The saying “stuck in a rut” comes from a time when horse-drawn buggies would get stuck in dirt tracks and travel exactly the same direction all the other buggies had gone before. We are stuck in a buggy rut with economic policy today.
Despite nine quarters of positive growth in U.S. gross domestic product, higher corporate profits, rebounding house prices and new stock market highs, the labor market remains very weak. Under normal conditions, state and national unemployment would be around 5 percent. But we haven’t seen such conditions in more than five years.
Idaho’s unemployment rose two-tenths of a percentage point last month to 6.4 percent. This is better than the national level of 7.4 percent, but both numbers reflect the underlying problem of matching workers to the needs of employers.
The job market is in a rut.
According to the Idaho Department of Labor, last month’s rise in the unemployment rate is due in part to more than 1,400 people entering the labor force during the month. When people are looking for work but can’t find any, they are counted in the unemployment rate. When people give up looking for work, they are not counted as part of the labor force, or labor market.
Labor Department data show the state’s labor force has declined by more than a 1,000 this year. But at a time when there are fewer people in the labor market, there are more jobs. The number of jobs in Idaho has risen 18,000 over the past 12 months.
How can this be? More and more people are taking part-time jobs. This is a structural change to the labor market both here in Idaho and across the nation.
Current data from the U.S. Census Bureau shows that about 170,000 Idaho workers (23 percent) are in part-time jobs. The same report indicates that more than 6 percent of all workers are holding more than one job.
Nationally, there are approximately 8.2 million people in part-time jobs because they cannot find the full-time work they want. This is twice the number of those workers as before the recession.
A structural change has occurred in the labor market, but not in our economic policies. We need to get out of this mental rut.
Structural unemployment results when the number of jobs available in the labor markets is insufficient to provide a job for everyone who wants one. If the unemployment rate in Idaho and the nation rose simply because the economy went into a recession, we should be seeing more full-time work today because GDP and corporate profits are back above where we started. That is, the economy and the labor market should cycle back to their normal rate. Instead we are experiencing a structural, or more long-term, change in the labor market.
But economic policy is still geared toward short-run, cyclical policies. Keynesian economic theory suggests that the government can bring the economy back to “full employment” by fiscal spending or easing monetary policy. But Keynes himself said this is only in the short run; such policies are ineffective in the longer term.
Unfortunately, policymakers are still using short-term economic theory to treat long-term economic problems. President Obama called for more government stimulus in exchange for lower corporate tax rates. The Federal Reserve keeps short-term interest rates near zero and intervenes in the bond market, but private investment, at $2.6 trillion annually, remains below its pre-recession levels.
Drop the short-term policies and get out of the rut. With less government interference, businesses will be able to hire the full-time workers they need.