Hours after the monthly jobs report was published President Obama was gloating before the cameras. Unemployment had declined from 8.7% in November to 8.5% in December. The media herd was gleefully stampeding to a revised narrative: The economy has improved, boosting the reelection prospects of Barack Obama, the man with no credentials or relevant experience they had elevated to the Presidency in 2008.
Unreported by the media was the misery of the men and women whose individual lives make up the tragic statistic that lowered the unemployment rate.
Here is how the Labor Department computes the unemployment percentage:
Not everyone who is without a job should be classified as “unemployed.” Some adults, such as stay-at-home parents and college students don’t want jobs. Thus, to be counted as “unemployed” in the monthly government survey one must be actively looking for a job.
To be counted as part of the labor force one must either have a job or qualify as “unemployed” by actively seeking a job.
There are two possible routes to a lower unemployment rate:
Route 1. Expand Job Opportunities: Business owners and investors take risks and generate start-ups, innovations and expansions, creating enough new jobs to keep up with the average 125,000 per month growth in the working age population and to replace some of the millions of jobs lost in the recession. Government’s role is to enhance and protect economic liberty by removing bureaucratic, regulatory barriers and reducing taxes.
Route 2. Downsize the labor force by demoralizing job seekers: People who have lost their jobs become so discouraged they quit looking for employment and are thus no longer classified as unemployed and are no longer included in the labor force. Government’s role is always the same: In the name of benefits to the environment or to the poor or to the middle class or to implement a politicians vision of a “new energy economy” it erects regulatory barriers and tax disincentives that block or discourage investors and small business employers.
Guess which is the Obamanomics route.
These two charts track the unemployment rate and the size of the labor force.
The upper chart shows the first 26 months of the current recovery. The unemployment rate has declined from 10.1% to 8.5%. But the size of the labor force is virtually unchanged, even though the working age population has grown, because millions of unemployed people have become discouraged and quit looking for jobs.
The lower chart tracks the first 25 months of the Reagan recovery of the 1980s. President Reagan inherited a sick economy and a deep recession that by most measures was worse than what President Obama inherited. Yet, as the chart shows, there was a steep drop in the unemployment rate even as the labor force grew by 4.3 million! People did not give up looking for jobs during the Reagan boom because there was robust growth in the economy and employers were creating hundreds of thousands of jobs every month.
Since the beginning of 2008 the working age population has grown by 7.2 million people. Yet the labor force which is normally about two-thirds of the working age population has shrunk over the same period by 49,000.
Thus, 4.8 million men and women who should be included in the unemployment rate calculation as both in the labor force and unemployed are not counted at all because they have become t0o discouraged to look for jobs.
If those men and women were included in the unemployment rate calculation the December rate would have been 11.3%, higher than any time since 1940.
The upper, Obama chart represents despair as job growth fails to keep up with population growth and millions of working-age people drop out of the labor force. The lower, Reagan chart is what a successful economic recovery looks like, with employers who are free to grow and expand, adding jobs at a much faster rate than the growth of the working age population.
The jobs data from the eighties confirms the success of the Reagan approach:
- Tax cuts
- Allowing insolvent businesses to be liquidated in bankruptcy
The current jobs data reflects the failure of the Obama approach:
- Some tax increases have already begun and major increases that will hit small business are scheduled to begin in 12 months;
- New ObamaCare mandates and regulations that are still being written will distress employers over the next three years;
- New financial regulations are restrict bank lending to small business;
- Obama’s energy policies and environmental regulations are designed to restrict domestic production of oil, coal and natural gas, increasing the price of energy;
- Bailouts of insolvent banks and companies have benefited politically connected executives and unions at the expense of healthy businesses.
There is a potential downside that could blow up Obama’s propaganda campaign. If the “good news” about the unemployment rate encourages several million people to come back into the labor force and seek jobs, the number officially classified as “unemployed” will increase and the unemployment rate will tick back up as the November election approaches.