The unemployment rate is the measure that typically makes the headlines. In August it rose to 9.7 percent – a 26-year high. The June rate was 9.5 percent, and the July rate 9.4 percent. The increase is problematic.
“Unemployed” means wanting a job, being available for work and having looked for a job within the last four weeks. According to the Bureau of Labor Statistics (BLS), some 14.9 million people were unemployed during August.
During August, some 2.3 million people were categorized as “marginally attached” to the labor force. This group consists primarily of those who want jobs, are available to work and have searched for jobs within the last 12 months (but not the last four weeks).
Finally, during August there were 9.3 million people who wanted to work full time but were only able to work part time. Either they could not find full-time employment or their hours had been cut.
In total, during August there were more than 26 million people who were either unemployed, marginally attached to the labor force or working part time but wanting to work full time. That is a lot of people and it equates to a lot of pain, fear and frequently a lot of anger. It also equates to lower tax revenues, greater government unemployment and other benefit costs and a large budget deficit.
Another closely watched measure of unemployment is the change in “payroll employment.” The good news is that the number of payroll jobs lost during August was only 216,000. The rate of payroll job losses is declining.
Many economists believe that the number of payroll jobs will start to increase by the first quarter of 2010. That’s good! But, an increase in payroll jobs will likely lead to an increase in the unemployment rate.
The reason for the increase is that when employers start to hire, many who were “marginally attached” to the labor force will start to actively search for jobs. When they start to actively search they will join the ranks of the “unemployed,” thereby raising the unemployment rate. Consequently, the unemployment rate will likely peak in the range of 10.5 percent.
Looking ahead, unemployment will probably remain around 8 percent for at least two years. The primary reason is fear – fear on the part of consumers and employers. Consumer spending is the primary driving force in our economy. When people have lost or fear losing their jobs, have seen the values of their homes tumble and witnessed significant declines in the values of their retirement fund assets – then they become scared and spend less.
The $787-billion stimulus program has had some positive effect. But, as Warren Buffet noted, “Our first stimulus bill … was sort of like taking half a tablet of Viagra.”
I believe the quickest way to stimulate long-term economic growth and reduce unemployment requires the following:
· First, the government must make economic recovery job one. Little else can be accomplished without a strong economy.
· Second, establish a very business-friendly atmosphere that will allow our businesses to compete on a level playing field with foreign competitors and discourage managers from exporting jobs.
· Third, develop reliable low-cost sources of energy, including renewable sources, while also focusing heavily on oil and natural gas as well as nuclear energy.
· Fourth, eliminate the tax on long-term capital gains for three years and limit it to a maximum of 15 percent thereafter. This will spark the stock market and, in turn, the housing market, thereby increasing consumer confidence, rapidly increasing consumer spending, decreasing unemployment and encouraging a strong economic recovery.
