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02/20/2004: "“Jobless Recovery?”"

There is much ado about the current unemployment rate, which has returned to its average historic levels over the past decade. Political candidates talk about outsourcing and the loss of manufacturing jobs. They talk about the lack of jobs created by this administration. "Three million jobs lost since this President took office" is the daily mantra of the Democratic Party. What is sad about this is that if you stopped and asked the average, hardworking American about unemployment, they would simply parrot back the current headlines without a clue as to where those come from and how they are manipulated. Say it enough and they will eventually believe it.

The Department of Labor uses two different methods to produce these figures and they both produce strikingly, different numbers. The first method, the Establishment Survey, is done by surveying 400,000 companies and asking how many people are on the payroll? The fluctuation in these numbers from month to month gives us an estimate of the jobs created and lost. The obvious population of workers that is excluded from representation by this number is the self-employed. The second major flaw with this method is that companies come and go. Companies that go are reflected rather quickly in this number but companies that are created are slow to be discovered and replace the ones that have met their demise. The lag time is about two years to discover the new companies. Over the last two years, this survey shows a net loss of jobs of about 62,000. The third major flaw is that people with more than one job can be counted multiple times. I just quit my second job and would be reflected in this survey as unemployed although I am fully employed in my primary job. The strength of this survey is that it has a large sample population.

The second method used to produce these figures is called the Household Survey. It surveys 60,000 households each month to inquire whether they have jobs or whether they are looking for work. This survey will catch the self-employed, new start up companies, eliminate two jobs being counted multiple times and has been the official measure of the percent of unemployment. Using this method, during the period that the Establishment Survey shows that we lost 62,000 jobs, the Household Survey shows that we had a net gain of 2.4 million jobs. The weakness in this method is that the sample population is much smaller than the other method.

You can see why it is so easy to spin these numbers to your political advantage. Neither survey takes into account that a fun American past time has cropped up. We give false answers. When my phone rings and interrupts what I am doing to ask me a few questions, depending on my mood and the subject, I may make up answers that don’t correlate with reality at all. I particularly love to employ this at exit polls conducted during elections. It helps combat that feeling that your privacy is being invaded by even being asked. Try it. You’ll walk away with a very satisfied grin on your face. One of the many reasons I don't pay much attention to poll numbers.

Quiz time:

1. What is the current un-employment rate?

2. What was the average un-employment rate in the 1970’s, 1980’s, and 1990’s?

Answers:

1. 5.7%

2. 6.4%, 7.3%, and 5.8%

How can the economy be bad right now if the unemployment level is in the same ballpark as those wonderfully touted Clinton years of economic prosperity?

Here’s the bottom line. Americans will continue to loose some jobs to outsourcing because one of the principals of Capitalism is to maximize profits while you minimize expenses. Labor is expensive in this country. Some jobs can be outsourced and they will be. Some current jobs cannot be currently outsourced and they won’t be. New jobs will crop up to replace ones lost to outsourcing. This shouldn’t come as a news flash but change is inevitable. Those who dig their heels in and refuse to move forward will be left behind.

The blacksmith was put out of business when the factory could produce more products cheaper and more efficiently. So the blacksmith could learn to run the machinery and stay employed. Robots could run the machinery cheaper and more efficiently. So he needed to learn how to make the robot. And so on… With the loss of one type of job comes the creation of another. If you’re unemployed, think about retraining.

The government cannot directly increase jobs unless it expands itself or increases its purchases. We don’t want either of these two things to increase; they’re bloated enough already. What the government can do to indirectly increase jobs is to create an environment for businesses to flourish. What helps businesses flourish? Low interest rates, low inflation, tax incentives, tax cuts, and a cheap labor market.

Are Interest rates currently low? Check
Is the Inflation rate currently low? Check
Tax incentives given to businesses? Check
Tax cuts given to businesses and individuals? Check
Cheap labor market available? Check

Looks like all the key ingredients are in place for a strong economy and that must be why all indicators are currently reflecting that. America has always been the land of opportunity because of its entrepreneurial spirit. That spirit flourishes when the Government is kept under control. The Government wouldn’t survive a day in the Capitalist market. You wouldn’t allow a business you invested in to suck you dry, why we let the Government continue to is beyond me.