Forecasting Employment: What a Job
Every four years, presidential candidates tout their economic
proposals as sure-fire job creators. The unstated assumption, of
course, is that these jobs projections are based on strong, or at
least defensible, economic analyses. But are they always?
Last February, President Bush's economic team was criticized when
it forecast job growth of 3.8 million by the end of the year.
Critics said the number was implausibly high. And indeed, it
implied 3 percent job growth, which the country hasn't seen since
1994. The criticism struck home, and the administration eventually
disowned its jobs-creation forecast.
Sen. John Kerry's economic team risks similar criticism over its
jobs numbers. Since late March, his campaign has been highlighting
his package of personal tax increases and corporate tax changes,
saying it would add 10 million jobs by the end of 2008. How do we
know it would? The number can be traced to a memorandum on the
senator's Web site.
In the memo, Harvard economists Lawrence Katz and Elisabeth
Allison claim the economy "is capable of a much stronger
performance than it has exhibited over the last few years." By
employing "sound economic policies," they say, we can get back to
the unemployment rate we saw in 1999 and 2000: 4.1 percent. Getting
it back to this figure would result in ... 10 million new
So Sen. Kerry's 10-million-job-creation claim rests entirely on
whether the plan actually can reduce the unemployment rate to
4.1 percent and keep it there. Unfortunately, it presents no
economic modeling work and no economic theory to support this
claim. In fact, Professors Katz and Allison, apparently unwilling
to go out on a limb, are quite careful to avoid stating that
Kerry's plan will create even a single job.
We now know that several fortuitously timed events kept the
economy flying high back in 1999-2000, when it could have slid
either toward recession or high inflation. These included a
sustained acceleration in worker productivity, low petroleum prices
during much of the period and the late '90s stock market illusion.
This was, after all, right before the dot-com bubble burst and
various corporate scandals came to light.
Back in 2000, President Clinton's own Council of Economic Advisors
understood its good fortune and admitted that 1999's unusually low
unemployment rate probably was unsustainable. In a February 2000
report, the council projected that the year's unemployment would
match 1999's 4.2 percent but eventually would rise to 5.2 percent
by 2003 and stay there through at least 2006.
They also freely admitted the critical importance of
non-policy-related factors in preventing 1999's exceptionally low
unemployment rate from triggering the inflation that usually
heralds the onset of recession. These factors included "spare
manufacturing capacity, new efficiencies in the labor market from
expanded use of temporary help workers and Internet job search
resources, higher-than-expected productivity growth and declining
President Clinton's economists assumed that these factors were
temporary, which explains why they forecast higher unemployment in
The non-partisan Congressional Budget Office agreed. In its
January 2000 11-year forecast, CBO predicted a rise in unemployment
to 4.7 percent by 2003 and 5.2 percent by 2010. In making these
projections, CBO was required to assume that President Clinton's
"sound" economic policy would stay in place throughout the 11
years. So even under the Clinton policies, the 4.1 percent
unemployment rate was expected to rise by a full 1 percent over the
Sen. Kerry hasn't yet backed away from his own job-creation
number, indicating that, perhaps, he'll soon release a serious
analysis of his plan and its job-creation benefits. Otherwise,
Kerry may be forced to take President Bush's lead and disown his
own apparently untenable job-creation number.
After all, both candidates' claims about the economy seem overly
optimistic. The only way they'll come to pass is if our economy
sees a remarkable spasm of good luck, such as President Clinton
enjoyed during his final two years. And economic policy should be
based on facts -- not on hope that we'll hit the lottery.
Al Goyburu is a policy analyst in the Center for Data Analysis
at The Heritage Foundation, a Washington-based public policy
First appeared on FoxNews.com