Demand More than ‘New Normal’
By Douglas Holtz-Eakin and Elaine Chao | May 3, 2012
All eyes are on Friday’s employment report, with the focus apparently on whether the Obama administration can reach 200,000 a month in April. Our question is why? Why has creating 200,000 jobs become the litmus test of a successful jobs report?
Given the deep jobs deficit in which our economy finds itself, we need a lot more jobs than that. In the first 24 months of the average postwar recovery from recession, the economy created 147,000 payroll jobs on average. In the first 24 months in this recovery: 52,000. The administration is fond of trumpeting the recent rise in the pace of job creation in the recovery, but to date the average is only 87,000.
Creating 200,000 jobs a month will not reverse this unsatisfactory record of recovery.
The labor-market shortfalls in payroll employment are mirrored in the sustained high unemployment. After two years of the average postwar recovery, unemployment was an average of 6.6 percent. Since the recovery officially began in June 2009, unemployment fell to only 9.1 percent after two years and remains elevated at 8.2 percent.
Creating 200,000 jobs a month will not bring down the unemployment rate. A growing population demands at least 250,000 jobs just to break even.
And jobs alone are not enough. Many Americans have jobs, and their economic circumstances remain dire because incomes are not rising, but prices are. In the first eleven quarters of the average post-war recovery, real (that is, adjusted for rising prices) disposable income rose at an average annual rate of 0.67 percent each quarter. In the current “recovery” disposable income growth has been a nearly non-existent 0.05 percent per quarter. Importantly, this anemic income growth has even been propped up by the explosion of stimulus spending, payroll-tax holidays, and other one-time band-aids.
When income grows at traditional rates, a $50,000 yearly paycheck rises by nearly $1,000 during the recovery. In this recovery, the sub-par growth adds only a bit over $60.
The poor growth record of this recovery demands more jobs and rising incomes. Again, after eleven quarters of an average postwar recovery, gross domestic product — the broadest measure of economic activity — would have risen by 13 percent. In the 2009–2012 recovery? 6.8 percent!
The numbers make plain the truth that suffering workers know all too well: It is an affront to settle for slow GDP growth. It is an affront to settle for anemic income growth. It is an affront to settle for high unemployment. And at the root of the problem is the apparent acquiescence of the administration, press, and analyst communities to settle for 200,000 jobs a month.
We believe that strong pro-growth policies can quickly generate more rapid job growth. Those policies should begin with a rollback of the excessive regulatory initiatives of the Obama administration at the Environmental Protection Agency, the National Labor Relations Board, the Department of Labor, the Consumer Financial Protection Board, and the Department of Health and Human Services, to start. The president is fond of trotting out the straw man that conservatives dislike all regulation. False. But regulations should pass a cost-benefit test, should serve the greater good and not special interests, and should respect the need for rapid growth in jobs and income.
Our tax system needs fundamental reform, not targeted and temporary tax favors for the administration’s favored constituencies. Our entitlement systems are bleeding red ink and simultaneously endangering our future seniors, the federal credit rating, and the next generations. Recent research by Carmen Reinhart and Kenneth Rogoff shows that the debt burdens generated by sticking to broken entitlements slows economic growth by over one percentage point a year — that translates to 1 million jobs.
The bottom line is simple. We cannot accept the status quo. We cannot acquiesce to lowered expectations for growth, income, and jobs. We must not accept the “new normal” as inevitable. American workers and their families deserve more.
Douglas Holtz-Eakin is the president of the American Action Forum and the Honorable Elaine L. Chao is the longest-serving secretary of labor since World War II (2001-2009).