October 8, 2004

October 8, 2004 | WebMemo on Economy

Jobs: The Ultimate Pocketbook Issue

There is no doubt in any economist's mind that the U.S. economy is growing strongly. But jobs are the ultimate pocketbook issue that affects voter perceptions. And there is real doubt, among economists and working Americans, about the number and quality of jobs that have been created since 2000. 

 

When the monthly Labor Department report on the Employment Situation was published this morning, it was the last official view of employment in America before the 2004 elections next month. The unemployment rate held steady at 5.4 percent in September and the estimate of payroll jobs grew for the thirteenth month in a row. Today's report also included an announcement of the annual benchmark revision of payroll data. The new benchmark implies that the payroll survey has been undercounting by 236,000 jobs since March, but this correction won't be finalized and included in the payroll numbers until February. 

 

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Highlights of Employment Under President Bush

 

  • The 5.4 unemployment rate is near its natural, full-employment rate, lower than the average 5.76 rate of the 1990s. There is no factual basis to the contention that unemployment is low only because so many workers are discouraged. The labor force has grown by 3.59 million people under President Bush.
     
  • The payroll survey has proven to be an unreliable measure of new jobs. It is frequently revised, ignores whole classes of workers, and has a history of miscounting the labor force during business cycles. Payroll sample size is impressive, but sample quality is lower than other measures.
     
  • Job quality has improved since 2000.  Average earnings for non-executives are 2 percent higher than at the height of the dot-com boom. Job satisfaction is very high, and workplace injuries are declining. One key trend is that manufacturing (14.4 million jobs) is becoming automated, but industrial output continues to rise, while the service sector (109.7 million jobs) pays better than ever.

Highlights of September Employment Statistics

 

  • The unemployment rate held steady at 5.4 percent. Although the labor force estimate declined in September, it did not diminish the rate of unemployment, and in fact the U-4 measure of underemployment actually improved. Trends for 2004 are solid: The labor force has expanded by 1.04 million people, while total civilian employment has grown by 1.41 million.
     
  • Payrolls expanded by 96,000 during September. During the last year, payrolls have grown by 1.7 million, but they remain 820,000 below the dot-com peak in 2001. But the household survey shows that 2.2 million more jobs have been created over the last year, bringing the total to 1.6 million more than when President Bush was sworn in.
     
  • Two kinds of revisions to payrolls were announced. First, preliminary data for July was revised up by 12,000 jobs, and August was revised down by 16,000 jobs. Second and more significant, annual benchmark revisions were announced to be 236,000, which means the level of payroll jobs is actually 236,000 higher for every month after March of this year. This benchmark will not be officially included in estimates until January 2005 data are released.

The Best Barometer

The unemployment rate is the ratio of unemployed workers to the entire workforce. It does not count persons not in the labor force, and some critics contend that discouraged workers should be counted. Yet the alternative measure of underemployment that includes such discouraged workers actually improved in September and is now at 5.7 percent, within striking distance of the regular unemployment rate.   

 

Alternative measures of underemployment that include discouraged and marginally attached workers tell the same story of a labor market that has rapidly improved since the President's 2003 tax cuts. Including all marginally attached workers, the rate was 6.4 percent in both August and September. This measure too has declined substantially since September 2003, from 7.1 to 6.4 percent.

 

The labor force has grown by 3.6 million since January 2001, not declined. Critics who want to focus on very slight declines in labor force participation rates or employment-to-population rates neglect to mention that these trends are largely driven by the decline in 16-19 year old participation, or that such measures are more likely to signal reductions in labor supply, not labor demand.

 

Conclusion

Unemployment is historically low and remains steady, while payroll jobs are on the rise. Far from becoming more discouraged, as some critics contend, American workers are, by the numbers at least, thriving. When all these factors come together-and add in the payroll survey's new 236,000 job benchmark bonus, as well-little fodder remains to fuel the complaints from critics of today's economy. Given the recession that followed the bursting of the dot-com bubble and the aftermath of the 9/11 attacks, there should be no doubt about America's impressive economic strength.



Tim Kane, Ph.D., is Research Fellow in Macroeconomics and Rea Hederman is a Senior Policy Analyst, in the Center for Data Analysis at The Heritage Foundation.

About the Author

Tim Kane, Ph.D. Visiting Fellow
Center for Trade and Economics (CTE)

Rea S. Hederman, Jr. Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis