The Wages of a Phony Recovery

It is imperative that we focus on innovative and creative economic policies.

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[See a collection of political cartoons on the economy.]

You wouldn't know this from the standard unemployment headlines, but we are looking at an estimated 22 million Americans who are unemployed or under-employed, who are virtually invisible and mostly excluded from the calculation of the standard unemployment rate of 7.6 percent.

Obamacare is partially to blame. It requires employers with more than 50 workers to provide health insurance or pay a $2,000 penalty per worker. Under the law, a full-time job is defined as 30 hours a week, so businesses, especially smaller ones, have an incentive to bring on more part-time workers. Little wonder that the Obama administration announced it is postponing the employer mandate until 2015, undoubtedly to see if this will encourage more full-time hiring. But thousands of small businesses have been capping employment at 30 hours for they know their reprieve is only for one more year.

This weak recovery has been devastating to low and moderate income Americans, especially the young, the less educated, and minorities. Younger workers between the ages of 16-19 are enduring an unemployment rate is 24 percent. For African-Americans it is 13.7 percent and for Latinos it is 9.1 percent, compared to the overall average unemployment rate of 7.6 percent. And the national poverty rate now stands at 15 percent.

It gets worse. We are not regaining the kinds of jobs that we had before the recession. For example, as Federal Reserve Governor Sarah Bloom Raskin pointed out recently, two-thirds of all jobs lost were in moderate wage occupations such as manufacturing, but less than one-quarter of the subsequent job gains are in these occupations. She goes on further to note that recent jobs gains have been in mostly lower-wage occupations such as retail sales and food services which accounted for about one-fifth of the job losses but a bit more than one-half of subsequent job gains. 

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Another critical issue is chronic long-term unemployment with 36.7 percent of the ranks of the unemployed without work for at least six months, raising the question of whether or not they will have a chance at being called back. Many may be seen as permanently unemployable as their skills deteriorate, leading to the possibility of a structural unemployment problem such as Europe experienced in the 1980s. Nor are we getting back many of the jobs that were lost. The number of hires during April and May is the same as it was in January 2009, when job losses were at their highest of the recession. In fact in the 45 months since the recession ended, 113,000 fewer jobs a month have been created compared to a normal recovery according to the Congressional Joint Economic Committee. If we created as many jobs as typical in a normal expansion, roughly four million more Americans would be collecting a paycheck.

Today we have close to seven million multiple job-holders, which means a good portion of the new jobs created were in effect second or third jobs going to people who were already employed elsewhere. Then there is the stunning feature of the current civilian workforce participation rate, which at 63.5 has dropped by a shocking 2.2 percentage points since the recession ended, an event that never has happened during previous recessions. Another statistic that underscores why this is such a dysfunctional labor market, is that the number of people leaving the workforce during this economic recovery has actually outpaced the number of people finding a new job by a factor of nearly three, as pointed out recently by David Rosenberg of Gluskin Sheff.

What we clearly need is a policy that will nourish the revamping of our capital stock where investment has plunged to the lowest levels in decades. We must also target policies to nourish our high-tech industries, which will in turn inspire manufacturing these products at home and thus help create new jobs. This means we will have to prepare a skilled workforce for manufacturing and to be willing to increase the number of visas to foreign graduate students in the hard sciences who are now forced to leave America and who then work for our competitors in other countries. Similarly, we must improve the processing through our patent office, the channel for innovation, but which has been a long-time impediment to speedy process. Finally we should engage in a major infrastructure program to improve our airports as we once did for our railroads and highways, such as new technologies that would greatly accelerate airport landing and take-off.