Job growth in September indicates weak economy
Benchmarks for employment creation
So how much job growth is needed to get "high marks"? Certainly one minimal benchmark is that jobs should grow as fast as the working-age population, a rate that would normally keep unemployment from rising. With the working-age population growing around 1.2% each year, the economy needs to produce between 135,000 and 150,000 jobs each month to hit this minimal benchmark. 1
A second benchmark for evaluating job growth performance would be the number of jobs needed to steadily reduce the current prevailing unemployment and underemployment. Reducing labor slack is necessary to reverse the family income declines of the last few years and to generate wage growth that outpaces inflation. A new study by the Cleveland Federal Reserve Board highlights the decline in the employment-to-population ratio as a useful indicator of the growth in labor slack. Given the employment-to-population ratio in September 2004 (62.3%), restoring this ratio to its 2001 pre-recession level (64.3%) would require payroll job growth of 275,000 to 290,000 per month.2
A third benchmark for judging the rate of job growth would be the employment growth projected by the President's Council of Economic Advisers (CEA) in their annual report issued in February 2004, which projected 300,000 new jobs added per month. The chair of the CEA, Greg Mankiw, referred to this projection as being "about average for a recovery." This benchmark, used monthly by JobWatch.org, is the number of jobs (306,000 per month) that the Bush Administration projected would be created from June 2003 to December 2004 if its proposed tax cuts were legislated in 2003. The CEA projections may seem high relative to the actual performance of the last 42 months, but they reflect the normal pace of job creation in an average labor market recovery.
Tax cuts are not working to generate jobs
Weakest job recovery since the 1930s
Private-sector jobs have fared worse than public-sector jobs. Jobs in the private sector have dropped by 1,638,000 since March 2001, representing a 1.5% contraction. However, having no job losses, or gains, is a very low standard by which to judge a recovery—with history as a guide, one would have hoped that the economy would have recovered months ago the jobs lost. If job growth had been at the pace of other post-war business cycles (a 5.2% growth by the 42nd month), then 6.8 million new jobs would have been created by now, 7.8 million more than we have today.
1. The working age population has grown at an annual rate of 1.2% since the population adjustment in January but at an implicit rate of 1.3% since August 2003. Merely to keep up with population, employment must grow by 135,000 to 150,000 a month.
2. If the labor market were improving at the average of past recoveries, as reflected in a recovery in the employment-to-population rate, then payroll employment would need to rise by 140,000 more than needed to keep up with population growth. This indicates the need to generate 275,000 to 290,000 jobs per month. The employment-to-population ratio rose about 0.062% a month (or 0.74% per year) in past labor market recoveries. We currently have a working-age population of 224 million.
Payroll jobs are currently 94.1% of household employment. We make no adjustment for this because, at this stage in previous recoveries, monthly payroll job gains exceeded household survey employment gains.
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