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The Unemployment Crisis: Part I: Grading the Parties

June 11, 2011

Professor Cole: Grades parties on their responses to job crisis

As if things weren’t bad enough the US Bureau of Labor Statistics (BLS), last week reported that the economy added some 54,000 jobs in May. However, the number of jobs was below that predicted and the official unemployment is up slightly to 9.1% (About 14 million jobless).[1]  But these figures are not the whole story. If you add in all persons who have stopped looking for work and the number of people unemployed the rate is 15.8%.[2]And in May, the number of long-term unemployed (those jobless for 6 months or more and over) increased by 361,000 to 6.2 million according to the BLS report.

Democratic Party / Obama Grade on Jobs: C-

Grading the parties: The two major parties differ dramatically when it comes to solutions. Democrats have opted for a stimulus program (and also bailed out the auto industry). These programs appear to have produced modest improvements — the economy adding several million jobs over the past year (check). Democrats fear that draconian cuts in government spending would further hurt the economy; Obama would abolish the Bush era tax cuts for the top 2% of wage earners in order to reduce the deficit.

Republicans were predictably quick to pounce on President Obama. They either expect miracles  or forget that Obama inherited the worst economic recession since the Great Depression. Their solution? Just cut the deficits and reduce taxes

GOP Grade on Jobs: F

and the problem will vanish. Most Republicans are adamantly opposed to any increase in taxes even for the wealthy and would like to slash corporate taxes. It’s a bit hard to see the math; how tax cuts will solve the deficit? George W. did this and turned a big surplus into a deficit. Of course it might just work if you follow the Paul Ryan (R-WI) budget and dismantle every program that benefits the public from unemployment compensation, to public health and safety, environmental protection and our national parks.

There is little evidence that tax cuts really produce jobs; the Bush era tax cuts did little to create jobs. (See a piece with good graphic by Paul Krugman, New York Times, June 11, 2011). 

Republicans at every level are obsessed with shrinking the size of government. Such moves are already leading to serious public sector job losses in a number of states. While the private sector added a modest 83,000 new jobs. Local and state governments lost 28,000 jobs due to layoffs. As discussed in Part II, eliminating the jobs of public employees can have serious secondary impacts on local economies.

Ignoring the warning signals: While I believe the GOP approach will do far more damage than good, many I am dubious that Democrats including the President  have acknowledged the dimensions of the problem or are willing to discuss real solutions.  (The C- for Dems is generous — it’s my party). Recent columns by former Labor Secretary Robert Reich and Nobel Laureate economist Paul Krugman point to both the depth of the crisis and the failure of leadership to deal with it.

Here is a frightening graphic from a non-partisan website Calculated Risk. Here it is:

% losses from the start of post WWII recessions. Source: http://www.calculatedriskblog.com/2010/09/duration-of-unemployment.html Click graph to enlarge

So what’s going on? This chart compares the current recession compared to other recessions in the post WWII era. What is clear is that the current employment recession is both deeper and longer lasting than all of the other recessions. (The graph does not show additional modest gains over the past 6 months or so).

There are several ominous mega-trends as well as political factors at work that explain the dimensions of the problem and why the approaches being proposed are not likely to lead to real job growth. These are examined in Part 2.

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[1] U.S. Bureau of Labor Statistics (BLS), “Employment Situation Summary for May 2011, June 3, 2011. http://www.bls.gov/news.release/empsit.nr0.htm

[2] The 9.1% is the BLS U3 index; the U6 index of 15.8% includes underemployed and marginally attached to the workforce (not actively seeking work).

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