Peter Morici

The economy added 288,000 jobs in June. Overall jobs creation has improved in 2014, but it remains far short of the 390,000 needed each month to keep up with population growth and genuinely reduce unemployment, and well less than the pace accomplished during the Reagan – Clinton prosperity.

The jobless rate is down to 6.1 percent from the recession peak of 10, but most of the reduction has been accomplished by adults quitting the labor market—neither working nor looking for work. If the same percentage of adults were in the labor force today as when Presidents Obama or Bush took office, the jobless rate would be 10.2 and 12.2 percent, respectively.

Three problems have limited jobs creation during both Bush and Obama years—slow economic growth overall, a disinclination to control the border with Latin America or disappoint businesses’ appetite for cheaper skilled labor from Asia, and the work disincentives imposed by social programs intended to redress income inequality and help the disadvantaged.

In this century, GDP growth has averaged 1.7 per year, whereas during the Reagan – Clinton period it was 3.4 percent. The reluctance of both Presidents Bush and Obama to confront Chinese protectionism and currency manipulation and open up offshore oil for development have created a huge trade deficit, which sends consumer demand and jobs abroad.

Efforts to bring jobs back to America are frustrated by government regulations more burdensome than necessary to accomplish their legitimate objectives, and skilled labor shortages. Paradoxically in an economy with 9.5 million unemployed and actively looking for work, too many lack skills appropriate to the 21st Century economy, and seem to lack adequate incentives to acquire those.

The combination of free and subsidized health care, the earned income tax credit, and other government programs whose benefits phase out as incomes rise, imposes high effective marginal tax rates on lower income working families. These often encourage prime working age adults to continue in part-time work, rather than take full time employment and lose benefits, or to not work at all.

Many have little incentive to acquire skills in demand. Efforts at improving primary and secondary education and access to college too much focus on basic skills and granting degrees without much concern for the course of study selected. Simply, most reforms have not adequately emphasized creating skill-ready graduates for a rapidly changing economy.

Peter Morici

Professor Peter Morici is a recognized expert on economic policy and international economics. He has lectured and offered executive programs at more than 100 institutions including Columbia University, the Harvard Business School and Oxford University.