07 October 2016

The Remarkable Work of Creating Work

There should be a parade this weekend in honor of the American economy.

The American economy has created more jobs than it's destroyed every month for 72 months, a stunning 6 years in a row. In that time it has gained 14.6 million jobs. The old record was set in the late 1980s, when the economy created 10.7 million jobs over a period of 4 years. This streak is 2 years longer than the next longest streak, which, in turn, is just 2 months longer than the third longest streak. Think about that: the gap between the first and second is 2 years and the gap between the second and third is 2 months.

In only 5 out of 81 months in this decade has the economy destroyed more jobs than it created. By contrast, in 53 months of the last decade more jobs were destroyed than created. (This happened in 18 months in the 90s, 24 in the 80s, and 17 in the 70s.) Particularly in the wake of the turmoil of the oughts, this has been a surprisingly steady decade.

It's worth remembering all the reasons this wasn't supposed to happen. In the wake of the Great Recession the US economy faced a number of threats. Eric Cantor of the House of Representatives twice tried to shut down the government, threatening to throw a wrench into about 20% of the economy directly and 100% indirectly. Many suspected that Quantitative Easing (QES) could trigger inflation or scare investors or fail to work and throw the dollar or the economy into a free fall. The Greek crisis continued to roil international markets each time the EU would concoct and then refuse another recovery plan. Span and Italy were also teetering on the brink of a double dip recession that could bring down the world economy along with them. China twice went through big stock market falls, and revised its growth downwards. And most recently, the Brexit vote that threatens to unscramble the egg that is the EU's trade agreements caught most everyone by surprise just months ago. Any one of these events could surely have been enough to cause job creation to go negative - if even for just a month. Yet every single month for 6 years the report on jobs growth came in positive.

It's not just that the economy is creating roughly 2 million jobs a year. Each month it is creating and destroying more than 2 million jobs. When the bureau of labor reported that the economy created 156,000 jobs last month, that is a net number. What actually happened is that the economy destroyed about 2.2 million jobs and created about 2.35 million jobs. (Or somewhere in that range. These more precise numbers aren't reported for months, depending as they do on more detailed records that take longer to collect and analyze.)

To put that in perspective, there are about 2.5 to 3 million people employed in teaching, in nursing, and as waiters or waitresses. The number of jobs the American economy is creating and destroying each month is nearly as great as the number of people who wait on tables all year. I find that stunning. (And its testament to how diverse is our job market that three of the most common job occupations combined make up only 4% of the work force.)

Most importantly, we're back on track for normal. In the 70s the US economy created 19.4 million jobs. In the 80s and 90s it created 18.2 and 21.9 million. Then last decade, the oughts from 2000-2009, it lost 1.1 million. Because the job gains of this decade were coming in the wake of this disastrous decade - the worst since the 1930s - job creation didn't seem to make as much difference. And it didn't. We weren't ramping up so much as we were digging out of a hole.

In the Great Recession, Americans lost about 8 million jobs. It wasn't until about the Fall of 2014 that the number of employed had returned to its pre-recession level. Finally, unemployment fell below 5% just this year (and has flirted between 4.7% and 5.0% since), a sign that the labor market had returned to its normal state.

As the labor market tightens, two things happen. One, labor participation rate will go up. Two, wages will rise faster.

In the last year, 3,040,000 people entered the labor force and 3,026,000 got jobs.  That's 99.5%. After dropping for the first half of the decade, the labor participation rate has started to go up again because people are finding jobs.

Wages are rising. The Census Bureau reported median wages last year rose 5.2%, which is a remarkably high rate. (Last century wages ended up 8X higher than they were at the start of the century; this was the result of 2.1% wage growth year after year for a 100 years.)

Oddly, there is every kind of dismissal of this good news. That makes no sense to me. Obama is president but the Republicans have Congress and are governors in 31 states. What's going on in the economy is partly a tribute to the policies of Democrats and Republicans and mostly a tribute to the dynamism of the economy. Republicans can probably be blamed or praised just as much as Democrats but given the presidency is so visible, it is the party of the president that gets most of the blame or credit. It clouds the ability to simply talk about the economy as something separate from politicians.

Regardless of whether you love Bernie Sanders or Gary Johnson, Jill Stein or Hillary Clinton, it's important to acknowledge two things. One, the Great Recession deserves the modifier "Great." It was awful and we still have not fully recovered from it. Two, the economy is incredibly powerful, creating new jobs by the millions even as it automates away old jobs by the millions. Every month. "The economy" is a system as mysterious and as complex as the ocean and given how much it has transformed human life since the Dark Ages it deserves more respect than it gets. Respect enough to deserve its own parade.

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