Spinning Out of Control: Making the Recession Look Good

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Dean Baker and Heather Boushey
Center for American Progress website, June 4, 2004

Fewer jobs used to be bad news. But, it seems that's old thinking, at least if you're a Bush Republican. Like most of the nation's workers, economists have been troubled by the economy's inability to generate jobs over the last three years. Even with the recent uptick in employment, the number of jobs in the economy is still down by more than 1.3 million from its pre-recession peak.

Consistent with this decline in jobs, there has been a sharp falloff in the number of people who report to be working. Even as some jobs have returned, we have not seen the share of Americans working actually go up. In fact, it is still down by more than 2.5 percentage points (equivalent to 6 million people) from its peak in 2000. Most of these people do not show up as being unemployed. To be counted as unemployed, a worker has to be actively looking for work. People who are unemployed, but have given up looking for work, do not appear in the unemployment figures. They are instead listed as being outside the labor force.

Economists recognize this decline in labor force participation as evidence of labor market weakness. In every recession there is a decline in labor force participation, and the decline is most pronounced among the most disadvantaged groups – African-Americans and teenagers. The big difference with this recession is that the decline in labor force participation has been sharper and has persisted for a longer period of time than during any period since the Great Depression of the 1930s.

All of this seems pretty straightforward to economists, or anyone remotely familiar with economic data. However, at least some analysts seem determined to put a different spin on this picture. In their view, the decline in employment is a good thing. According to this line of reasoning, most of the people who have given up working or looking for work are mothers who decided to stay home to be with their children. This is the happy development in a prosperous economy.

It would be nice to believe that millions of mothers now had the option not to seek paid employment, but the numbers just don't support this story. Among prime age workers (workers between the ages of 25 and 45) employment rates are down among both men and women. And employment is down almost as much for women without children as women with children. Presumably the unemployed men and women without children are not also staying home taking care of kids.

Similarly, among younger workers (ages 18 to 30), employment rates are actually down more for men than for women, indicating that young women (who are more likely than older women to be mothers of young children) are not the main group dropping out of the labor force. Employment rates have also fallen considerably more for African-Americans than for whites. None of this is consistent with the stay at home mom explanation for declining labor force participation.

One last point seals the coffin for this one – real wages for men are now growing far less rapidly (and may actually be falling now) than they did in the late nineties boom. If men are faring poorly in the labor market, it is hard to believe that mothers are now finding it so easy to support children without a second income. If women were quitting jobs to stay home, we would have seen it during the economic boom of the late 1990s when men's wages were rising rapidly. However, we saw the opposite: mothers increased their labor force participation up through 2000, when unemployment began to rise.

This is not the first episode in creative economics coming from President Bush's supporters. Marc Sumerlin, a former White House economist now with the Lindsey Group, recently claimed that early retirements explained much of the decline in labor force participation. This one can also be easily tossed in the garbage – employment among workers over age 55 has risen by 3,260,000 from its pre-recession peak – not much evidence of a rush to early retirement here. (Plunging retirement accounts and soaring health care costs explain this one.)

In fact, many indicators continue to point to a lackluster labor market. The average workweek is more than 2 percent shorter today than it was before the recession. The total number of hours worked is down 3.6 percent from its pre-recession peak, the equivalent of 4.8 million jobs. Further, one-in-five unemployed workers has been out of work for at least six months.

No amount of spin can explain away the basic fact that the economy has performed very poorly for most workers over the last four years. While this is not all President Bush's fault, it is ridiculous to try to deny the basic reality of the situation. It would be a huge step forward if we could get beyond this flat earth economics and have a debate over policy that was at least based in reality.


Dean Baker is the Co-Director of the Center for Economic and Policy Research and Heather Boushey is a Senior Economist at CEPR.