The end of the American jobs machine?

Current measures of unemployment can be a bit flaky, since, among other reasons, a reduction in the denominator (discouraged seekers stop looking for work) can make the % look better.  Paul Godek, economist with Compass Lexecon, offers a better way to look at unemployment statistics:

One simple alternative would be to measure the labor force as the number of people with jobs. Unemployment would be determined based on increases or decreases in the number of people employed relative to historic job growth.

The number of nonfarm private jobs has been growing steadily since the 1950s. That number reached a peak at the end of 2007. Between 1958 and 2007, the number of U.S. jobs grew to 115.4 million from 43.5 million—about 2% per year on average. The steady upward trend reflects the long-run growth of the economy and increased participation in the labor force.

The nearby chart compares employment and that trend. It shows the percentage difference between employment and the trend line generated from monthly employment figures over the past 50 years (July 1960 through June 2010).

[godek]

What we see is astounding. For almost 25 years—between 1984 and late 2008—the level of employment never fell to more than 3% below the trend line. Over that period, total employment grew by more than 36 million.

Employment fell briefly to about 6% below the trend during two previous recessions: in 1975 and again in 1982-1983. During those periods, the unemployment-rate peaks were 9% (in 1974) and 10.8% (in 1982). The unemployment rate in 2009 peaked at 10.1%.

By 2010, however, employment had fallen to about 10% below the trend, far below any previous level in the last half-century. These figures indicate that as of the first half of 2010, the economy has generated about 12 million fewer jobs than expected. In other words, things are not as bad now as they were in the early 1980s; they are much worse. Recall as well that the unemployment rate of the early 1980s was the result of the ultimately successful battle against inflation.

One message we’re hearing often from Washington is that recent increases in government spending have averted another Great Depression. That’s nonsense. If such policies had any coherence there would have been no Great Depression (when government spending grew); the U.S. economy would have collapsed following World War II (when government spending plummeted); and the U.S., not to mention Greece, would now be experiencing a boom like no other.

As many observers of the economic scene have noted, private investment and hiring are suppressed by economic and political uncertainty. Such uncertainty is generated by unprecedented government intervention, massive increases in government spending, and anticipated tax increases. This is what the policies undertaken during the 1930s, those that sustained the Great Depression, should have taught us.

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