Employment Growth: Better, but Still Too Slow

US employment, December 2005 to July 2012, monthly change, private sector and government

The Bureau of Labor Statistics released yesterday its initial estimates for unemployment and for employment growth in July (along with the normal updated estimates for earlier figures).  While generally an improvement over the numbers for the last few months, the results were still not as good as they need to be.

The unemployment rate was essentially unchanged, even though the headline number rose from 8.2% in June to 8.3% in July.  This appearance of a rise was largely due to the way the rounding off worked.  In the raw, unrounded, numbers, the calculated unemployment rate would have been 8.217% in June and 8.254% in July.  But such accuracy is spurious.  The figures come from surveys, and it is generally taken that changes of 0.1% points are not statistically significant in any case, even aside from round-off.

The growth in total net employment was 163,000.  This is a good deal better than the figures of 68,000, 87,000, and 64,000 of the previous three months (April, May, and June, respectively).  But while better than the previous abysmal numbers, growth of 163,000 jobs per month is still not sufficient to bring down unemployment on a sustainable basis.  As has been noted previously in this blog, the US needs to add between 200,000 and 250,000 jobs per month for the unemployment rate to start to fall on a consistent basis, given the US population and growth of its labor force.  At 163,000, we are short of that.

Still, it is positive growth, and is all due to growth in private employment as government continues to cut back.  The graph above shows the monthly figures on employment growth in the private sector and in government, going back to December 2005.  Private employment began to fall with the bursting of the housing bubble in early 2006, and was plummeting in 2008 at the end of the Bush Administration as the economy collapsed.  This turned around quickly under Obama, soon after the passage of the fiscal stimulus package (and supported as well by an aggressive response by the US Fed and by other actions).  The monthly loss of private jobs at first slowed and then turned to net gains by early 2010.  Since then the private sector has been consistently adding jobs.

But the growth in jobs have not been enough to bring down unemployment by enough.  While the unemployment rate has come down from its peak of 10.0% to its current 8.3%, the unemployment rate at what is considered full employment would be between 5 and 6% (5 to 6% as there is always job turnover, with some people out of jobs even at what is considered full employment).

As has been noted before in this blog, this disappointing growth in total jobs can be attributed to fiscal drag, as government has been steadily cutting back the number of government workers during the term Obama has been in office.  Most of this has been at the state and local level (as state and local government accounts for 87% of government employment in the US), but has happened at the federal level as well.

This cut back in government employment during the Obama term is in sharp contrast to the growth in government employment during the Bush terms.  We are now close enough to the end of Obama’s first term that a reasonable projection for his full first term is possible.  Using the actual numbers through July 2012, and then projecting August 2012 to January 2013 to continue at the same pace as that observed so far in 2012, one can arrive at the following estimates:

Net Job Growth Government Private
Bush:   January 2001 to January 2005 +900,000 -913,000
Obama:  January 2009 to January 2013* -711,000 +1,179,000
* August 2012 to January 2013 projected at monthly pace of January 2012 to July 2012

Government employment grew by 900,000 during Bush’s first term (it grew by a similar and further 841,000 in his second term).  In sharp contrast, at the current pace government employment will have been cut back by 711,000 in Obama’s first term.  Yet Mitt Romney and other Republicans repeatedly assert that government exploded under Obama, while they avow support for the small government conservatism of Bush.

Romney and his follow Republicans also repeatedly assert that the tax cut and deregulation policies of Bush are what is needed to restore private job growth.  Yet private jobs fell by 913,000 during Bush’s first term, while on the current pace, they will have risen by 1,179,000 during Obama’s first term.

Had government been allowed to grow during Obama’s first term at the same pace as it had during Bush’s, there would be an additional 1.6 million (900,000 + about 700,000) school teachers, policemen, firemen, and others directly employed.  The country could certainly use their services.  And by itself, employing 1.6 million more would bring down the unemployment rate to 7.2%.  With a conservative multiplier of two, the unemployment rate would be brought down to 6.2%, or close to full employment.

Obama may well lose the election due to the still high unemployment.  Romney and his fellow Republicans have repeatedly and loudly charged that this has been due to an explosion of government during Obama’s term in office.  But the truth is that government has been cut back sharply during Obama’s term.  And the great irony is that had government been allowed to grow as it had under the previous Republican administration of Bush, Obama would now be certain of re-election.