Slow Growth Policies Pin Down Jobs Outlook

Slow Growth Policies Pin Down Jobs Outlook

Friday, the Labor Department is expected to report the economy added 215,000 jobs in April. A moderate improvement over February and March when the pace averaged 195,000, indicating growth will improve this spring over its tepid winter performance.

Still good jobs will remain scarce and wages depressed, because policies put in place over the last quarter century have permanently slowed growth.

The unemployment rate is expected to fall a notch to 6.6 percent–well below the 10 percent recession peak–however, that largely reflects fewer adults participating in the labor force. Were the same percentage of adults working or looking for work today as when the recession began, the unemployment rate would be 9.3 percent.

Baby boomer retirements are not driving down adult participation–the percentage of working Americans ages 65 to 69 has risen from 22 to 30 percent over the last 15 years. Given rising life expectancies and the secular decline in stock market returns and interest rates, this is likely to continue.

Rather, decent employment opportunities for prime working age adults have not kept pace with population growth. The percentage of Americans ages 25 to 54 that has a job is down to 77 percent from 81 percent 15 years ago, despite a larger share of women employed.

Shrinking opportunities, especially in manufacturing and the building trades, have hit men particularly hard. One out of six between the ages of 25 and 54 is without a job, and many have few prospects of finding one.

Twenty million Americans over 25 are working part-time, owing much to poor economic conditions and government incentives not to work full time. ObamaCare and the Earned Income Tax Credit (EITC) encourage low wage employees to work part-time to avoid losing benefits, and employers are limiting workers to less than 30 hours per week to avoid health insurance mandates.

All this pins down wages–especially for high school graduates with little additional training and college graduates from non-elite institutions–and worsens income inequality.

Through the recent recession and recovery, low wage businesses–those paying in the bottom third of all industries–added about 1,851,000 employees, while high wage employers–those paying in the top third–shed 976,000 workers.

No surprise, average family income, adjusted for inflation fell from $55,627 in 2007 to $51,017 in 2012.

The root cause of poor jobs creation and falling incomes is slow economic growth that has bedeviled Presidents Bush and Obama. During the Reagan-Clinton era, GDP growth averaged 3.4 percent; however, since 2000 the pace has halved to 1.7 percent, thanks to well meaning but ill conceived government policies,

Trade agreements have further exposed U.S. manufacturers to foreign competition, but have not similarly improved their market access abroad. Principal competitors China, Japan and Germany all systematically undervalue their currencies to make their exports artificially cheaper than U.S. products both in domestic and rapidly growing Asian markets.

Similarly, unlike Canada, which shares many of the same demographics shaping U.S. labor markets, the United States has chosen to outsource–not reduce–environmental risks associated with petroleum development by shutting down or curtailing production on the Atlantic and Pacific Coasts, the Gulf and Alaska.

Those policies are responsible for a $485 billion trade deficit, which easily suppress growth from 3.4 to 1.7 percent. Just the lost R&D, so prevalent in manufacturing and energy but now captured by foreign competitors, could boost U.S. economic growth by 2 percentage points a year.

Also, dysfunctions in banking, higher education and health care imposed by misguided regulations and government subsidies permit professionals to earn inflated incomes but harm the availability of credit, workers with the skills employers need and affordable health care and insurance. Along with the inefficiencies imposed by the excessively complex corporate and personal income tax systems, those lower productivity, investment and growth dramatically.

Emerging from a long recession, the economy should grow at 4 or 5 percent and create the needed jobs, but misguided and abusive government policies do not permit the economy to accomplish takeoff speed and raise wages.

Peter Morici is an economist and business professor at the University of Maryland, national columnist and five-time winner of the MarketWatch best forecaster award. He tweets @pmorici1


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