No other recession in the last 60 years saw such rapid job destruction.
By Henry Olsen
Last Fridays grim labor report is the latest confirmation that our economy is not recovering. A loss of 131000 jobs and a stagnant 9.5 unemployment rate are bad enough. But a deeper lookat the little-known civilian employment-population ratioshows how hard its going to be to pull out of our crisis and why the Obama administrations policies are unlikely to do the job.
In contrast to the better-known unemployment rate which measures the percentage of working-age Americans who are actively seeking jobs but do not have one the civilian employment-population ratio measures the percentage of working-age Americans who have a job whether they are seeking one or not.
This distinction matters because the state of an economy affects whether someone looks for a job at all. Bad times discourage potential workers from seeking jobs; boom times encourage marginal workers to seek them. As our population grows we have more working-age adults who need work.
A growing economy needs to replace the jobs we have lost and add new ones to accommodate these added potential workers.
Looking at this ratio America is suffering its largest drop since World War II.
When the economy was at its Bush-era height in 2007 a little over 63 of adult Americans had jobs. Fridays report shows that only about 58.4 do a decline of nearly five percentage points.
While the unemployment rate remains steady at 9.5 the employment-population ratio continues to fall each month. In April it was 58.8 in May
58.7 and in June 58.5.
Since America has about 238 million noninstitutionalized civilian adults of working age this decrease means that we have nearly 12 million fewer jobs today than we would have if the employment-population rate were still at its 2007 level of 63.
No other recession in the past 60 years saw such rapid job destruction in either absolute or percentage terms. In the 1979-82 recession unemployment topped out at a higher rate 10.8 but the employment-population ratio declined by only three percentage points to 57 from 60.
History also delivers sobering news on how long it might take to recover our economic health. There is only one instance since World War II of the U.S economy increasing the employment-population ratio by five percentage points in a decade: the recovery that followed Ronald Reagans tax cuts in 1983.
In the mid-1980s the employment-population ratio recovered less than two years after hitting bottom. The momentum continued for the rest of the decade fueled by the 1986 tax reform that lowered the top marginal income tax rate to 28 allowing America to employ the millions of late baby boomers women and immigrants who sought jobs. By the time the boom ended in 1990 the employment ratio had rocketed to 63 from 57.
An administration that pursued job creationnot ideologywould note this history and see how individuals and companies can create wealth and jobs quickly if they have the right incentives. Instead we have policies that are uncertain and portend higher taxes and greater regulatory burdens.
This is causing business and consumers alike to restrain spending creating a drag on the economy too great for any government stimulus to reverse.
Someone once said that we should never let a crisis go to waste. In this
historic employment crisis we have no time to waste.
Rather than tear down Reaganism our leaders in Washington should heed its lessons and unleash the private sector that alone can pull us out of our doldrums.
Mr. Olsen is a vice president at the American Enterprise Institute.
