Jobs Report from Federal Government by ure17577

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									                                               January 2010

                                     “Are Jobs Really the Answer?”

                                         By Kevin Christ, Ph.D.
                                    Associate Professor of Economics
                                   Rose-Hulman Institute of Technology

        Continuing weakness in the labor market has emboldened those in policy making positions who

favor additional fiscal stimulus and job creation. After reviewing the federal government’s latest jobs

report, Christina Romer, chairman of President Obama’s Council of Economic Advisers, declared that

“the sense that we need to do more is overwhelming.” While jobs will obviously be an important issue

this year, particularly as mid-term elections draw near, it may nevertheless be worthwhile to consider for

a moment whether a myopic focus on jobs is really in our best long-term interests. The problem with

focusing strictly on job preservation, job creation, and job growth is that we often end up preserving,

creating, and growing the wrong jobs.

        Aside from that issue, however, and given our changing demographics, we need to be thinking

about how we can maintain prosperity without so many people working. As baby boomers retire, we’ll

be forced to focus less on how many people are working and more on the productivity of those who do

the work.

        Kevin Murphy, an economist at the University of Chicago Booth School of Business, hit the nail

on the head a year ago in a forum on then President-Elect Obama’s proposed fiscal stimulus package,

when he said: “People say there are two benefits of the stimulus package. One, we’re going to raise GDP

(Gross Domestic Product), and two, we’re going to raise employment. Just keep in mind that it would be

much better if we could raise GDP and NOT raise employment. That would be a much better result

because we’d be getting all the output and we wouldn’t have to work. So the raising of employment is

not the objective here. It’s increasing output.”


        This is the sort of remark that gets economists into trouble because, I think, many people

misunderstand the intent. Rather than being a display of cold-hearted disregard for the unemployed, I
think it reflects an analytical reality that economic growth, prosperity, and job growth are not necessarily

the same things. We can have the first two without the last, but to admit that will require a new mindset

that focuses more on productivity than on jobs.

        Right now in the United States, out of a population of 308 million people, there are about 236

million between the ages of 16 and 65 who could work if they chose to. Of that number, 153 million are

in the labor force, 15 million of whom are currently unemployed. Hence the unemployment rate is 10

percent and our labor force participation rate is about 65 percent. Even though our labor force

participation is down from a high point of 67 percent in the late 1990s, it is still among the highest in the

world. Furthermore, those who are employed work almost 1,800 hours per year, 10 to 20 percent more

than our counterparts in Western Europe. So we work a lot, and a lot of us work.

        Nowhere is it written, however, that labor force participation rates and average hours worked

must endlessly rise. In fact, they can’t. There are limits to how many of us work and to how long we

work. On the other hand, there don’t seem to be any limits to how productive we can become, and

improvements in productivity actually reduce the need to work so much.

        On average over the last half century, we’ve become about two percent more productive each

year, and our population is currently growing at less than a one percent annual rate. These trends mean

that even without job growth, percapita GDP – the most common measure of economic well-being – can

rise by about one percent a year. That would be a lower growth rate than what we’ve become accustomed

to, but it’s worth remembering that a good portion of our economic growth over the last couple of decades

has been attributable to more of us working longer hours.

        Has it all been worth it? When we work more there is a tradeoff – we have less time to enjoy the

fruits of our labor. Lower levels of labor force participation and shorter workweeks only translate into

lower average standards of living if productivity stagnates, and only if we measure standards of living

solely in material terms.

        In what may come as a surprise to many, our labor force participation rate has actually been

dropping for 10 years. The current recession obviously speeds up the process, and many who are
dropping out of the labor force right now are obviously not doing so voluntarily. But overall, I suspect

that many Americans were beginning to make different labor market choices before this recession began,

and that the recession has merely accelerated changes that were already underway. I think our policies

and our personal decisions ought to reflect that.

         If we do not adapt to this new mindset, then maintaining our present lifestyle, let alone improving

it, will require unimaginable workweeks for those still in the labor force. Putting people back to work is

certainly a good idea, but restoring prosperity with fewer people at work would be an even better idea. It

is an idea, however, that requires different choices than we’ve made in the past. Paying attention to those

things that enhance our productivity, not hanging on to any job at any cost, is what increasingly will

matter most.




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Kevin Christ is associate professor of economics at Rose-Hulman Institute of Technology in Terre Haute,
Ind.

								
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