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Bush Administration's tax cuts falling short in job creation
The Bush Administration called the tax cut package, which was passed in May 2003 and took effect in July 2003, its "Jobs and Growth Plan." The president's economics staff, the Council of Economic Advisers (see background documents), projected that the plan would result in the creation of 5.5 million jobs by the end of 2004306,000 new jobs each month, starting in July 2003. The CEA projected that the tax cut itself would create 78,000 jobs a month in addition to the 228,000 jobs a month the economy would generate without a tax cut. After eight months of falling considerably short of that projection, job gains for the last two months have averaged above that level. For the 10 months as a whole, however, the administration projected that a total of 3,060,000 jobs would be created after the tax cuts took effect. In reality, only 1,043,000 jobs were created over the last 10 months, far less than the 2.28 million jobs that were predicted would occur without the tax cut.

Difference between actual and projected monthly job growth

Wage and salary growth continues to decline
The prolonged three-year period of weakness in the job market has cut wage and salary growth in half. The chart below depicts the slowdown in both measures of wage and salary income per hour: average hourly earnings and the wage and salary component of the employment cost index (ECI).

Three years ago, hourly pay was growing at almost a 4.0% annual pace. For the two quarters before the recession began in early 2001, average hourly earnings expanded at a 4.0% annual rate while wages and salaries in the ECI grew at a 3.7% rate. In the last two quarters, however, average hourly earnings have risen at only a 1.4% rate, and the wages and salaries in the ECI have slowed to a 2.2% pace. Never in the history of these two data series has either measure seen slower growth rates over a two-quarter period.

Making matters worse, inflation has recently accelerated even as wage and salary income has continued to decelerate. The consumer price index has sped up to a 2.1% rate over the last two quarters, accelerating from the 1.5% rate for the two quarters before that. In the last two quarters, consumer prices have risen 0.7% faster than average hourly earnings and just 0.1% less than the wages and salaries in the ECI. (See technical note below.)

Slowdown in hourly wage and salary income

Greatest sustained job loss since the Great Depression
Since the recession began 37 months ago in March 2001, 1.6 million jobs have disappeared, representing a 1.2% contraction. The Bureau of Labor Statistics began collecting monthly jobs data in 1939 (at the end of the Great Depression). In every previous episode of recession and job decline since 1939, the number of jobs had fully recovered to above the pre-recession peak within 31 months of the start of the recession. Today's labor market would have 5.2 million more jobs if employment had grown by the 2.7% rate that occurred in the last three recession cycles. The picture is worse for private-sector jobs, which have dropped by 2.2 million since March 2001, representing a 2.0% contraction. (See state data and organizations for more information on individual states.)

Change in total employment, 37 months after the recession began

Change in private-sector employment, 37 months after the recession began

Technical note
The steeper slowdown in average hourly earnings probably reflects two key differences between that measure and the wages and salaries measure in the ECI. First, average hourly earnings data include only the 80% of employees who are classified as "production and non-supervisory workers," while the wages and salaries in the ECI include all employees. The other 20% of employees picked up in the wages and salaries in the ECI have probably had less deceleration in their hourly pay. Second, changes in the composition of U.S. employment by industry affect the average hourly earnings but the wages and salaries in the ECI are designed on the basis of a fixed composition of the types of employees. The average hourly earnings data are picking up the shift in jobs away from higher paid industries, but the wages and salaries in the ECI data do not.

 

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