June jobs spree a lie: Hiring numbers are Emperor’s new clothes

If unemployment is so low, why are so many still jobless? / Photo: State of New Jersey official photo

WASHINGTON, July 6, 2014 — The Washington Post recently reported, “America’s hiring spree kicked into full gear in June,” noting the economy added 288,000 jobs for the month. This was the fifth straight month of gains in excess of 200,000. This is welcome news, but it continues to represent the low expectations consistent with the economic conditions of the past six years.

The economy has not seen five consecutive months of 200,000 plus jobs added in almost 15 years, but that fact makes recent job growth look artificially good. Job growth in the last seven years has been poor because of the deep recession and the anemic recovery, and in the eight years before that, we had a labor shortage condition. It was not possible to find 200,000 qualified employees per month.

READ ALSO: Supreme Court activism errors in ABC vs. Aereo decision

During the Bush administration, economists believed that 6 percent was the natural rate of unemployment. From 2000 to 2008, the unemployment rate was well below 6 percent and much of the time was well below 5 percent. That meant employers who couldn’t find adequate labor either substituted capital (used machines) to allow their businesses to grow or simply produced outside of the country where adequate labor was available. This labor shortage existed, even though more than 66 percent of the adult population was in the work force.

Today adding 200,000 jobs for five straight months and even adding 288,000 jobs in one month, is certainly not an economy that is experiencing a “hiring spree.” “Hiring spree” would have been a more appropriate term in early 2010. It was then, in March, April and May, that the economy added 156,000 jobs, 251,000 jobs and 516,000 jobs respectively. Had a trend like that continued, we would have, and we should have, experienced a hiring spree that would have led to a high growth economy.

However, the federal government passed burdensome health care legislation and increased government regulations so that the small businesses that create the majority of new jobs, simply stopped hiring. They really haven’t started robust hiring since then.

The other disturbing fact is that during the first quarter of this year which was the beginning of this “hiring spree”, the economy shrank by almost 3 percent. Since about 70 percent of GDP growth comes from consumption, and since higher employment means higher incomes, which should lead to higher consumption, the first quarter GDP decline is perplexing, even considering bad weather and inventory reduction.

There are two possible explanations. One is that consumers are saving rather than spending their extra income. However since the savings rate is falling that does not appear to be the case. The second explanation is that while more people are working, personal income is not increasing proportionately. In other words, workers are not seeing significant income gains once they return to work. This occurs if the new job is a low paying one and provides the same or less than the amount of income collected from an income maintenance programs during the unemployed period. This appears to be the proper explanation.

Since most of the new jobs seem to be low paying and since many jobs are for 30 hours a week or less, the income is low. If it is less than the entitlement income, consumption will not increase at the same rate as employment increases.

READ ALSO: Hank Paulson’s new Wall Street push for carbon tax racket

The real key to the strength of the job market and to the entire economy may be determined at the end of July. At that time the government will release its first estimate of GDP growth for the second quarter of this year. Most economists are forecasting a 2.5 to 3 percent growth rate. That is certainty a huge turn-around from the first quarter, but it is not enough to create robust job growth. How much is robust job growth?

We should see many months where 400,000 or 500,000 or more jobs are added. As an example, after the more severe (in terms of depth) recession in 1981, there were two months where more than 1 million jobs were added. That is a hiring spree.

Job growth that lowers the unemployment rate to 6.1 percent is always welcome. But we need policies that will encourage businesses to hire and that will encourage people to enter the job market and contribute. We know the way to do that is to reduce corporate tax rates and change investment write-off rules, reduce government mandated and burdensome payments by business for social programs, reduce regulations that stifle growth, and give just enough entitlement income to those in need to provide sustenance and discourage a long term condition. These policies, while reducing unemployment, would also lead to a return of the 66 percent labor participation rate instead of the less than 63 percent we have today.

Unfortunately the current administration seems to be doing just the opposite. That will likely put a damper on the “hiring spree.”

Click here for reuse options!
Copyright 2014 Communities Digital News

• The views expressed in this article are those of the author and do not necessarily represent the views of the editors or management of Communities Digital News.

This article is the copyrighted property of the writer and Communities Digital News, LLC. Written permission must be obtained before reprint in online or print media. REPRINTING CONTENT WITHOUT PERMISSION AND/OR PAYMENT IS THEFT AND PUNISHABLE BY LAW.

Correspondingly, Communities Digital News, LLC uses its best efforts to operate in accordance with the Fair Use Doctrine under US Copyright Law and always tries to provide proper attribution. If you have reason to believe that any written material or image has been innocently infringed, please bring it to the immediate attention of CDN via the e-mail address or phone number listed on the Contact page so that it can be resolved expeditiously.