Another jobs report came out yesterday and, like so many others before it, the news was disappointing. Our economy is actually growing more slowly this year than it grew last year — somewhere in the 2% range. Normally after a steep decline, the economy would be roaring back at a 5% to 6% clip.
The official unemployment rate is 7.9%, one-tenth of a point higher than last month's number. But the true rate is almost twice that level. Many people who want a full-time job are working part-time instead. And much of the modest increase in economic activity is the result of people who have jobs working more hours rather than new workers being hired.
All told, we are experiencing the slowest recovery since the Great Depression.
So what's wrong?
Public policy is wrong. Especially new policies that have been enacted during the Obama administration. These policies have the effect of discouraging people from accepting work and discouraging employers from offering it.
A new book by University of Chicago economist Casey Mulligan explains what has been happening on the supply side. In a nutshell, we are paying people not to work:
[I]n the matter of a few quarters of 2008 and 2009, new federal and state laws greatly enhanced the help given to the poor and unemployed — from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses — sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.
Mulligan gives the example of a two earner couple — each earning $600 a week. After the wife gets laid off she obtains a new job offer, paying $500 a week. But after deducting taxes and work related expenses her take home pay would be $257. Since untaxed unemployment benefits total $289, clearly she is better off not working.
Mulligan notes that it was the collapse of the housing market that set off the financial crisis that led to the Great Recession. But our problems are not confined to housing. They are system wide. For every one job lost in construction, five others were lost is other sectors. One thing that affects all sectors, however, is overly generous incentives not to work.
On the demand side, the elephant in the room is the Affordable Care Ac, what some call ObamaCare. Required family coverage under the act is expected to average more than $15,000 a year. For $15 an hour employees, that sum equals more than half their annual wage. Employers of low-skilled workers therefore are about to get hit with mandated benefit that will increase their labor costs by 50% or more.
To make matters worse, employers don't really know what insurance they will have to provide or what it will cost. The $15,000 number I refer to is an estimate by the Congressional Budget Office. Presumably, employers will have the option of paying a fine equal to $2,000 per worker if they don't provide the insurance. But does anybody think the fine is likely to stay that low? A lot of employers don't. The uncertainty created by all this is possibly worse than the actual monetary burden.
Add to all of this a Dodd-Frank banking bill that is encouraging bankers not to lend and you have a formula for perpetual stagnation — which is pretty much where we are.