Why Job Growth is Stagnant (Not to Mention Other measures)

In a National Review article of June 21, 2016, Michael Barone explored the question of whether the United States economy has shown any growth, and if not, why not.  The article, entitled “Why We have—and Probably Will Keep Having—Sluggish Job Growth,” relies on a recently published book by the economist Arnold Kling, Specialization and Trade: A reintroduction to Economics.  Kling’s argument, supported by economic history and data, begins with this, according to Barone:

“[The book is,] among other things, a polemic against macroeconomists who treat the economy as what Kling calls a “GDP factory” and who think policymakers can get it producing more by just stepping a little harder on the gas pedal, with federal stimulus spending or low interest rates .“(Barone)

In other words Kling is excoriating those who have simplified macroeconomic policy in such a way that it ignores realities.  In addition, it implies that government is able to gather and properly interpret all the necessary information to make wise policy choices and then will actually make such choices, free from political influences.

Kling’s view of the economy is:

“Kling sees the economy as the constantly changing sum total of firms, entrepreneurs, and individuals specializing in certain work and trading with each other. In the process of that, in a typical month it destroys and creates about 4 million jobs.” (Barone)

As he says, if more jobs are destroyed then created, within some time period, we have a recession.  But Kling also states an intermediate state, between recession and  recovery, a sort of twilight zone.  Barone writes for Kling, “If the number [of jobs] created only narrowly exceeds the number destroyed, you have what we’ve been living with for the last nine years.” (Barone)  It is certainly a state of some kind of stagnation.

Quoting another article by Michael Malone in Forbes, that provides some fascinating data, Barone writes, “Huge numbers of jobs were destroyed from 2008 to 2009, and since then there has been disappointingly slow job creation. In Forbes, Michael Malone points to Economic Innovation Group figures showing that net new businesses fell from 421,000 (1992–1996) and 405,000 (2002–2006) to 166,500 (2010–2014). That indicates a shocking decline in what John Maynard Keynes called ‘animal spirits.’” (Barone)  And this shocking decline is pretty eye-opening.  But the real question is, why?  Barone, Kling and others believe they have an answer.

Their answer is not earth-shaking, but needs to be taken seriously.  It boils down basically to higher tax rates in the last eight years, more and more oppressive regulations that discourage job creation, and reduced mobility of workers.  Why then the reduced mobility of workers from one place where jobs are scarce to places where they are more available?  Barone points to this: “Why? One reason is the explosion of the number of people receiving Social Security Disability Insurance: It’s tripled since 1980, doubled since 1995. West Virginia, despite low job creation, has seen little domestic out-migration. Not coincidentally, it has the highest rate of disability payments. People once left the mountains — for Michigan in the 1940s, Texas in the 1990s. Now they stay put and wait for $13,000 in annual SSDI.”  That in my mind is a telling statistic and one I have suspected for some time was a factor.

Barone also points to the increasing—and well-publicized—tendency of people in the 18-34 age range to live with their parents and not work at all or to work part-time while attending a local college.  Finally, he mentions that the under-30 age group simply are not risk-takers.  They don’t find work as an employee and they don’t start their own businesses either.  As Barone puts it, “Or an urge to entrepreneurship. Federal Reserve data indicate that the percentage of under-30s owning all or part of a business is one-third the rate it was in 1989. And a plethora of state occupational-licensing laws, as the Obama White House has argued, close off opportunities to protect incumbents.” (Barone)

With all those causes, there is much to be done, or, perhaps more accurately,. Much to be undone.  Will either of our presidential candidates or Congress be willing to engage these issues?  I can’t say, but I am increasingly skeptical.

One thought on “Why Job Growth is Stagnant (Not to Mention Other measures)”

  1. Marc–
    My only comment is that I believe-in large part–causation goes the other way on SS disability payments. People would prefer jobs, but when their unemployment runs out they jump over to SSI. But you (and they are right), its a huge problem. A bigger problem is what Chicago economist Casey Mulligan has shown, the explosion of gov’t benefits sometimes results in an effective tax rate of over 100% for the poor to take a job (because they would lose medicaid and other benefits).

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