The bright spot in this limp recovery has been the unemployment rate, which has fallen to 5.1%. But don’t look too closely, or you’ll notice that the spot is not so bright. In fact, the job market is no better than the rate of productivity, growth in gross domestic product (GDP) or numerous other depressingly underwhelming economic factors.
We’ve frequently pointed out that the oft-cited U-3 unemployment rate is meaningless, as the more people give up looking for work, the lower the rate goes. Can anyone but a government economist think it’s a good thing when the unemployment rate goes down because millions of Americans have stopped looking for work?
A growing number of people – including, we hope, some presidential candidates – seem to be noticing that the labor force participation rate hasn’t been this low since Jimmy Carter was president. It’s now dropped to 62.7%, a level not seen since February 1978.
But there’s another factor that demonstrates the weakness of the unemployment stats – personal income.
A Wall Street Journal commentary by Bob Funk, CEO of Express Employment Professionals, notes that, “There is something that the numbers are missing. Economics — and logic — tells us that if unemployment was truly that low … wages would be rising. Instead, wages grew at 0.2% during the second quarter, the slowest rate in 33 years. The median family income in America is approximately $53,000, below where it was before the 2008 economic meltdown.”
(It’s actually worse than Funk states. If 0.2% growth during the quarter was the slowest in 33 years, the median income couldn’t possibly be below what it was in 2008; but it is.)
Separately, The Wall Street Journal reported recently that, “Incomes in the U.S. edged lower in 2014, the latest sign an economic expansion that began five years earlier has done little to improve living standards for a broad swath of the nation.”
Make that a very broad swath, as the median annual household income fell 1.5% last year, the third straight year in which incomes were essentially flat. After adjusting for inflation, personal income fell by $805 on average, to a median income of $53,657. Some recovery!
Regulations and Income
Of course, if personal income were to increase, consumers would have more money to spend. If consumers had more money to spend, GDP would grow in response to demand. So what’s holding back personal income growth?
It’s not just that fewer people are working. Another factor, according to Funk, is increased regulation. He cites a few examples:
- The National Labor Relations Board in August issued a sweeping ruling that says a franchiser will be considered the “joint employer” of workers hired by its independent franchisees. The ruling also applies to contract employees.
- Some states are pushing for a minimum wage of $15 an hour, or $31,200 a year. Studies show that a higher minimum wage results in fewer jobs.
- The U.S. Environmental Protection Agency issued tightened standards this month for ground-level ozone, which may have a negligible effect on the environment, but will add a significant cost to doing business.
“In practical terms,” Funk notes, “this means factories and power companies in certain areas will be forced to cut production, move overseas or raise rates and install pricey equipment to manage their emissions.”
Then, of course, there’s the cost of Obamacare, Dodd-Frank, the Foreign Account Tax Compliance Act and numerous other new regulations.
Some regulations may provide a public good, but are they worth the resulting economic impact? And is it a good idea to implement them when the economy is weak?
Even when the public sector does a cost-benefit analysis, it ignores the results.