What Private Sector Expansion? :

We Need a Massive Federal Jobs Program

Now!

Ron BaimanChicago Political Economy Group

www.cpegonline.org

June 30, 2010

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Executive Summary• US employment and job growth data from the last

three decades suggests that under the most “highly optimistic” scenario it will take about 31 years to get back to the employment levels of late 2007 (p. 14).

• This “highly optimistic” scenario is highly unlikely as the longest continuous expansion on record is only 10 years (p. 14).

• Under all other: “optimistic” (p. 11), “pessimistic” (p. 18), and “highly pessimistic” (p. 21), scenarios “real” unemployment rates that include discouraged and involuntary part-time workers increase from 16.9% (May 2010) to 23.8%, 26.7%, and 29.5%, respectively, by May 2020.

• Recent (2010) private sector job growth has declined sharply, and as federal stimulus and Census work winds down more state and local government layoffs appear imminent (p. 23).

• We can’t wait for a private sector driven economic recovery. We need a massive, federally funded, living wage, jobs program now (p. 10) !

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May 2010 Employment Conditions: The Worst Since

the Great Depression• Employment in May, 2010 was 139.4 million, over 7

million less than the 146.5 million before the Great Recession in November, 2007 (all employment data in this section are from the CPS “household survey” conducted by the BLS).

• Over this period the official Unemployment Rate has more than doubled from 4.7% to 9.7%, as the number of officially unemployed has climbed from 7.3 million to 15 million, with almost half unemployed for over 6 months - the largest share since data has been collected.

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Percent of Civilian Labor Force Unemployed for 15 Weeks or

More(BLS – Seasonalized)

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Young People Need Jobs• Average annual 2008-2010 (May to May) over 16

Civilian Non-institutionalized Population growth in the U.S. was 2.047 million.

• The average pre-Great Recession June 2006 to May 2007 “Labor Force Participation Rate” was 62.21%.

• Projecting the most recent population growth forward at the pre-recession labor force participation rates gives us an average of 113,000 (66.21% of 2.047 million divided by 12) new entrants to the Labor Force every Month.

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Employment Growth Over the Last Decade

Over the last decade (May 2000 to May 2010) employment growth averaged 555,000 a year or about 46,000 a month:

Figure 1: Annual Employment Change2000 to 2010

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Using 2000-2010 Employment Growth to Estimate

“Unadjusted Official” Unemployment Rates

• If we assume employment growth of 46,000 a month (or 555,000 a year) and Labor Force growth of 113,000 a month (or 1.355 million an year) we get increasing “unadjusted official” future unemployment rates

• These are “unadjusted” unemployment rates as they don’t adjust for more “discouraged workers” dropping out of the Labor Force.

• They are also “official” unemployment rates because they don’t take into account involuntary part-timer and pre-existing (pre-recession) discouraged workers.

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Estimating “Real” Unemployment Rates from “Unadjusted Official” Rates

• Official U3 unemployment rates do not take into account persons without a job who have looked for work within the last year but not within the last 30 days (people who are “marginally attached” to the labor force) and those who have a part-time job but would like a full-time job (involuntary part-time for economic reasons.)

• The “marginally attached” and “involuntary part-timers for economic reasons” are both included in BLS U6 unemployment rates that we will call “real” unemployment rates.

• We will estimate “real” U6 unemployment rates by holding the U6/U3 ratio constant at its most recent pre-recession annual value of 1.74. This ratio has ranged from 1.63 to 1.86 since 1994.

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Optimistic Scenario• Assuming average (May to May) 2000 to 2010

Employment growth in the future is “optimistic” as our economy has become weaker since the beginning of the 2008 Great Recession:

• We no longer have a “housing bubble.”• We no longer have a rapidly growing financial sector.• Since the 2001 recession the US has lost 42,400

factories including 36% of plants employing more than 1000 workers (which declined from 1,479 to 947) and 38% of factories employing between 500 and 999 workers which declined from 3,198 to 1,972. An additional 90,000 factories are now at risk of going out of business.1 When plants close they cannot re-employ workers even if demand picks up.

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What will Propel a Private Sector Driven Economic

Expansion?• There are four major sources of economic demand: consumption, investment, government spending, and exports minus imports.

• As households (that are not experiencing unemployment) are currently saving more of their income, increased household consumption is not likely to drive an economic expansion.

• But with consumption demand sluggish at best and a persistent and massive trade deficit, its hard to see what would propel increased real (employment generating) private sector investment in the U.S.

• At this point, it appears that only a very large scale, permanent, living wage, federal funded jobs program (requiring large increases in government spending), that would complemented by major changes in trade policy leading to reduced imports and increased exports) will be able to get our economy started.2

• This is not “pie in the sky,” a modest financial transactions tax could raise about $1 Trillion and finance most if not all of 20 million new jobs at today’s median wages.3

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Employment New Employment Labor Force

New Labor Force Entrants

"Unadjusted Official" U3 Unemployment Rate

"Real" U6 Unemployment Rate Ratio U6/U3

Year (May)

4.4% 8.2% 1.86 20075.4% 8.8% 1.62 20089.4% 13.2% 1.40 2009

139,420 154,393 9.7% 16.9% 1.74 2010139,975 555 155,748 1,355 10.1% 17.6% 1.74 2011140,530 555 157,103 1,355 10.5% 18.4% 1.74 2012141,085 555 158,458 1,355 11.0% 19.1% 1.74 2013141,640 555 159,813 1,355 11.4% 19.8% 1.74 2014142,195 555 161,168 1,355 11.8% 20.5% 1.74 2015142,750 555 162,523 1,355 12.2% 21.2% 1.74 2016143,305 555 163,878 1,355 12.6% 21.8% 1.74 2017143,860 555 165,233 1,355 12.9% 22.5% 1.74 2018144,415 555 166,588 1,355 13.3% 23.2% 1.74 2019144,970 555 167,943 1,355 13.7% 23.8% 1.74 2020

(Employment and Labor Force data in thousands)

Assuming 2000-2010 Average Employment GrowthFigure 2: Optimistic Scenario - Future Unemployment Rates

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Figure 3: Optimistic Scenario - Projected Unemployment Rates Assuming a Revival of

2000 -2010 Emp Growth for a Decade

"Unadjusted Off icial" U3 Unemployment Rate

"Real" U6 Unemployment Rate

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Employment Growth During the Last Economic Expansion

If we just look at years of employment expansion during the last decade from 2003 to 2008 (May to May), we get employment growth of 1,581

thousand jobs a year, or about 132,000 a month.

Figure 4: Annual Employment Change2003 to 2008

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Highly Optimistic Scenario:Using 2003-2008 Employment

Growth to Project Future Employment Growth

• If we assume monthly employment growth of 132,000 and Labor Force growth of 113,000 we get a net employment increase of about 19,000 jobs a month.

• At this rate making up for the 7.1 million jobs lost since November 2007 and employing new labor force entrants would take 376 months (7.1 million divided by 19,000) or 31 years.

• This is “highly optimistic” as the longest period of continuous U.S. economic expansion on record is only 10 years (March 1991 to November 2001).

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Employment New

EmploymentLabor Force

New Labor Force

Entrants

"Unadjusted Official"

Unemployment Rate

"Real" U6 Unemployment

RateRatio U6/U3

Year (May)

4.4% 8.2% 1.86 20075.4% 8.8% 1.62 20089.4% 13.2% 1.40 2009

139,420 154,393 9.7% 16.9% 1.74 2010141,001 1,581 155,748 1,355 9.5% 16.5% 1.74 2011142,581 1,581 157,103 1,355 9.2% 16.1% 1.74 2012144,162 1,581 158,458 1,355 9.0% 15.7% 1.74 2013145,743 1,581 159,813 1,355 8.8% 15.3% 1.74 2014147,323 1,581 161,168 1,355 8.6% 14.9% 1.74 2015148,904 1,581 162,523 1,355 8.4% 14.6% 1.74 2016150,485 1,581 163,878 1,355 8.2% 14.2% 1.74 2017152,065 1,581 165,233 1,355 8.0% 13.9% 1.74 2018153,646 1,581 166,588 1,355 7.8% 13.5% 1.74 2019155,227 1,581 167,943 1,355 7.6% 13.2% 1.74 2020

(Employment and Labor Force Data in Thousands)

Assuming 2003 to 2008 Average Employment GrowthFigure 5: Highly Optimistic Scenario - Future Unemployment Rates

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Figure 6: Highly Optimistic Scenario - Projected Unemployment Rates Assuming 2003-2008 Employment

Growth for a Decade

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Pessimistic Scenario• If we try to take into account the weakening of the

economy since 2008,• And note that since 1982 (the beginning of continuous

and growing trade deficits and “deindustrialization”), every economic expansion has generated less monthly employment growth (Nov 1982 to Jul 1990 228,000 a month, Mar 1991 to Mar 2001 200,000 a month, Nov 2001 to Dec 2007 97,000 a month).

• It seems reasonable to assume, as a “pessimistic” scenario, that in the next decade an unaided (private sector driven) expansion will generate about half of the average employment growth of the last decade, or May 2010 to May 2020 average employment growth of about 278,000 a year (=555,000/2, see Figure 1). Note that as this is average employment growth over the previous decade and not just during expansion months, it assumes some months of employment contraction in the coming decade.

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Employment New

Employment Labor ForceNew Labor

Force Entrants"Unadjusted Official" Unemployment Rate

"Real" U6 Unemployment Rate Ratio U6/U3 Year (May)

4.4% 8.2% 1.86 20075.4% 8.8% 1.62 20089.4% 13.2% 1.40 2009

139,420 154,393 9.7% 16.9% 1.74 2010139,698 278 155,748 1,355 10.3% 17.9% 1.74 2011139,975 278 157,103 1,355 10.9% 19.0% 1.74 2012140,253 278 158,458 1,355 11.5% 20.0% 1.74 2013140,530 278 159,813 1,355 12.1% 21.0% 1.74 2014140,808 278 161,168 1,355 12.6% 22.0% 1.74 2015141,085 278 162,523 1,355 13.2% 22.9% 1.74 2016141,363 278 163,878 1,355 13.7% 23.9% 1.74 2017141,640 278 165,233 1,355 14.3% 24.8% 1.74 2018141,918 278 166,588 1,355 14.8% 25.8% 1.74 2019142,195 278 167,943 1,355 15.3% 26.7% 1.74 2020

(Employment and Labor Force Data in thousands)

Assuming 50% of Average 2000 to 2010 Employment GrowthFigure 7: Pessimistic Scenario - Future Unemployment Rates

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Figure 8: Pessimistic Scenario - Projected "Real" Unemployment Rates Assuming Emp

Growth Equal to 50% of 2000-2010 Average for a Decade

"Unadjusted Official" U3 Unemployment Rate

"Real" U6 Unemployment Rate

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Highly Pessimistic Scenario• In this case we assume a near future “double dip,”

recession, and/or a farther away but within the next decade recession, that result in employment declines that completely off-set employment growth.

• This scenario thus assumes zero average employment growth for the next decade.

• This is not what any of us wish for, but the current obsession with cutting federal deficits (which was $ -1.4 Trillion or -9.9% of GDP in 2009, and is estimated at $ -1.35 T or -9.2% of GDP in 2010), leaves in doubt continued employment expansion, as 9-10% of current economic output is dependent on federal deficit spending.4

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EmploymentNew

EmploymentLabor Force

New Labor Force

Entrants

"Unajusted Official"

Unemployment Rate

"Real" U6 Unemployment

RateRatio U6/U3

Year (May)

4.4% 8.2% 1.86 20075.4% 8.8% 1.62 20089.4% 13.2% 1.40 2009

139420 154,393 9.7% 16.9% 1.74 2010139,420 0 155,748 1,355 10.5% 18.2% 1.74 2011139,420 0 157,103 1,355 11.3% 19.6% 1.74 2012139,420 0 158,458 1,355 12.0% 20.9% 1.74 2013139,420 0 159,813 1,355 12.8% 22.2% 1.74 2014139,420 0 161,168 1,355 13.5% 23.5% 1.74 2015139,420 0 162,523 1,355 14.2% 24.7% 1.74 2016139,420 0 163,878 1,355 14.9% 26.0% 1.74 2017139,420 0 165,233 1,355 15.6% 27.2% 1.74 2018139,420 0 166,588 1,355 16.3% 28.4% 1.74 2019139,420 0 167,943 1,355 17.0% 29.5% 1.74 2020

Figure 9: Highly Pessimistic Scenario - Future Unemployment Rates Assuming 0% Average 2000 to 2010 Employment Growth

(Employment and Labor Force Data in thousands)

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Figure 10: Highly Pessimistic Scenario - Projected Unemployment Rates Assuming No Employment

Growth on Average for a Decade

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Employment and Job Growth Since January 2010

• Though employment began to increase again in January 2010 at a fairly rapid pace, this does not appear to be sustainable. Note that the Official NBER business cycle dating group has not yet designated this as an “expansion”.

• In June 2010 private sector (payroll) jobs growth was just 83,000, which coupled with a loss of 208,000 jobs, led to a net job decline of 125,000. Overall employment (from household survey) dropped by 301,000 – see Figures 11 and 12.

• These recent declines suggest that much of the earlier growth was dependent on the massive run-up in federal “stimulus,” direct and indirect Federal Reserve subsidies, and temporary Census jobs (in May), that are now being cut back.

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Month CPS Household Survey

Total Employment (Household Survey)

Total Private Jobs

(Payroll)

Total Government

Jobs (Payroll)

Total Non-Farm Jobs (Payroll)

Jan 541 16 -2 14Feb 308 62 -23 39Mar 264 158 50 208Apr 550 218 72 290May -35 41 390 431June -301 83 -208 -125Average 221.2 96.3 46.5 142.8

CES Payroll Survey

Figure 11: BLS Data on Employment and Job Growth in 2010(Change from Prior Month in Thousands)

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Figure 11: Monthly Employment and Job ChangeJanuary to June 2010

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References:1) Richard McCormick, “The Plight of American Manufacturing,”

American Prospect, Jan/Feb 2010. 2) “Toward a New Political Economy for the U.S.” at:

http://www.cpegonline.org/workingpapers/CPEGWP2010-1.pdf 3) “A permanent Jobs Program for the U.S.: Economic

Restructuring to Meet Human Needs,” at: http://www.cpegonline.org/jobsprogram.html and for financial transactions tax estimates:http://www.cpegonline.org/workingpapers/CPEGWP2010-2.pdf

4) “The Linkage Between the Three Types of National Economic Deficits,” at: http://www.cpegonline.org/multimedia/DeficitLinkages.ppt.