America’s jobs nightmare requires fresh thinking

 
Allister Heath
TOMORROW is decision day for Americans, who must choose who they want to see in the White House for the next four years: Barack Obama, the Democratic incumbent, or Mitt Romney, the Republican challenger. America will also be voting for a new Congress.

This newspaper is not shy of giving its endorsements to candidates in UK elections. It is not our place to do so in US elections, however. But America suffers from a series of critical economic problems that we would hope all US voters consider before making their choice. I will focus on one today: the urgent unemployment crisis.

There is an intriguing contrast between the US and UK economies. British GDP remains substantially smaller than it was at its peak but employment has bounced back, helped by lower real wages and a growth in part-time jobs. The US economy has more than caught up all of its lost output and is now bigger than it ever was – but its labour market is in a much worse state than ours.

The horrible reality in the US is that there are still 4.2m fewer jobs than there were in December 2007 and that employment remains 3.1 per cent lower than it was before the recession began 58 months ago.

As Rea S. Hederman, Jr and James Sherk of the Heritage Foundation point out, this is the first recession in the post-war era when employment hasn’t recovered within four years of the recession’s onset. Employment – as measured by non-farm payrolls – was up by 2 per cent at the same stage after the 2001 recession, four years and 10 months after its start; it had bounced back 6.7 per cent at the same stage after the recession of 1990-91; 8.3 per cent after that of 1981-82; 9 per cent after that of 1960-61; 10.4 per cent after that of 1970; and had exploded by an astonishing 12.5 per cent at the same stage after the 1973 recession. The current US recovery has turned into a jobs disaster – one that closely resembles the GDP nightmare currently plaguing the UK. It is vital that both countries seek to learn from one another: the US has been better at writing off bad debt, including that of banks, allowing house prices to crash and liquidating bad investments; the UK workforce seems to have behaved more flexibly.

The US economy needs to create 125,000 jobs per month to keep up with a growing labour force; the 170,000 monthly rise enjoyed over the past three months would mean unemployment would not return to normal levels for another four and a half years. Unemployment actually increased from 7.8 per cent to 7.9 per cent of the labour force in October, though the goodish news is that the participation rate crept up to 63.8 per cent – but that was the same level as in June and remains appallingly low. The unemployment rate among African-Americans jumped from a horrific 13.4 per cent to 14.3 per cent in October, a tragically high level. America’s jobs market has diverged: educated university graduates are doing much better than those with limited qualifications. The incomes of recent graduates and of people in their early 20s has collapsed, however.

Obama’s stimulus packages never delivered what they promised, the US budget deficit and national debt are far too high and the Fed will eventually have to tighten its dangerously loose monetary policy. Whoever is elected tomorrow will need to think very differently if they are to begin tackling America’s jobs nightmare.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath