A Strong Year for Jobs Offers Lessons for Congress

The economy added 167,000 jobs in December, above the average for the past year, the Bureau of Labor Statistics reported today. The unemployment rate held steady at a very low 4.5 percent, and wages increased due to the tight labor market. Today's report reflects an economy that is growing strongly, despite the weakened housing market. The new Congress and the President should enact policies to continue the economic expansion, such as making permanent the pro-growth tax cuts of 2003, slowing government spending, and restraining the rapid growth in entitlement spending.

The last year was a good one for American workers. In 2006, the economy added 1.7 million jobs, lowering the unemployment rate from 5.0 percent in January to 4.5 percent in December. The unemployment rate for the entire year is 4.6 percent, which, outside of the unsustainable tech bubble, is the lowest since the 1960s.

Employers created 154,000 jobs each month, on average, in 2006. The number of long-term unemployed workers declined, as did the average number of days an unemployed worker remained without a job. The median length of time for an unemployed worker to find a job fell sharply, dropping almost a full week to 7.3 weeks, in December.

The construction industry shed jobs in 2006, with four straight months of job losses. Construction has been one of the strongest sectors for employment over the past few years, but the weakening housing market is being felt in this sector. Overall, strong job growth in other sectors, such as professional and business services, more than offsets job losses in construction and manufacturing.

Even with this strong job growth, workers worked more hours last year. With jobs plentiful and workers scarce, employers have begun offering their employees larger raises. Wages have risen sharply in recent months. Even as inflation fell, average hourly wages rose at an annual rate of 5.8 percent in December.[1]

Average hourly wages rose by 4.2 percent in 2006. Hourly wages have not risen faster since May 1998. Even after adjusting for inflation, wages are still up 2.5 percent, the largest increase since 1998. Workers and the economy are doing well and appear poised for further gains in 2007.

Coming off a strong year, the new Congress should pursue policies that will continue America's economic progress, not impede it. House Speaker Nancy Pelosi (D-CA) and congressional Democrats deserve praise for their public commitment to fiscal discipline and spending restraint. Implementing true pay-as-you-go (PAYGO) budgeting for spending would create a much-needed barrier to new entitlement programs over the next two years. If Democrats are willing to forgo many of the expensive campaign spending promises they made before the election and instead commit to fiscal responsibility, America's workers and taxpayers stand to gain.

The driving force behind the budget deficit is entitlement spending, which makes up a majority of the federal budget.[2] With the Baby Boomers set to retire soon, spending on existing entitlement programs like Social Security and Medicare will explode, driving America into an even deeper fiscal hole.

Despite this fact, the Democrats' proposed PAYGO rule would not apply to existing entitlement programs and, thus, would do nothing to address America's real fiscal problem. PAYGO rules should be extended to cover current mandatory programs.

Although PAYGO may prevent new entitlement spending in the 110th Congress, lawmakers should rework the rule before 2010 so that it does not prevent extensions of the tax relief passed in 2001 and 2003. A massive tax hike like the expiration of these tax cuts would do lasting harm to the economy and threaten the jobs market. In addition, higher taxes on dividends and capital gains would likely depress the stock market, where most retirement savings are invested, and so an ill-conceived PAYGO rule could increase retirement insecurity at the very moment when many Americans can least afford it.[3]

Congress should also think twice before raising the minimum wage. Despite its supporters' good intentions, a higher minimum wage would not reduce poverty and would harm the very workers it is intended to help. Study after study demonstrates that higher minimum wages do not lower the poverty rate or lift low-income workers out of poverty.[4] This is not surprising, because fewer than one in five minimum wage workers live below the poverty line. Most minimum wage workers are young people between the age of 16 and 24 earning supplemental family income, not single parents working full time.[5] The minimum wage simply does not reach its intended beneficiaries.

For unskilled workers, the minimum wage does more harm than good. When the cost of hiring workers rises, employers hire fewer of them. Worse, they become particularly unlikely to hire the unskilled workers who most need work.[6] If an employer can hire a skilled worker for $7.25 an hour or an unskilled worker for the same rate, the employer will always choose the more productive employee. This effect freezes many unskilled workers out of the job market and prevents them from learning the skills that would enable them to become more productive and earn raises. Intended to help low-income workers, the minimum wage actually does more to harm than to help them.

The American economy is strong, and so is the labor market. Jobs are up, unemployment is down, and wages are rising rapidly. The new Congress enters 2007 facing the choice to build on this prosperity or hinder it. Democrats deserve praise for their promises of fiscal discipline and for new budget rules that will make it harder to enact new entitlement programs. However, they should recognize that raising the minimum wage will make it more difficult for the most vulnerable workers in America to find jobs and that allowing the 2001 and 2003 tax cuts to expire will seriously imperil today's strong economic growth. Congress should extend those tax cuts to protect American workers.

Great post ... despite what the AM said.

The problem is, we here in FR root out and read this stuff, and we pass it around and say, "Hey! Look at this!", and we look and go "Wow" ... and the rest of America sleeps and marvels at Oprah and whatever the topic dujour is.

Keep on postin' .... ya dun good, kid.

What do they mean by skilled worker in this case? Anyone with any real skills is already making more than this.

Per George Will only .6% of the workforce is making minimum wage. How does raising the wages of .6% of the entire workforce cause economic calamity?

Don't use the union wages is tied to the minimum wage explanation. I have asked several times for a citation that shows this and no one has been able to provide one.

I do not know where you are getting the impression that the this article is in favor of raising the minimum wage. In fact they argue against it in several portions of the post.

Besides I am with you, raising the minimum wage does not level the playing field, it increases prices and devalues the dollar. Thereby canceling out the wage raise, it is a case of the snake eating its tail. I am in no way a supporter of raising the minimum wage.

Besides I am with you, raising the minimum wage does not level the playing field, it increases prices and devalues the dollar. Thereby canceling out the wage raise, it is a case of the snake eating its tail. I am in no way a supporter of raising the minimum wage.

Again. I ask: How does raising the wages of .6% of the workforce cause economic calamity?

What if IBM raised its wages 5% across the board? Would economic collapse ensue?

For unskilled workers, the minimum wage does more harm than good..... Intended to help low-income workers, the minimum wage actually does more to harm than to help them.

There really hasn't been much fall-out/complaining from business re: the minimum wage increase.
especailly with unemployment at 4.5 percent.
we're getting down to the unemployable range.

Bureau of Labor Statistics has a little different number than George Wills. Wills did not take into account the number of Americans who make below the minimum. So the total number of those making the minimum wage, 479,000 and below are at 1.4 million, totaling about 1.9 million out of 75.6 million of the hourly paid workers. Now breaking it down on demographics, out of the 479,000 that make minimum, ages 16-24 make up 283,000, out of the 1.4 million who make below minimum, ages 16-24 make up 720,00. Not to mention those making below are mostly part of tip driven industries such as waiting tables, delivery drivers, etc. Now you ask why not raise the minimum wage for such a small number of the workforce. Beyond the economic impacts that I have indicated earlier, why are we going to raise the minimum wage for a majority teenage and twenty something group who do not need it? This is hardly going to help anyone who is impoverished, so why waste the money. There are better alternatives.

Oh yeah, as per IBM, difference is IBM raises wages when the profits are up, not when the government mandates it. If they are raising wages it means they can afford it.

Thanks for the appropriate article at the right time! It is a must the 110th Congress enact policies to continue America's economic expansion. The time is now for our Washington politicians to push forward with true and total "federal tax reform". Starting in the House Ways & Means Committee, movement of the FairTax Bill 2007 (HR25) is the first step to replace all the taxes on income with a national retail sales tax. NO MORE INCOME TAX; NO MORE TAX FILING IN APRIL! The FairTax will broaden the national tax base, thereby lowering almost every taxpayer's marginal tax rate by capturing taxes from accumulated wealth, the underground economy, illegal immigrants, and millions of foreign visitors. It would be good for all Americans and great for our economy! Visit www.fairtax.org for more information on all the benefits of this well-supported legislation.

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