterate of the future are not those that cannot read or write. They are those that cannot learn, unlearn, relearn."[54]

Thomas L. Friedman wrote: "How [can workers] adapt? It will require more individual initiative. We know that it will be vital to have more of the 'right' education than less, that you will need to develop skills that are complementary to technology rather than ones that can be easily replaced by it and that we need everyone to be innovating new products and services to employ the people who are being liberated from routine work by automation and software. The winners won't just be those with more I.Q. It will also be those with more P.Q. (passion quotient) and C.Q. (curiosity quotient) to leverage all the new digital tools to not just find a job, but to invent one or reinvent one, and to not just learn but to relearn for a lifetime."[55]

Skills gap

A "skills gap" would exist if employers were demanding skills that the workforce did not provide. The hypothesis of such a gap in the USA recently grew stronger, in part due to the poor results of the country at OECD adult skills survey.[56] However, there was limited evidence post-2008 crisis that the U.S. was really facing a skill gap. Unemployment remained higher for workers at all education levels. Further, workers with the "right" skills would theoretically receive significant raises if there were skills shortages, which was not occurring. Paul Krugman wrote in March 2014: "Meanwhile, multiple careful studies have found no support for claims that inadequate worker skills explain high unemployment." He continued that a U.S. skills gap was a "zombie idea...an idea that should have been killed by evidence, but refuses to die."[57]

Long-term unemployment

The mean and median duration of U.S. unemployment.

Long-term unemployment is defined by the International Labor Organization (ILO) as referring to people who have been unemployed for 27 weeks or longer and are actively seeking employment. Other measurements have been used by different Bureaus and Agencies worldwide. The U.S. Bureau of Labor Statistics classifies unemployment based on various aspects into six groups (U1-U6), with U3 referring to the most widely recognized, ILO definition.

The ratio of long-term unemployed (27 weeks or longer) to unemployed rose from 17.3% in December 2007 (pre-recession) to a peak of 48.1% during April 2010. It has steadily fallen to a still elevated 30.4% as of June 2014.[58][59] This is well above the 1980-2007 average of approximately 16% and the approximately 20-25% level typical in previous recessions since 1980.[60][61]

Economists believe that long-term unemployment can be transformed into structural unemployment, meaning that a large group of workers may no longer match employers' needs or are no longer considered employable. Skills may become obsolete, business contact lists become outdated, and current industry information is lost. As of September 2012, about 800,000 workers wanted a job but had given up looking, and so are no longer even counted as unemployed.[62]

About 1.7 million people joined the disability rolls since the recession began at the end of 2007, an increase of 24%, as workers use the disability program as a backdoor safety net when their unemployment insurance runs out. After searching for a new position for a year, a worker trying to regain employment finds that their chance to do so in the coming month falls below 10%. Job training programs and incentives for companies to hire the long-term unemployed are among the solutions available, but gathering the political will to address an isolated group is difficult. The long-term unemployed are less likely to vote.[62]

CBO reported several options for addressing long-term unemployment during February 2012. Two short-term options included policies to: 1) Reduce the marginal cost to businesses of adding employees; and 2) Tax policies targeted towards people most likely to spend the additional income, mainly those with lower income. Over the long-run, structural reforms such as programs to facilitate re-training workers or education assistance would be helpful.[63]

Labor unions

Union membership in the United States from the Great Depression to current day.

Economist Paul Krugman wrote that historically, worker participation in labor unions gave workers more power in negotiating how corporate profits were split up with shareholders and management. Organized labor acted to limit layoffs. Strong labor unions were a check on executive pay, keeping top executive pay at considerably lower ratios relative to the average worker during the 1950s than during the 2000s. Unions were also a factor in income equality, helping ensure that middle class worker pay rose along with the pay of the higher income brackets.[64]

However, labor union participation rates have declined steadily in the United States. According to the Bureau of Labor Statistics annual Union Members Summary: "In 2012, the union membership rate--the percent of wage and salary workers who were members of a union--was 11.3 percent, down from 11.8 percent in 2011. The number of wage and salary workers belonging to unions, at 14.4 million, also declined over the year. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent, and there were 17.7 million union workers."[65] In 1973, the participation rate was 26.7% against a comparable 2011 rate of 13.1%.[66]

Differences in labor law and public policy are a key reason for this decline. For example, Canada has gone through many of the same economic and social changes as the U.S. since the middle of the 20th century, but it hasn't seen the same substantial decline in unionization. The unionization rate in the U.S. and Canada followed fairly similar paths from 1920 to the mid-1960s, at which point they began to diverge drastically, with Canada remaining around 30% while the U.S. fell to around 11%.[67]

Industry consolidation

Industry consolidation or concentration refers to fewer, larger firms driving competition in an industry versus more, smaller firms. Job creation by small businesses can be restricted when larger, more productive firms displace them. For example, the share of customer deposits held by the top 10 largest U.S. banks rose from 15% in 1993, to 44% in 2006, and to 49% by 2009. The number of commercial banks fell from over 14,000 in 1984 to approximately 7,000 by 2010.[68]

Economists Barry Lynn and Phillip Longman at the New America Foundation wrote in March 2010:

Income and wealth inequality

U.S. inequality from 1913–2008.[71]

Since the 1980s, wealthier households in the United States have earned a larger and larger share of overall income. As of 2010, the top 1% of households by income earned about one-sixth of all income and the top 10% earned about half of it. In other words, the rising tide of economic growth does not lift all boats equally. Wealth is also skewed, with the top 1% owning more wealth than the bottom 90% of households. Several prominent economists and financial entities have reported that income inequality hurts economic growth and can be economically destabilizing.[72][73]

Economist Joseph Stiglitz wrote in 2012 that moving money from the bottom to the top of the income spectrum through income inequality lowers consumption, and therefore economic growth and job creation. Higher-income individuals consume a smaller proportion of their income than do lower-income individuals; those at the top save 15-25% of their income, while those at the bottom spend all of their income.[74][75]

Further, as income skews to the top, middle-class families may go deeper into debt than they would otherwise, which restricts consumption once they begin to repay it. Evidence suggests that income inequality has been the driving factor in the growing household debt[76][77] as middle income earners go deeper into debt trying to maintain what once was a middle class lifestyle. Between 1983 and 2007, the top 5 percent saw their debt fall from 80 cents for every dollar of income to 65 cents, while the bottom 95 percent saw their debt rise from 60 cents for every dollar of income to $1.40.[76] Economist Paul Krugman has found a strong correlation between inequality and household debt in America over the last hundred years.[78]

Government hiring trends

Most states have balanced budget rules, which forced them to cut spending when tax revenues fell due to the 2008-2009 recession and its aftermath. Over 500,000 jobs were cut by states and municipalities between 2008-2012. This was different from other recent U.S. recessions, where government employment continued to climb. This trend is expected to reverse in 2013, with states and municipalities adding workers for the first time in five years. State and local government spending accounted for 12% GDP in 2011.[79]

Fed Chair Ben Bernanke testified in May 2013 that: "Notably, over the past four years, state and local governments have cut civilian government employment by roughly 700,000 jobs, and total government employment has fallen by more than 800,000 jobs over the same period. For comparison, over the four years following the trough of the 2001 recession, total government employment rose by more than 500,000 jobs."[80]

Government spending employs private sector workers in several industries, such as ship and boat building, facilities services, aerospace, etc. The 2013 sequester has significantly impacting hiring in these industries, which are lagging employment growth in other industries. The New York Times reported in June 2013 that: "Across the five industries that are most sensitive to changes in military spending, employment fell at an annual rate of 2.5 percent in March and stayed flat in April, the latest month for which seasonally adjusted data are available. In all other sectors, by contrast, employment grew at annualized rates of about 1.6 percent in March and 1.7 percent in April. Before the start of the sequester on March 1, employment at private companies heavily dependent on military spending had been more closely tracking employment in the rest of the economy, though the numbers were somewhat uneven. Military payrolls have been declining almost every month since November 2011 in response to the drawdown in American wars abroad."[81]

Policies regarding full employment

Annual rate of change of unemployment rate under various US Presidents
The values indicate the average annual rate of change in the unemployment rate over the years in office. Data 1945-present from Bureau of Labor Statistics Labor Force Statistics, Data previous to 1945 from McElvaine's The Great Depression, Three Rivers Press (2009), Chapter 4

Jared Bernstein wrote in May 2013 that the U.S. used to focus on full employment as a policy priority, but this focus has waned since 1980. Full employment refers to having an available job for everyone who wants one. Specific laws were passed to help achieve this goal, such as the Employment Act of 1946 and the Humphrey-Hawkins Full Employment Act of 1978. From 1945-1979, the U.S. was at full employment two-thirds of the time. Conservatives and business interests pushed back however, as tight labor markets meant more worker bargaining power, higher wages and less profitability. Since 1980, full employment ("defined as an unemployment rate below 5 percent") has been maintained one-third of the time.[82]

Bernstein argued there are several possible reasons for the reduction in frequency of full employment:

Unemployment among younger workers

The employment situation from 2009 to 2013 was particularly difficult for younger workers. The Economic Policy Institute reported in April 2013 that:

Job openings relative to unemployed

The ratio of job seekers to job openings is another indicator used to analyze unemployment trends. The number of unemployed persons per job opening rose from 2.9 in 2003 to 6.7 at its peak in July 2009, before falling to 3.1 in April 2013. EPI reported in June 2013 that: "In today's economy, unemployed workers far outnumber job openings in every sector...This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—and not, as is often claimed, available workers lacking the skills needed for the sectors with job openings."[84][85] However, recent trends have shown a slow decline in unemployment due to changes in the environment; financing is essential from promoting sustainable development according to the UN.[86]

Global factors

Offshoring of employment

Offshoring has become an increasingly common practice of locating jobs in low-cost labor countries. The practice is expanding in both manufacturing and service jobs. Motivation varies; labor cost savings or "labor arbitrage", productivity and regulatory avoidance are potential reasons. Studies have shown that offshoring is a source of significant uncertainty in the labor force. There is significant debate regarding the extent to which this is affecting U.S. job creation. The Congressional Research Service reported a summary of several studies on offshoring in January 2011:[87]

An estimated 750,000 call center jobs were off-shored by U.S. firms to India and the Philippines as of November 2011.[88] The New York Times reported in January 2012 that: "Apple employs 43,000 people in the United States and 20,000 overseas...Many more people work for Apple's contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple's other products. But almost none of them work in the United States."[89]

Princeton economist Alan Blinder said in 2007 that the number of jobs at risk of being shipped out of the country could reach 40 million over the next 10 to 20 years, which represents one out of every three service sector jobs.[90]

The Economist reported in January 2013 that: "High levels of unemployment in Western countries after the 2007-2008 financial crisis have made the public in many countries so hostile towards off-shoring that many companies are now reluctant to engage in it." Further, The Economist reported that off-shoring trends are evolving for several other reasons:

The Department of Labor's Employment and Training Administration (ETA) prepares an annual report on those petitioning for trade adjustment assistance, due to jobs lost from international trade. This represents a fraction of jobs actually off-shored and does not include jobs that are placed overseas initially or the collateral impact on surrounding businesses when, for example, a manufacturing plant moves overseas. During 2011, there were 98,379 workers covered by petitions filed with ETA.[92] The figure was 280,873 in 2010,[93] 201,053 in 2009 and 126,633 in 2008.[94]

Comparative international wage levels

U.S. real wages remain below their 1970's peak.[95]

One of the reasons for off-shoring jobs or sourcing goods overseas has been considerably lower wages in developing or Asian countries. The NY Times reported in December 2012 that: "American wages are [not] anywhere close to those in countries in East Asia or other places where American imports come from. As of 2010 (the latest year available), hourly compensation costs for manufacturing in the United States were about four times those in Taiwan, and 20 times those in the Philippines, according to the Labor Department." However, foreign wages have been rising since 2000, while those in the U.S. have been stagnant.[96]

During 2011, entry level call center workers in the U.S. earned about $20,000 per year, about six times as much as similar jobs in India.[88] According to the Congressional Research Service, during 2006, compensation for the average American production worker was $24.59 per hour, compared to $16.02 in South Korea, $2.92 in Mexico, and $0.81 in China.[97]

CEO's are under pressure from their boards to maximize profits and are paid bonuses accordingly; one method of doing so is offshoring jobs or sourcing inputs in the lowest wage countries possible. Firms in low-cost labor countries actively lobby U.S. and European companies to offshore a variety of jobs or locate new jobs and facilities overseas.[98]

Trade deficits and currency valuation

The U.S. Current Account or Trade Deficit.

Trade deficit

Net exports are a major component of GDP. In the U.S., net exports are negative due to a trade deficit that is much larger than historical average. There is significant debate regarding the impact of the trade deficit on the economy and employment, and therefore the budget deficit. For example, The Economist wrote in July 2012 that the inflow of investment dollars required to fund the trade deficit was a major cause of the housing bubble and financial crisis: "The trade deficit, less than 1% of GDP in the early 1990s, hit 6% in 2006. That deficit was financed by inflows of foreign savings, in particular from East Asia and the Middle East. Much of that money went into dodgy mortgages to buy overvalued houses, and the financial crisis was the result."[99]

NPR explained in their Peabody-Award winning article "The Giant Pool of Money" that a vast inflow of savings from developing nations flowed into the mortgage market, driving the U.S. housing bubble. This pool of fixed income savings increased from around $35 trillion in 2000 to about $70 trillion by 2008. NPR explained this money came from various sources, "[b]ut the main headline is that all sorts of poor countries became kind of rich, making things like TVs and selling us oil. China, India, Abu Dhabi, Saudi Arabia made a lot of money and banked it."[100] During 2008, then U.S. Comptroller General David M. Walker argued that the U.S. faced four deficits that posed significant risk to its fiscal future: Budget, balance of payments, savings and leadership.[101]

A February 2013 paper from four economists concluded that a trade deficit is a factor in whether a country will pay higher interest rates as its public debt level rises, which increases the risk of fiscal crisis. Both the U.S. and Eurozone countries (excluding Germany) had significant trade deficits leading up to the crisis.[102][103] A rebuttal to their paper indicated that the trade deficit (which requires private borrowing to fund) may be a bigger factor than public debt in causing a rise in interest rates.[104]

Currency policy

Policies that affect the value of the U.S. dollar relative to other currencies also affect employment levels. Economist Christina Romer wrote in May 2011: "A weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working. Given the desperate need for jobs, on net we are almost surely better off with a weaker dollar for a while."[105] Economist Paul Krugman wrote in May 2011: "First, what's driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage. A weaker dollar, it turns out, was just what U.S. industry needed."[106]

Economists C. Fred Bergsten and Joseph E. Gagnon wrote in September 2012: "The most overlooked cause of the economic weakness in the United States and Europe is what we call the 'global currency wars.' If all currency intervention were to cease, we estimate that the US trade deficit would fall by $150 billion to $300 billion, or 1 to 2 percent of gross domestic product. Between 1 million and 2 million jobs would be created. The euro area would gain by a lesser but still substantial amount. Countries that were engaged in intervention could offset the impact on their economies by expanding domestic demand."[107]

Tradable and non-tradable sectors

Economist Michael Spence analyzed U.S. employment trends from 1990 to 2008, separating workforce components into two major sectors:

Spence advocates structural reforms to help grow the tradeable sector jobs. Further, value-added per employee has been growing slowly in the non-tradeable sector. These trends are correlated with increasing income inequality and indicate significant structural issues face the U.S. labor market.[108]

Globalization commentary

An 1837 political cartoon about unemployment in the United States.

Economist Paul Krugman wrote: "By contrast, trade between countries at very different levels of economic development tends to create large classes of losers as well as winners. Although the outsourcing of some high-tech jobs to India has made headlines, on balance, highly educated workers in the United States benefit from higher wages and expanded job opportunities because of trade...But workers with less formal education either see their jobs shipped overseas or find their wages driven down by the ripple effect as other workers with similar qualifications crowd into their industries and look for employment to replace the jobs they lost to foreign competition. And lower prices at Wal-Mart aren't sufficient compensation."[109]

Fareed Zakaria described the factors slowing growth in developed countries like the U.S., writing in November 2011: "The fact is that Western economies—with high wages, generous middle-class subsidies and complex regulations and taxes—have become sclerotic. Now they face pressures from three fronts: demography (an aging population), technology (which has allowed companies to do much more with fewer people) and globalization (which has allowed manufacturing and services to locate across the world)."[110]

Former Fed chair Paul Volcker argued in February 2010 that the U.S. should make more of the goods it consumes domestically: "We need to do more manufacturing again. We're never going to be the major world manufacturer as we were some years ago, but we could do more than we're doing and be more competitive. And we've got to close that big gap. You know, consumption is running about 5 percent above normal. That 5 percent is reflected just about equally to what we're importing in excess of what we're exporting. And we've got to bring that back into closer balance."[111]

Economist Peter Navarro wrote in June 2011: "The American economy has been in trouble for more than a decade, and no amount of right-wing tax cuts or left-wing fiscal stimuli will solve the primary structural problem underpinning our slow growth and high unemployment. That problem is a massive, persistent trade deficit—most of it with China—that cuts the number of jobs created by nearly the number we need to keep America fully employed."[112] Economist Peter Morici wrote in May 2012: "Cutting the trade deficit in half, through domestic energy development and conservation, and offsetting Chinese exchange rate subsidies would increase GDP by about $525 billion a year and create at least 5 million jobs."[113]

Economist Michael Spence explained in August 2011 that over the 1990-2008 period, job creation was almost entirely in the "non-tradable" sector (which produces goods and services that must be consumed domestically, like healthcare) with few jobs created in the "tradable" sector (which produces goods that can be sold internationally, like manufacturing). He stated that job creation in both sectors is necessary and that various factors, such as the housing bubble, hid the lack of job creation in the tradable sector. He stated: "We're going to have to try to fix the ineffective parts of our educational system...We're under-investing in things like infrastructure...we've just been living on consumption and we need to live a little bit more on investment, including public-sector investment." He also advocated tax policy changes to encourage hiring of U.S. workers.[114]

Automation and technology change

Overview

In addition to off-shoring, technological change and automation of labor have impacted job growth in certain industries. A technology revolution is fast replacing human beings with machines in virtually every sector and industry in the global economy. While the historical perspective was that automation created more jobs than it eliminated, as computers and robots become more capable some economists have begun to doubt this historical view.[115]

Historical perspective

The view of economists historically has been that automation increases the number of jobs, although it displaces some workers in favor of others. Journalist Henry Hazlitt explained in the 1979 edition of his book Economics in One Lesson why automation tends to create as many or more jobs overall than it destroys:

Hazlitt wrote that these three offsets tend to increase jobs overall. Further, automation increases production, productivity and real wages over the long-run. He explained that over the course of human history, the number of persons employed tends to jump along with advances in technology. While jobs are destroyed in one activity, more jobs are typically created in others.[116]

While automation has displaced millions of workers in various cycles (e.g., agriculture in the U.S. in the early 1900s) other industries have typically taken their place.[117][118]

Recent perspectives

However, MIT economists Brynjolfsson and McAfee estimated in January 2013 that technology is potentially destroying more jobs than it is creating: "Technology is always creating jobs. It's always destroying jobs. But right now the pace of destroying them is accelerating...So as a consequence, we are not creating jobs at the same pace that we need to." Routine, middle-skill jobs are being eliminated by advances in business processes and technology, for example: self-service applications such as internet ordering in retail, grocery self-checkout, and ATM machines; manufacturing assembly robots; logistics such as warehouse robots that can move goods from storage to shipping; and healthcare, where robots are moving meals and medical waste in hospitals. McAfee sees this trend of technology eliminating jobs continuing for some time: "When I see what computers and robots can do right now, I project that forward for two, three more generations, I think we're going to find ourselves in a world where the work as we currently think about it, is largely done by machines."[119][120]

Matt Miller wrote in January 2013 that this automation may have profound policy implications. If robots replace a vast number of workers, wage income may not be sufficient to support the middle class. More and more wealth will be concentrated in the hands of capital (e.g., those who make and own the robots doing the work). This could require significant changes in tax and redistribution policies on a massive scale.[121] During August 2011, Taiwan manufacturing company Foxconn announced that it would be using up to one million robots to replace human laborers.[122]

Economist Paul Krugman discussed this automation in December 2012: "This is an old concern in economics; it's 'capital-biased technological change', which tends to shift the distribution of income away from workers to the owners of capital...Twenty years ago, when I was writing about globalization and inequality, capital bias didn't look like a big issue; the major changes in income distribution had been among workers...rather than between labor and capital. So the academic literature focused almost exclusively on 'skill bias," supposedly explaining the rising college premium. But the college premium hasn't risen for a while. What has happened, on the other hand, is a notable shift in income away from labor...I think we'd better start paying attention to those implications." Krugman used a chart to show how the share of compensation income as a % GDP had fallen consistently from 60% in 1970 to 55% in 2011.[70][123]

One possible consequence is that as developing country wages rise, U.S. companies may decide to automate the jobs but return the activity to the U.S., a phenomenon some refer to as "re-shoring" (as opposed to "off-shoring").[96]

Although U.S. manufacturing employment declined from 17 million workers to 12 million from 2000 to 2011, production has returned to 2000 levels.[124][125] In other words, productivity, supported by significant automation or process improvements, may be a significant driver of job losses in that industry, along with off-shoring.

Economist Tyler Cowen wrote in 2011 that recent major innovations such as the internet create fewer jobs relative to previous innovations such as the automobile. For example, the internet represents a significant amount of consumer activity but relatively little revenue for companies to support job creation. The "revenue-intensive" sectors of the economy have slowed down, while "revenue deficient" sectors have expanded. Information technology innovation also requires fewer, high skilled workers relative to previous innovations, which created more lower skilled jobs per dollar of revenue.[126]

Other factors

Innovation

Relatively new, smaller firms are the primary job creators. A 2009 study by the Kauffman Foundation using U.S. Census data indicated that:

In the globalized free market, innovation does not necessarily mean the jobs will be created domestically. A popular product, the Apple iPod, offers an interesting perspective on globalization and employment. This product was developed by a U.S. corporation. In 2006, it was produced by about 14,000 workers in the U.S. and 27,000 overseas. Further, the salaries attributed to this product were overwhelmingly distributed to highly skilled U.S. professionals, as opposed to lower skilled U.S. retail employees or overseas manufacturing labor. Increasingly, globalization is shifting incomes to those with the highest educational backgrounds and professional skills. One interpretation of this result is that U.S. innovation can create more jobs overseas than domestically.[89][128] During 2011, Apple employed 43,000 U.S. workers and 20,000 overseas. However, nearly 700,000 workers overseas working for other companies made nearly all of its iPhone, iPad and other products.[89]

Andrew Grove wrote in July 2010 that key technology innovations are increasingly "scaled" or mass-produced in Asia, with a 10-1 ratio of overseas to domestic workers. He wrote that Asian countries "seem to understand that job creation must be the No. 1 objective of economic policy." He recommended a tax on products made off-shore, to be used to fund companies that will scale their U.S. operations.[129]

Industry-specific factors

U.S. manufacturing employment (left axis) and construction employment (right axis).

Industries may have long-term and short-term factors that drive trends in employment. Manufacturing and construction are two major industry groups that illustrate such factors.

The Economist reported in March 2011 that U.S. manufacturing employment declined steadily from approximately 17 million in 2000 to under 12 million in 2010.[130] Comparing January 2008, the U.S. overall peak employment month across all industries pre-crisis, with October 2012, manufacturing employment was down 1.76 million.[131] This is due to a combination of growing competition from lower-wage countries, automation/productivity improvements, off-shoring, etc.

For example, China's share of global manufacturing increased from approximately 5% in 1996 to 12% in 2008. China represents roughly one-third of the U.S. trade deficit, nearly $295 billion in 2011.[132] The Economic Policy Institute (EPI) estimated that from 2001-2011, 2.7 million jobs were lost to China.[133] USA Today reported in 2007 that an estimated one in six factory jobs (3.2 million) have disappeared from the U.S. since 2000, due to automation or off-shoring to countries like Mexico and China, where labor is cheaper.[134]

U.S. construction employment is heavily reliant on the housing market and new home construction. Measured from January 2008, construction employment was down 1.94 million as of October 2012. This follows a peak in construction employment due to the U.S. housing bubble throughout the mid-2000s, with a recent peak of approximately 7 million sustained during the 2005-2008 period.[135]

The total of the job losses in these two industries from January 2008 to October 2012 was 3.7 million. For scale, the U.S. overall employment decline from January 2008 to October 2012 was a net 4.3 million, with 8.8 million jobs lost from 1/08 to 2/10 and 4.5 million jobs added back thereafter.[136]

According to an American Bar Association report, After the JD, for the 2000 graduating class of law students 24% of the surveyed lawyers were not practicing law in 2012, compared, to the same group, about 9%, who weren't practicing law in 2003.[137][138]

Unemployment benefits

There is debate regarding the extent to which safety net programs such as unemployment insurance extend periods of unemployment by reducing the incentive to find work. The Heritage Foundation estimated in September 2011 that extending unemployment insurance increases the unemployment rate between 0.5 to 1.5 percentage points, advocating that such payouts be offset by other spending cuts.[139] Economist Paul Krugman argued in July 2010 that with five job seekers for every job opening, "cutting off benefits to the unemployed will make them even more desperate for work—but they can't take jobs that aren't there." He also cited CBO reports indicating unemployment insurance is a highly effective form of stimulus, which he advocated in an economic downturn.[140]

The Congressional Budget Office provides periodic reports on unemployment insurance programs. The unemployment insurance (UI) program provides a weekly benefit to qualified workers who lose their job and are actively seeking work. The amount of that benefit is based in part on a workers past earnings. In particular, the periods for which eligible workers can receive UI benefits have been repeatedly extended during the 2008-2009 recession and its aftermath. Regular UI benefits generally last up to 26 weeks, but extensions were legislated extending this period significantly. From 2008-2012, these programs provided approximately $520 billion in benefits to recipients, which allowed households to better maintain their consumption. Far more workers were laid off in 2008 and 2009 than in 2006 and 2007. The number of workers who lost their job and started receiving UI benefits peaked at 14.4 million in 2009, whereas an average of roughly 8 million laid-off workers started receiving benefits in each fiscal year from 2004 to 2007.[141]

Outlays for UI benefits totaled $120 billion in fiscal year 2009, a substantial increase over the amount two years earlier, which was $33 billion. Spending on UI benefits in fiscal year 2010 was even higher than in fiscal year 2009, totaling nearly $160 billion. CBO projected in November 2010 that spending in fiscal year 2011 would be $93 billion.[142]

In January 2014, the United States Senate began debating the Emergency Unemployment Compensation Extension Act (S. 1845; 113th Congress) on the Senate floor.[143] The Emergency Unemployment Compensation Extension Act would extend federal emergency unemployment benefits for another three months, at a cost of $6.4 billion.[144]

Employment of part-time workers versus full-time

U.S. Full-Time and Part-Time Workers (in thousands).

U.S. employers have shifted the composition of the workforce to more part-time workers versus full-time. The percentage of the workforce that is part-time has risen from approximately 17.0% in January 2000 to 19.2% in May 2013. Employers do not have to pay some costly benefits to part-time workers and can vary payroll costs more easily to reflect economic conditions.[145]

Statistics regarding the number of full-time and part-time workers (in thousands) since 2000 highlight this trend:

Job quality trends

The Economic Policy Institute (EPI) defined a "good job" in 2010 as one "that pays at least $37,000 per year ($18.50 per hour, the male median wage in 1979 adjusted for inflation), has employer-provided health insurance, and an employer-sponsored retirement plan (e.g., pension or 401k plan). Using this definition, the Center for Economic and Policy Research (CEPR) reported in July 2012 that the share of workers with a good job fell from 27.4% in 1979 to 24.6% in 2010. Adjusting for an older, more educated workforce than in the past (which theoretically should have increased the quality of job commensurate with the additional capabilities), CEPR estimated that relative to 1979 the economy had lost about one-third (28-38%) of its capacity to generate good jobs.[147] EPI reported in its The State of Working America report (12th edition) that from 1979 to 2010, the proportion of "good jobs" held by men dropped from 37% to 28%, while the proportion of good jobs held by women increased from 12% to 21% by 2000 and remained around that level through 2010. These trends occurred despite a 48% increase in productivity, measured by output per worker, which increased from approximately $70,000 to $104,000 over the 1979-2010 period.[148]

Fiscal and monetary policy

Typical intervention strategies under different conditions

Employment is both cause and response to the economic growth rate, which can be affected by both government fiscal policy (spending and tax decisions) and monetary policy (Federal Reserve action.)

Fiscal policy

The U.S. ran historically large annual debt increases from 2008-2013, adding over $1 trillion in total national debt annually from fiscal year 2008 to 2012. The deficit expanded primarily due to a severe financial crisis and recession. With a U.S. GDP of approximately $17 trillion, the spending implied by this deficit comprises a significant amount of GDP. Keynesian economics argues that when the economic growth is slow, larger budget deficits are stimulative to the economy. This is one reason why the significant deficit reduction represented by the fiscal cliff was expected to result in a recession.[149][150]

CBO reported in October 2014: "The federal government ran a budget deficit of $486 billion in fiscal year 2014...$195 billion less than the shortfall recorded in fiscal year 2013, and the smallest deficit recorded since 2008. Relative to the size of the economy, that deficit—at an estimated 2.8 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 40 years, and 2014 was the fifth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009. By CBO's estimate, revenues were about 9 percent higher and outlays were about 1 percent higher in 2014 than they were in the previous fiscal year."[151]

Monetary policy

The U.S. Federal Reserve has taken significant action to stimulate the economy after the 2008-2009 recession. The Fed expanded its balance sheet significantly from 2008-2014, meaning it essentially "printed money" to purchase large quantities of mortgage-backed securities and U.S. treasury bonds. This bids up bond prices, helping keep interest rates low, to encourage companies to borrow and invest and people to buy homes. It planned to end its quantitative easing in October 2014 but was undecided on when it might raise interest rates from near record lows. The Fed also tied its actions to its outlook for unemployment and inflation for the first time in December 2012.[152]

Political debates

Liberal position

Liberals typically argue for government action or partnership with the private sector to improve job creation. Typical proposals involve stimulus spending on infrastructure construction, clean energy investment, unemployment compensation, educational loan assistance, and retraining programs. Liberals historically supported labor unions and protectionist trade policies. Liberals tend to be less concerned with budget deficits and debt and have a higher tolerance for inflation or currency devaluation to improve trade competitiveness, as a weaker currency makes exports relatively less expensive. During recessions, liberals generally advocate solutions based on Keynesian economics, which argues for additional government spending when the private sector is unable or unwilling to support sufficient levels of economic growth.[64][153]

Conservative position

Conservatives typically argue for free market solutions, with less government restriction of the private sector. Conservatives tend to oppose stimulus spending or bailouts, letting the free market determine success and failure. Typical proposals involve deregulation and income tax rate reduction. Conservatives historically have opposed labor unions and encouraged free trade agreements. Fiscal conservatives express concern that higher budget deficits and debt damage confidence, reducing investment and spending. Conservatives argue for policies that reduce or lower inflation. Conservatives generally advocate supply-side economics.[64]

Poll data

The affluent are much less inclined than other groups of Americans to support an active role for government in addressing high unemployment. Only 19% of the wealthy say that Washington should insure that everyone who wants to work can find a job, but 68% of the general public support that proposition. Similarly, only 8% of the rich say that the federal government should provide jobs for everyone able and willing to work who cannot find a job in private employment, but 53% of the general public thinks it should. A September 2012 survey by The Economist found those earning over $100,000 annually were twice as likely to name the budget deficit as the most important issue in deciding how they would vote than middle- or lower-income respondents. Among the general public, about 40% say unemployment is the most important issue while 25% say that the budget deficit is.[154]

A March 2011 Gallup poll reported: "One in four Americans say the best way to create more jobs in the U.S. is to keep manufacturing in this country and stop sending work overseas. Americans also suggest creating jobs by increasing infrastructure work, lowering taxes, helping small businesses, and reducing government regulation." Further, Gallup reported that: "Americans consistently say that jobs and the economy are the most important problems facing the country, with 26% citing jobs specifically as the nation's most important problem in March." Republicans and Democrats agreed that bringing the jobs home was the number one solution approach, but differed on other poll questions. Republicans next highest ranked items were lowering taxes and reducing regulation, while Democrats preferred infrastructure stimulus and more help for small businesses.[4]

Further, U.S. sentiment on free trade has been turning more negative. An October 2010 Wall Street Journal/NBC News poll reported that: "[M]ore than half of those surveyed, 53%, said free-trade agreements have hurt the U.S. That is up from 46% three years ago and 32% in 1999." Among those earning $75,000 or more, 50% now say free-trade pacts have hurt the U.S., up from 24% who said the same in 1999. Across party lines, income, and job type, between 76-95% of Americans surveyed agreed that "outsourcing of production and manufacturing work to foreign countries is a reason the U.S. economy is struggling and more people aren't being hired." [155]

The Pew Center reported poll results in August 2012: "Fully 85% of self-described middle-class adults say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living. Of those who feel this way, 62% say "a lot" of the blame lies with Congress, while 54% say the same about banks and financial institutions, 47% about large corporations, 44% about the Bush administration, 39% about foreign competition and 34% about the Obama administration."[156]

2008-2009 debates

The debate around the American Recovery and Reinvestment Act of 2009 (ARRA), the approximately $800 billion stimulus bill passed due to the subprime mortgage crisis, highlighted these views. Democrats generally advocated the liberal position and Republicans advocated the conservative position. Republican pressure reduced the overall size of the stimulus while increasing the ratio of tax cuts in the law.

These historical positions were also expressed during the debate around the Emergency Economic Stabilization Act of 2008, which authorized the Troubled Asset Relief Program (TARP), an approximately $700 billion bailout package (later reduced to $430 billion) for the banking industry. The initial attempt to pass the bill failed in the House of Representatives due primarily to Republican opposition.[157] Following a significant drop in the stock market and pressure from a variety of sources, a second vote passed the bill in the House.

2010-present debates

Creating American Jobs and Ending Offshoring Act

Senator Dick Durbin proposed a bill in 2010 called the "Creating American Jobs and Ending Offshoring Act" that would have reduced tax advantages from relocating U.S. plants abroad and limited the ability to defer profits earned overseas. However, the bill was stalled in the Senate primarily due to Republican opposition. It was supported by the AFL-CIO but opposed by the U.S. Chamber of Commerce.[158][159]

The Congressional Research Service summarized the bill as follows: "Creating American Jobs and Ending Offshoring Act—Amends the Internal Revenue Code to: (1) exempt from employment taxes for a 24-month period employers who hire a employee who replaces another employee who is not a citizen or permanent resident of the United States and who performs similar duties overseas; (2) deny any tax deduction, deduction for loss, or tax credit for the cost of an American jobs offshoring transaction (defined as any transaction in which a taxpayer reduces or eliminates the operation of a trade or business in connection with the start-up or expansion of such trade or business outside the United States); and (3) eliminate the deferral of tax on income of a controlled foreign corporation attributable to property imported into the United States by such corporation or a related person, except for property exported before substantial use in the United States and for agricultural commodities not grown in the United States in commercially marketable quantities."[160]

American Jobs Act

President Barack Obama proposed the American Jobs Act in September 2011, which included a variety of tax cuts and spending programs to stimulate job creation. The White House provided a fact sheet which summarized the key provisions of the $447 billion bill.[161] However, neither the House nor the Senate has passed the legislation as of December 2012. President Obama stated in October 2011: "In the coming days, members of Congress will have to take a stand on whether they believe we should put teachers, construction workers, police officers and firefighters back on the job...They'll get a vote on whether they believe we should protect tax breaks for small business owners and middle-class Americans, or whether we should protect tax breaks for millionaires and billionaires."[162]

Fiscal cliff

During 2012, there was significant debate regarding approximately $560 billion in tax increases and spending cuts scheduled to go into effect in 2013, which would reduce the 2013 budget deficit roughly in half. Critics argued that with an employment crisis, such fiscal austerity was premature and misguided.[5] The Congressional Budget Office projected that such sharp deficit reduction would likely cause the U.S. to enter recession in 2013, with the unemployment rate rising to 9% versus approximately 8% in 2012, costing over 1 million jobs.[149][150] The fiscal cliff was partially addressed by the American Taxpayer Relief Act of 2012.

Tax policy

Individual income taxes

The historical record indicates that marginal income tax rate changes have little impact on job creation, economic growth or employment.

The Center on Budget and Policy Priorities (CBPP) wrote in March 2009: "Small business employment rose by an average of 2.3 percent (756,000 jobs) per year during the Clinton years, when tax rates for high-income filers were set at very similar levels to those that would be reinstated under President Obama's budget. But during the Bush years, when the rates were lower, employment rose by just 1.0 percent (367,000 jobs)."[168] CBPP reported in September 2011 that both employment and GDP grew faster in the seven-year period following President Clinton's income tax rate increase of 1993, than a similar period after the Bush tax cuts of 2001.[169]

Corporate income taxes

Conservatives typically argue for lower U.S. tax income rates, arguing that it would encourage companies to hire more workers. Liberals have proposed legislation to tax corporations that offshore jobs and to limit corporate tax expenditures.

U.S. corporate after-tax profits were at record levels during 2012 while corporate tax revenue was below its historical average relative to GDP. For example, U.S. corporate after-tax profits were at record levels during the third quarter of 2012, at an annualized $1.75 trillion.[170] U.S. corporations paid approximately 1.2% GDP in taxes during 2011. This was below the 2.7% GDP level in 2007 pre-crisis and below the 1.8% historical average for the 1990-2011 period.[171] In comparing corporate taxes, the Congressional Budget Office found in 2005 that the top statutory tax rate was the third highest among OECD countries behind Japan and Germany. However, the U.S. ranked 27th lowest of 30 OECD countries in its collection of corporate taxes relative to GDP, at 1.8% vs. the average 2.5%.[172]

Solutions for creating more U.S. jobs

A variety of options for creating jobs exist, but these are strongly debated and often have tradeoffs in terms of additional government debt, adverse environmental impact, and impact on corporate profitability.[173] Examples include infrastructure investment, tax reform, healthcare cost reduction, energy policy and carbon price certainty, reducing the cost to hire employees, education and training, deregulation, and trade policy. Authors Bittle & Johnson of Public agenda explained the pros and cons of 14 job creation arguments frequently discussed, several of which are summarized below by topic. These are hotly debated by experts from across the political spectrum.[174]

Infrastructure investment

Many experts advocate infrastructure investment, such as building roads and bridges and upgrading the electricity grid. Such investments have historically created or sustained millions of jobs, with the offset to higher state and federal budget deficits. In the wake of the 2008-2009 recession, there were over 2 million fewer employed housing construction workers.[174] The American Society of Civil Engineers rated U.S. infrastructure a "D+" on their scorecard for 2013, identifying an estimated $3.6 trillion in investment ideas by 2020.[175]

CBO estimated in November 2011 that increased investment in infrastructure would create between 1-6 jobs per $1 million invested; in other words, a $100 billion investment would generate between 100,000 and 600,000 additional jobs. However, other options, such as reducing employers' payroll taxes (especially if limited to firms that increase their payroll), increasing aid to the unemployed, and providing additional refundable tax credits to lower-income households, would generate more jobs per dollar of investment than infrastructure.[176]

President Obama proposed the American Jobs Act in 2011, which included infrastructure investment and tax breaks offset by tax increases on high income earners.[177] However, it did not receive sufficient support in the Senate to receive a floor vote.

Tax policy

Removing the threat of higher taxes embodied in the fiscal cliff may encourage consumers to spend and employers to expand their business and add jobs. The risk is higher national debt, which can slow the economy in the long-run. The American Taxpayer Relief Act of 2012 significantly reduced taxes relative to the full expiration of the Bush tax cuts. Lowering the costs of workers also encourages employers to hire more. This can be done via reducing existing Social Security or Medicare payroll taxes or by specific tax incentives for hiring additional workers. President Obama reduced the Social Security payroll tax on workers during the 2011-2012 period, which added an estimated $100 billion to the deficit while leaving these funds with consumers to spend. The U.S. corporate tax rate is among the highest in the world, although U.S. corporations pay among the lowest amount relative to GDP due to loopholes. Reducing the rate and eliminating loopholes may make U.S. businesses more competitive, but may also add to the deficit.[174] The Tax Policy Center estimated during 2012 that reducing the corporate tax rate from 35% to 20% would add $1 trillion to the debt over a decade, for example.[178]

Lower healthcare costs

Businesses are faced with paying the significant and rising healthcare costs of their employees. Many other countries do not burden businesses, but instead tax workers who pay the government for their healthcare. This significantly reduces the cost of hiring and maintaining the work force.[174]

Energy policy and carbon price certainty

Various studies place the cost of environmental regulations in the thousands of dollars per employee. Americans are split on whether protecting the environment or economic growth is a higher priority. Regulations that would add costs to petroleum and coal may slow the economy, although they would provide incentives for clean energy investment by addressing regulatory uncertainty regarding the price of carbon.[174]

President Obama advocated a series of clean energy policies during June 2013. These included: Reducing carbon pollution from power plants; Continue expanding usage of clean energy; raising fuel economy standards; and energy conservation through more energy-efficient homes and businesses.[179]

Employment policies and the minimum wage

History of the federal minimum wage in real 2013 dollars and nominal dollars.

Raising the minimum wage would provide households with more money to spend, in an era with record corporate profits and a reluctance of corporations to invest. Critics argue raising employment costs deters hiring. During 2009, the minimum wage was $7.25 per hour, or $15,000 per year, below poverty level for some families.[174] The New York Times editorial board wrote in August 2013: "As measured by the federal minimum wage, currently $7.25 an hour, low-paid work in America is lower paid today than at any time in modern memory. If the minimum wage had kept pace with inflation or average wages over the past nearly 50 years, it would be about $10 an hour; if it had kept pace with the growth in average labor productivity, it would be about $17 an hour."[180]

President Obama advocated raising the minimum wage during February 2013: "The President is calling on Congress to raise the minimum wage from $7.25 to $9 in stages by the end of 2015 and index it to inflation thereafter, which would directly boost wages for 15 million workers and reduce poverty and inequality...A range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without jeopardizing employment. In fact, leading economists like Lawrence Katz, Richard Freeman, and Laura Tyson and businesses like Costco, Wal-Mart, and Stride Rite have supported past increases to the minimum wage, in part because increasing worker productivity and purchasing power for consumers will also help the overall economy."[181]

The Economist wrote in December 2013: "A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs...America's federal minimum wage, at 38% of median income, is one of the rich world's lowest. Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage."[182]

The U.S. minimum wage was last raised to $7.25 per hour in July 2009.[183] As of December 2013, there were 21 states with minimum wages above the Federal minimum, with the State of Washington the highest at $9.32. Ten states index their minimum wage to inflation.[184]

The CBO reported in February 2014 that increasing the minimum wage to $10.10 per hour between 2014 and 2016 would reduce employment by an estimated 500,000 jobs, while about 16.5 million workers would have higher pay. A smaller increase to $9.00 per hour would reduce employment by 100,000, while about 7.6 million workers would have higher pay.[185]

Regulatory reform

Regulatory costs on business start-ups and going concerns are significant. Requiring laws to have sunset provisions (end-dates) would help ensure only worthwhile regulations are renewed. New businesses account for about one-fifth of new jobs added. However, the number of new businesses starting each year dropped by 17% after the recession. Inc. magazine published 16 ideas to encourage new startups, including cutting red tape, approving micro-loans, allowing more immigration, and addressing tax uncertainty.[174]

Education policy

Education policy reform could make higher education more affordable and more attuned to job needs. Unemployment is considerably lower for those with a college education. However, college is increasingly unaffordable. Providing loans contingent on degrees focused on fields with worker shortages such as healthcare and accounting would address structural workforce imbalances (i.e., a skills mismatch).[174]

Income inequality

U.S. economic growth is not translating into higher median family incomes. Real GDP per capita has increased while the real median income per household has not, indicating a trend of greater income inequality.[186]

Income inequality, expressed by wage stagnation for middle- and lower-income families coupled with a shift in income growth to the top earners, can adversely affect economic growth, as wealthier families tend to save more. The quality or pay of the job matters, not just creating more jobs. The union movement has declined considerably, one factor contributing to more income inequality and off-shoring. Reinvigorating the labor movement could help create more higher-paying jobs, shifting some of the economic pie back to workers from owners. However, by raising employment costs, employers may choose to hire fewer workers.[174]

Trade policy

Creating a level playing field with trading partners could help create more jobs in the U.S. Wage and living standard differentials and currency manipulation can make "free trade" something other than "fair trade." Requiring countries to allow their currencies to float freely on international markets would reduce significant trade deficits, adding jobs in developed countries such as the U.S. and Western Europe.[174]

Long-term unemployment

CBO reported several options for addressing long-term unemployment during February 2012. Two short-term options included policies to: 1) Reduce the marginal cost to businesses of adding employees; and 2) Tax policies targeted towards people most likely to spend the additional income, mainly those with lower income. Over the long-run, structural reforms such as programs to facilitate re-training workers or education assistance would be helpful.[63]

President's Council on Jobs and Competitiveness

President Obama established the President's Council on Jobs and Competitiveness in 2009. The Council released an interim report with a series of recommendations in October 2011. The report included five major initiatives to increase employment while improving competitiveness:

  1. Measures to accelerate investment into job-rich projects in infrastructure and energy development;
  2. A comprehensive drive to ignite entrepreneurship and accelerate the number and scale of young, small businesses and high-growth firms that produce an outsized share of America's new jobs;
  3. A national investment initiative to boost jobs-creating inward investment in the United States, both from global firms headquartered elsewhere and from multinational corporations headquartered here;
  4. Ideas to simplify regulatory review and streamline project approvals to accelerate jobs and growth; and,
  5. Steps to ensure America has the talent in place to fill existing job openings as well as to boost future job creation.[187]

U.S. employment history

Jobs created by Presidential term

Various sources summarize the number of jobs created by Presidential term. The figures may include private or public job creation or combination. The Federal Reserve Economic Data (FRED) database contains the total nonfarm employment level. A graph with a simple download of data on jobs by month since the late 1930s is available here:

The Calculated Risk blog also reported the number of jobs created by Presidential term. Over 10 million jobs were created in each of President Clinton's two terms during the 1990s, by far the largest number among recent Presidents.[188]

2000-present

U.S. Changes in Employment for Selected Time Periods.

Job growth in the U.S. from 2000 to 2007 was slow by historical standards, with 9.2 million jobs created versus a range of approximately 18-20 million in each of the preceding three decades. Including the impact of the 2008-2009 recession, job growth from 2000 to 2010 was only 2.2 million.[189]

The U.S. economy was severely impacted by the subprime mortgage crisis. The U.S. unemployment rate rose steadily from 5% in January 2008 to a peak of 10% in October 2009. It has since fallen to 7.8% in September 2012.[190] The number unemployed rose from 7.6 million in January 2008 to a peak of 15.4 million in October 2009. It has since fallen to 12.1 million in September 2012.[191]

Monthly job losses began in February 2008 and peaked in January 2009, with over 800,000 jobs lost that month. Employment fell from 138.0 million at peak employment in January 2008 to the trough of 129.2 million in February 2010, a decline of 8.8 million jobs or 6.4% of the workforce.[192]

As part of the economic policy of Barack Obama, the United States Congress funded approximately $800 billion in spending and tax cuts via the February 2009 American Recovery and Reinvestment Act to stimulate the economy. Monthly job losses began slowing shortly thereafter. By March 2010, employment again began to rise. From March 2010 to September 2012, over 4.3 million jobs were added, with 24 consecutive months of employment increases from October 2010 to September 2012. As of September 2012, employment of 133.5 million remained 4.5 million below the pre-crisis peak in January 2008.[192]

However, despite decreases in job loss and the unemployment rate, the federal data has been criticized for excluding large numbers of people who would like to work but are not considered to be part of the labor force because they are not running an active job search and are not available for immediate employment.[193]

In 2009, there were six unemployed people, on average, for each available job.[194] Men account for at least 7 of 10 workers who lost jobs, according to Bureau of Labor Statistics data.[195] The youth unemployment rate was 18.5% in July 2009, the highest July rate since 1948.[196] Approximately 34.5% of young African American men were unemployed in October 2009.[197] As of 2009, Detroit's unemployment rate was 27%, but the Detroit News suggests that nearly half of the city's working-age population was unemployed.[198] An estimated 3.8 million Americans lost their jobs in 2009.[194]

A study by the Brookings Institution determined that the 2011 employment rate for teens (ages 16–19) in the United States is 25%.[199] Comparing employment rates in 2000 vs. 2011, the Brookings Institution found that younger workers had much lower rates of employment (higher unemployment) while older workers had higher rates of employment (lower unemployment). Between 2000 and 2011, the employment rate for 16-19 year-olds fell from 44 to 24 percent, while the employment rate for those over 55 rose moderately. For those aged 20–54, the rate of employment fell.[200]

Research indicates recovery from financial crises can be protracted, with lengthy periods of high unemployment and substandard economic growth.[201][202]

Analytical perspectives

Employment statistics from the FRED database, comparing September 2014 and October 2009. Many of the mathematical relationships between the variables are shown.
Employment trends in key variables indexed to show relative changes in the number of persons

Analyzing the true state of the U.S. labor market is very complex and a challenge for leading economists, who may arrive at different conclusions. For example, the main gauge, the unemployment rate, can be falling (a positive sign) while the labor force participation rate is falling as well (a negative sign). Further, the reasons for persons leaving the labor force may not be clear, such as aging (more people retiring) or because they are discouraged and have stopped looking for work.[203] The extent to which persons are not fully utilizing their skills is also difficult to determine when measuring the level of underemployment.[204]

A rough comparison of September 2014 (when the unemployment rate was 5.9%) versus October 2009 (when the unemployment rate peaked at 10.0%) helps illustrate the analytical challenge. The civilian population increased by roughly 10 million during that time, with the labor force increasing by about 2 million and those not in the labor force increasing by about 8 million. However, the 2 million increase in the labor force represents the net of an 8 million increase in those employed, partially offset by a 6 million decline in those unemployed. So is the primary cause of improvement in the unemployment rate due to: a) increased employment of 8 million; or b) the increase in those not in the workforce, also 8 million? Did the 6 million fewer unemployed obtain jobs or leave the workforce?

Slow labor market recovery following 2007-2009 recession

CBO issued a report in February 2014 analyzing the causes for the slow labor market recovery following the 2007-2009 recession. CBO listed several major causes:

Employment growth 2000-present

The U.S. economy created between 18-21 million jobs in each of the three decades from 1970-2000, an average of approximately 165,500/month during that span. From January 2000 to January 2008 (the pre-recession peak), job creation averaged 77,000 jobs/month. Excluding the early 2000s recession, from January 2003-January 2008 the U.S. created 128,000 jobs/month. During the Great Recession, 8.5 million jobs were lost from the peak in early 2008 to the trough in February 2010. By September 2012, approximately 4.3 million jobs were added back, still 4.2 million below the pre-crisis peak. During 2011 and 2012, job creation averaged 153,000 and 151,000 jobs/month respectively.[206][207]

What job creation rate is required to lower the unemployment rate?

Estimates

Estimates vary for the number of jobs that must be created to absorb the inflow of persons into the labor force, to maintain a given rate of unemployment. This number is significantly affected by demographics and population growth. For example, economist Laura D'Andrea Tyson estimated this figure at 125,000 jobs per month during 2011.[28]

Economist Paul Krugman estimated it around 90,000 during 2012, mentioning also it used to be higher.[208] One method of calculating this figure follows, using data as of September 2012: U.S. population 314,484,000 x 0.90% annual population growth x 63% of population is working age x 63% work force participation rate / 12 months per year = 93,614 jobs/month. This approximates the Krugman figure.

Wells Fargo economists estimated the figure around 150,000 in January 2013: "Over the past three months, labor force participation has averaged 63.7 percent, the same as the average for 2012. If the participation rate holds steady, how many new jobs are needed to lower the unemployment rate? The steady employment gains in recent months suggest a rough answer. The unemployment rate has been 7.9 percent, 7.8 percent and 7.8 percent for the past three months, while the labor force participation rate has been 63.8 percent, 63.6 percent and 63.6 percent. Meanwhile, job gains have averaged 151,000. Therefore, it appears that the magic number is something above 151,000 jobs per month to lower the unemployment rate."[209] Reuters reported a figure of 250,000 in February 2013, stating sustained job creation at this level would be needed to "significantly reduce the ranks of unemployed."[210]

Federal Reserve analysts estimated this figure around 80,000 in June 2013: "According to our analysis, job growth of more than about 80,000 jobs per month would put downward pressure on the unemployment rate, down significantly from 150,000 to 200,000 during the 1980s and 1990s. We expect this trend to fall to around 35,000 jobs per month from 2016 through the remainder of the decade."[211]

Empirical data

During the 41 months from January 2010 to May 2013, there were 19 months where the unemployment rate declined. On average, 179,000 jobs were created in those months. The median job creation during those months was 166,000.[212]

How many jobs must be created to return to pre-recession levels?

Answering this question involves understanding the current employment level relative to the pre-recession peak, as well as the jobs needed to address new labor force entrants as the population grows. U.S. total non-farm employment peaked at 138.1 million in January 2008. As of March 2013, employment was 135.2 million, a net loss of 2.9 million jobs. Employment fell from the peak in 1/2008 until 2/2010, then began to increase through early 2013.[213]

From January to November 2012, the U.S. added approximately 151,000 jobs per month on average.[25] Each month, The Hamilton Project examines the "jobs gap," which is the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the labor force each month. Job creation would have to average 208,000 per month to close the gap by 2020; 320,000 by 2017; or 472,000 by mid-2015.[26] During the prosperous 1990's decade, the U.S. created an average of 182,000 jobs/month.[25]

Bloomberg reported that as of May 2013, the employment-to-population ratio for those aged 16–65 was 67.5%, well below the average of 72.5% in the decade preceding the recession that began in January 2008. This was approximately 10 million jobs short of the number that would exist at the average ratio.[214]

Comparative size of labor force

The U.S. civilian labor force was approximately 155 million people during October 2012.[10] This was the world's third largest, behind China (795.5 million) and India (487.6 million). The entire European Union employed 228.3 million.[215]

Comparison of employment recovery across recessions and financial crises

One method of analyzing the impact of recessions on employment is to measure the period of time it takes to return to the pre-recession employment peak. By this measure, the 2008-2009 recession was considerably worse than the five other U.S. recessions from 1970 to present. By May 2013, U.S. employment had reached 98% of its pre-recession peak after approximately 60 months.[216] Employment recovery following a combined recession and financial crisis tends to be much longer than a typical recession. For example, it took Norway 8.5 years to return to its pre-recession peak employment after its 1987 financial crisis and it took Sweden 17.8 years after its 1991 financial crisis. The U.S. is recovering considerably faster than either of these countries.[202]

Effect of disability recipients on labor force participation measures

The number of people receiving Social Security disability benefits (SSDI) increased 22% to 8.7 million in April 2012 from 7.1 million in December 2007. Recipients are excluded from the labor force. Economists at JPMorgan Chase & Co. and Morgan Stanley estimated this explained as much as 0.5 of the 2.0 percentage point decline in the U.S. labor-force participation rate during the period.[217]

Obtaining data

Monthly jobs reports

U.S. employment statistics are reported by government and private primary sources monthly, which are widely quoted in the news media. These sources use a variety of sampling techniques that yield different measures.

Several secondary sources also interpret the primary data released.

Federal Reserve Database (FRED)

The FRED database contains a variety of employment statistics organized as data series. It can be used to generate charts or download historical information. Data series include labor force, employment, unemployment, labor force participation, etc. The Bureau of Labor Statistics (BLS) also releases employment statistics. Some popular data series include:

Job creation in the U.S. is typically measured by changes in the "Total Non-Farm" employees.

FRED has gathered many of the employment statistics on one page for easy access:

Unemployment rate forecasts

The Congressional Budget Office provides an unemployment rate forecast in its long term budget outlook. During August 2012, it projected that the unemployment rate would be 8.8% in 2013 and 8.7% in 2014. CBO projected the rate would then begin falling steadily to 5.5% by 2018 and remain around that level through 2022. This forecast assumes annual real GDP growth will exceed 3% between 2014 and 2018.[221] During December 2012, Wells Fargo Economics forecast that the unemployment rate would be 7.8% in 2013 and 7.6% in 2014. This forecast assumes real GDP growth would be 1.4% in 2013 and 2.5% in 2014.[222]

Off-shoring statistics

The Department of Labor's Employment and Training Administration (ETA) prepares an annual report on those petitioning for trade adjustment assistance, due to jobs lost from international trade. This represents a fraction of jobs actually off-shored and does not include jobs that are placed overseas initially or the collateral impact on surrounding businesses when, for example, a manufacturing plant moves overseas. During 2011, there were 98,379 workers covered by petitions filed with ETA.[92] The figure was 280,873 in 2010,[93] 201,053 in 2009 and 126,633 in 2008.[94]

Historical unemployment rate charts

US Unemployment 1800-1890
The estimated U.S. Unemployment rate from 1800-1890. All data are estimates based on data compiled by Lebergott.[223] See limitations section below regarding how to interpret unemployment statistics in self-employed, agricultural economies. See image info for complete data.
US Unemployment 1890-2009
The estimated U.S. Unemployment rate from 1890-2010. 1890–1930 data are from Romer (who modified Lebergott's work after finding some errors in it).[224] 1930–1940 data are from Coen.[225] 1940–2009 data are from Bureau of Labor Statistics.[226][227] See image info for complete data.


See also

References

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