Where Have All The Jobs Gone?
Before giving his “jobs” speech last Thursday evening (Growls responded with Part I here and Part II here ), we hope President talked with Ohio University economics professors Richard Vedder and Lowell Gallaway. In a column posted last week at National Review Online, the two professors suggest the current malaise in jobs growth stems from government policy.
Vedder and Gallaway wrote: “In 2010, there were fewer Americans working than in 2004, the first six-year drop in employment since the Great Depression.” They explain that in this way:
“Why? On the demand side, employers are frightened to hire because of concerns that labor costs will rise above the value of workers’ output, lowering profits. Hence employers are hoarding cash, reputedly to the tune of between $1 trillion and $2 trillion. On the supply side, more and more workers find leisure preferable to work, so the employment-to-population ratio, which generally rose throughout the post-war era (because of the rising involvement of women), has fallen sharply in recent years. Were that ratio today what it was in, say, 2000, we would have 15 million more workers, and an unemployment rate closer to 5 than to 9 percent."
They go on to explain why it happened, writing:
“Why has this happened? The simplest answer is that government is crowding out private enterprise. Federal spending accounted for around 18 percent of national output during most of the Reagan–Clinton era. The 1980s are known for tax cuts that created incentives for capital investment and job formation. In the 1990s, federal spending fell as a percentage of GDP for eight consecutive years, the longest such decline in U.S. history. In stark contrast, the 21st century thus far has been marked by a relentless expansion of the federal government’s size (it is approaching 25 percent of GDP), first under George W. Bush but far more aggressively under Barack Obama.
“Most of that increased spending has been for transfer payments, which involve taking funds from taxpayers and lenders and giving them to persons in a manner that often discourages work. The purest example of this is the bipartisan move to extend unemployment benefits to 99 weeks. This has reduced the incentive for the unemployed to seek jobs. In the economists’ lingo, it has raised “reservation wages,” or the minimum amount people will accept to return to work. Our own estimate is that this has added enormously (maybe two to three percentage points) to the unemployment rate, as Harvard’s Robert Barro has also argued.”
One more thing. Vedder and Galloway say that President Obama is correct about one thing, which is that “(j)obs are not being created in modern-day America in any serious quantity.” Their evidence is the following chart:
Finally, in today's Washington Post, Robert Samuelson provides “a refresher course in Job Creation 101.” It enables us to “judge how much, if at all, President Obama’s proposed $447 billion program of spending increases and tax cuts might revive America’s sputtering job machine.”
A study of these two articles should prove useful in evaluating whether President’s proposed “jobs bill” will be effective or if they will prove to be nothing more than “stimulus lite.”