While we all hope that the economy will strengthen, the White House’s all-out PR effort today on the economy fails to recognize how historically weak both wages and job growth have been. Most Americans have good reason to believe the economy is not working for them. We should not lower our standards to the point where our leaders can state that our economy is doing great when the typical worker has seen his or her wages drop in real terms over the last four years and when job growth is at historic lows for this stage of a recovery.
A more candid assessment of the December jobs and earnings report — and the full 2005 job record — would recognize the following 3 points.
1. The Unemployment Rate Would Be 6.6% if As Many People Were Looking for Work Today as Were When President Bush Took Office.
There are two reasons that unemployment rate can drop: one, because job growth is strong, or two, because fewer people are looking for work. Unfortunately, the entire story of the unemployment rate’s drop to 4.9% has been Americans falling out of the labor market.
In January 2001, 67.2% of Americans were working or looking for work. If that number had held, there would be an additional 2.7 million people looking for work and the unemployment rate would be 6.6% — 1.7% above its official mark.
We saw this effect in December, where the unemployment rate dropped thanks largely to the labor force shrinking by 30,000 workers.
2. Both Average Real Weekly and Average Real Hourly Wages were Down in 2005 — and Indeed are Down for the 4 years Since the End of the Recession.
For the second year in a row, both real weekly and real hourly wages fell in 2005. As of December 2005, both were lower than they were when the recession ended in November 2001.
— For 2005, average real weekly wages fell 0.4% from $$552.75 in December 2004 to $550.60 in December 2005. Since the end of the recession, they are also down 0.4% from $552.58 in November 2001.
— For 2005, average real hourly wages fell 0.4% from $16.40 in December 2004 to $16.34 in December 2005. Since the end of the recession, they have been effectively stagnant, dropping one cent from $16.35 in November 2001.
3. The Rate of Job Growth for the Fourth Year of a Recovery is the Weakest it has Been Since the 1930s.
— The rate of job growth during 2005 — about the fourth year of the recovery — was the weakest of any comparable period since the 1930s. In 2005 (months 38–49 of the current recovery), total employment grew just 1.5%. In months 38 through 49 of recoveries this length since the 1930s, employment growth averaged more than twice that rate: 3.1%. While the economy added 2.0 million jobs — in some cases a sound year — it represented a weak rate, as mentioned above, for a fourth year of a recovery. Indeed, since the economy had net job loss for 2002 and 2003 combined, the labor market needed more robust job growth to make up for this unusual period of job loss. The job growth in 2005 is therefore, particularly unimpressive in the context of such a weak first two years of job performance in this recovery.
— The Job Growth Since the 2003 Tax Cut is Also the Weakest for this Stage of the Recovery Since the 1930s. The White House continues to boast about job growth since its last tax cuts. In a speech early last month, Bush argued that cutting taxes on dividends and capital gains encouraged “job creating investment” that helped the economy add “four and a half million new jobs.” This morning the White House used the same mark to herald the 4.6 million jobs created since May 2003. Yet, a real look beyond the talking points shows that this is really nothing to brag about. The 4.6 million jobs during this 31 month period represents only 150,000 jobs a month — or 3.6% rate. That is half the average rate of job growth for similar periods in recoveries since the 1930s — the worst ratefor such periods on record.