Framing the Economic Debate (We are not DOOMED)

The Heritage Foundation ^ | 7. October 2004 | Tim Kane, Ph.D., Rea S. Hederman, and Kirk Johnson, Ph.D.

[1rudeboy]

The U.S. economy has displayed a remarkable resilience following the bursting of the Internet bubble and the 9/11 terrorist attacks that struck at the heart of American business. The economy’s strength was such that the 2001 recession is among the weakest on record. Today, business investment continues on an unprecedented expansion and more Americans are working than ever before. Still, myths are rampant. This paper presents a basic statistical overview of the American economy and prosperity that Americans today enjoy.

I. Jobs, Employment, and Income

There are three main indicators that inform the issue of employment in America. First is the overall growth of jobs. Naturally, a net increase in employment is seen as progress, but this statistic really only matters if the population is growing. Economists have long believed that the key measure of employment is the percentage of people who are employed out of the entire population of potential workers. Many citizens simply don’t want to work in the formal labor force, either because they are studying for advanced degrees, retired, or caring for other matters in the home. Thus, the unemployment rate is the best way to assess economic health. And another indicator to watch is labor compensation, which represents the quality of jobs for many observers.

Jobs: Payroll or Household?

The government provides many measures of job creation, but the two best known come from the Bureau of Labor Statistics payroll survey and the Census Bureau household survey. As widely reported, the two surveys are telling opposite stories.

• Since January 2001, when President George W. Bush was sworn in, payroll jobs have declined by millions and recovered by millions, but still remain 900,000 jobs below their peak. (Source: Bureau of Labor Statistics)
  

• On the other hand, the household survey reports a record high level of working Americans, with 1.8 million more jobs since January 2001. (Source: Bureau of Labor Statistics)

Ironically, both surveys may be correct because they count jobs differently. The household survey counts all jobs, including a growing but hard to define class of new economy workers such as part-time consultants, eBay entrepreneurs, and even real estate agents—people who are not on payrolls. The payroll survey’s name says it all. What it doesn’t say is that payrolls provide a vast sample size, which some see as a sign of its unmatched accuracy. But the real question is whether its sample quality is clean, and in August, the BLS acknowledged that the survey has sample problems: it counts workers twice when they change jobs, which may account for between 400,000 and one million of the job difference between the two surveys. (See BLS, “Effects of Job Changing on Payroll Survey Employment Trends.”)

Unemployment and the Recession

Dissecting the Unemployment Rate

Labor Force Participation

Unemployment Claims

[The above four subsections are deleted to save space]

Real Earnings

Worker pay is a sign of job quality. The Labor Department’s measure of real hourly earnings is one of many pay statistics and includes all monetary compensation but not benefits. It only counts earnings for non-executive workers, unlike other measures.

• During the 1980 and 1990 recessions, real hourly earnings declined. (Source: Bureau of Labor Statistics
  
• But even during and after the 2001 recession, real earnings have risen—by 2 percent since the recession began in March 2001. (Source: Bureau of Labor Statistics)
  
• Real earnings are higher now than at the height of the dot-com boom in 2000. (Source: Bureau of Labor Statistics)

Manufacturing

• Jobs in manufacturing are on the decline worldwide, due to new technology, increasing productivity, and strong competition. From 1995 to 2002, worldwide manufacturing employment declined 11 percent—which matches the decline of manufacturing employment in the United States over that period. (Source: Alliance Capital Management)
  
• Even in China, employment in the manufacturing sector has fallen—by 15 percent from 1995 to 2002. (Source: Alliance Capital Management)
  
• Regardless, manufacturing in the United States has rebounded strongly of late. Production is rising quickly, and employment reversed its decline in February of this year and is now expanding.

II. Economic Growth

[The above section was deleted to save space]

III. Outsourcing and Insourcing

• Forrester Research estimates 3.5 million outsourced jobs between 2000 and 2015. (Forrester Research)
  
• Over the past decade, 7.71 million jobs, on average, are lost every quarter as part of the normal flux of the economy. Forrester’s estimate would account for less than one percent of the jobs lost each quarter, on average. (Source: Department of Labor, Business Employment Dynamics Data Series; Forrester Research)
  
• Today, more than 5.4 million jobs in America are the result of insourcing—that is, they have been outsourced from abroad into the United States. (Source: Organization for International Investment)
  
• Annually, these insourced jobs account for $307 billion in wages and salaries. (Source: Organization for International Investment)
  
• Insourced jobs pay, on average, 19.1 percent more than the average job in the United States. (Source: Organization for International Investment)
  
• In the first quarter of 2004, just 4,633 workers were laid off as a result of offshore outsourcing due to mass layoffs—about 2 percent of total mass job layoffs. (Bureau of Labor Statistics, “Extended Mass Layoffs Associated With Domestic and Overseas Relocations”)
  
• In terms of the industries affected and positions potentially at risk, the use of outsourcing has changed little over the past five years. In other words, this is no rapidly accelerating trend. (Source: Government Accountability Office, “International Trade: Current Government Data Provide Limited Insight into Offshoring of Services”)
  
• The United States exports more business, technical, and professional services than it imports (and offshore outsourcing of service work is synonymous with importing those services). In 2003, the trade surplus for these services was $27.0 billion. (Source: Bureau of Economic Analysis, “Survey of Current Business”)

IV. Health Care

V. Poverty

VI. The Tax Cuts

[The above three sections are deleted to save space]

VII. Conclusion

The economy has added more than 1.5 million payroll jobs over the past year and nearly 2 million jobs on the household survey. Most indicators point towards continued growth. Output is booming, the manufacturing outlook is positive, business confidence is high, and productivity continues to set records. Even such favorites among economic pessimists like data on long-term unemployment, manufacturing employment, and worker discouragement are showing marked improvement. Unfortunately for the pessimists, these are the facts that frame the debate on the economy today.

Tim Kane, Ph.D., is Research Fellow, Rea S. Hederman is Senior Policy Analyst, and Kirk Johnson, Ph.D., is Senior Policy Analyst, in the Center for Data Analysis at The Heritage Foundation.

[1rudeboy]

Right now, the Legion of Doom is frantically searching the web for guidance from Pat Buchanan or Ralph Nader. Others are priming the cannon of class warfare. Yet others are poised to weigh-in with anecdotal evidence in order to impeach the source. And just maybe somewhere, a lonely and bitter man turns to his Karl Marx & Free Trade quote . . . .

[bmwcyle]

BTTT for later

[1rudeboy]

And I forget . . . somewhere a knee twitches: illegal immigration.

[lelio]

Many citizens simply don’t want to work in the formal labor force, either because they are studying for advanced degrees, retired, or caring for other matters in the home. Thus, the unemployment rate is the best way to assess economic health.

That's a pretty weak argument. Has the amount of people "studying for advanced degrees" vastly increased in the past 4 years?

Today, more than 5.4 million jobs in America are the result of insourcing—that is, they have been outsourced from abroad into the United States. (Source: Organization for International Investment)

That's stretching it a bit -- the way the OIFF counts these jobs includes a French company like Thomson buying RCA and then they've "insourced" a couple of thousand jobs without creating one. And they weren't "outsourced" from France either.

the BLS acknowledged that the survey has sample problems: it counts workers twice when they change jobs, which may account for between 400,000 and one million of the job difference between the two surveys

How do they count the person twice? On the employment side of the equation?

[1rudeboy]

Has the amount of people "studying for advanced degrees" vastly increased in the past 4 years?
Dunno. But I haven't heard of many colleges and univesities closing, have you?

That's stretching it a bit -- the way the OIFF counts these jobs includes a French company like Thomson buying RCA and then they've "insourced" a couple of thousand jobs without creating one. And they weren't "outsourced" from France either.
LOL. So all foreign companies do is buy U.S. companies. We all know that foreign companies never set-up shop here. In fact, the word "foreign subsidiary" is hardly in our vocabulary. Furthermore, with regard to "stretching" data, it happens on both sides. One cannot claim that certain data is inherently inaccurate (as it is), without recognizing that the inaccuracy cuts both ways. For example, a U.S. firm with a plant in Indiana buys its main competitor in Illinois. That firm then shuts the plant in Indiana and moves its assembly-lines to Illinois. Bingo! Net loss of high-paying manufacturing jobs in Indiana with possibly no net change in employment in Illinois. And Willie Green weeps.

[1rudeboy]

I am astounded that this thread is not generating more interest. [chuckle]

[Toddsterpatriot]

No matter how well the economy or the job market does, if there is no job for Havoc then it is all for naught.

[LowCountryJoe]

ROTFLMAO. Just to let you know, Willie has taken a different approach with me as of today. He's starting to spin humor into his posts...something I find very queer, I might add. maybe the lonely and bitter guy got some last night. Well, it's either that or Pennsylvania's most recent polling shows Kerry gaining in the polls. "That's 20 electoral votes that me and my AFL-CIO buddies can take credit for", says one lonely and bitter Marx-quoting-'conservative'.

[1rudeboy]

Willie is a stand-up guy. At least he supports his assertions with data, albeit with a little smoke thrown in. I respect him for that.

[remember]

Jobs: Payroll or Household?

The government provides many measures of job creation, but the two best known come from the Bureau of Labor Statistics payroll survey and the Census Bureau household survey. As widely reported, the two surveys are telling opposite stories.

Since January 2001, when President George W. Bush was sworn in, payroll jobs have declined by millions and recovered by millions, but still remain 900,000 jobs below their peak. (Source: Bureau of Labor Statistics)

On the other hand, the household survey reports a record high level of working Americans, with 1.8 million more jobs since January 2001. (Source: Bureau of Labor Statistics)

Of course, we have been setting a new record for Americans working nearly every month of every non-recession year. In any case, it's easy to be misled by the large numbers being thrown about. The following table shows the average monthly and annual gain in jobs under every President since Roosevelt's last full term:

             TOTAL NONFARM EMPLOYMENT (thousands)

                                       No. of  Monthly   Annual
      Term   Mo  Year   Count  Change  Months  Average  Average
---------------------------------------------------------------
Roosevelt   Jan  1941   34480    7423      48    154.6     1856
Truman 1    Jan  1945   41903    2772      48     57.8      693
Truman 2    Jan  1949   44675    5470      48    114.0     1368
Eisenhower  Jan  1953   50145    2743      48     57.1      686
Eisenhower  Jan  1957   52888     795      48     16.6      199
Kennedy     Jan  1961   53683    5900      48    122.9     1475
Johnson     Jan  1965   59583    9855      48    205.3     2464
Nixon       Jan  1969   69438    6182      48    128.8     1546
Nixon/Ford  Jan  1973   75620    5072      48    105.7     1268
Carter      Jan  1977   80692   10339      48    215.4     2585
Reagan 1    Jan  1981   91031    5322      48    110.9     1331
Reagan 2    Jan  1985   96353   10780      48    224.6     2695
G.H. Bush   Jan  1989  107133    2592      48     54.0      648
Clinton 1   Jan  1993  109725   11507      48    239.7     2877
Clinton 2   Jan  1997  121232   11156      48    232.4     2789
G.W. Bush   Jan  2001  132388    -821      44    -18.7     -224
            Sep  2004  131567
----------------------------------------------------------------
Total (Kennedy thru Clinton)    78705     480    164.0     1968
Total (Kennedy thru G.W. Bush)  77884     524    148.6     1784

Source: http://data.bls.gov/cgi-bin/surveymost?ce,
        Series CES0000000001 

As the table shows, the average job gain from Kennedy through Clinton was about 164 thousand jobs per month and nearly 2 million jobs per year. If we accept the Household Survey of 1.8 million jobs over 44 months, that comes to about 40.9 thousand jobs per month. While that's not quite the worst performance since Hoover (it beats Eisenhower's second term), it's pretty close.

Not surprisingly, the growth in jobs has fallen behind the forecasts given in the last three Economic Reports of the President. The following graph shows the forecasts and the actual results according to the payroll and household surveys (the numbers can be seen at http://home.att.net/~rdavis2/employed.html):

[1rudeboy]

Are you expecting a response? I deleted four subsections about un/employment. Should I post those?

[remember]

Are you expecting a response? I deleted four subsections about un/employment. Should I post those?

No, you posted quite a bit in your initial posting. My point was simply to put the employment numbers in perspective. However, if you or anyone else should have any comments on the table or graph in my last message, feel free to post them.

[EdReform]

BTTT