This Is Now President Trump’s Economy
President Trump has consistently touted the strength of the economy since he won the Presidency at the end of 2016. That’s to be expected. Every President tries to put the most positive spin on economic numbers, and the numbers under President Trump have been pretty good. But there is still a great deal of slack in the labor market, and wages, while showing modest gains, reflect the fact that many employers still don’t feel the need to significantly boost pay in order to attract workers.
Wage stagnation has gotten some attention. Most reports, like this lengthy piece in The New York Times, to no one’s surprise, makes no mention of immigration (Mickey Kaus is one who does make the connection). What garners the lion’s share of attention every month are the number of “jobs created” and the official unemployment rate (U-3 measure).
We’ve pointed out previously that the monthly jobs figure doesn’t mean much on its own. We also need to know the size of the working-age population, and how many persons within that population are employed or are actively seeking employment.
Likewise, the U-3 unemployment count has ceased to be an accurate measure of the employment situation. The U-6, which stands at 8.2 percent, is better, but it, too, excludes tens of millions of those “not in the labor force.”
A better economic measure is the labor force participation rate, the proportion of the working-age population not incarcerated or institutionalized that is in the labor force, with the labor force consisting of those who are employed or officially unemployed. In February 2018, that number was 63 percent. By comparison, the labor force participation rate in November 2007, the month prior to the start of the Great Recession, was 66 percent. This 3 percent drop means a lot once we understand that the working-age population in the United States increased by around 24 million during that same period.
Since November 2007, 15.8 million people have dropped out of the labor force to raise the number of those not in the labor force to 95 million, over a third of the total working-age population. This is an acute crisis; a crisis which politicians in D.C. not only ignore but vehemently deny as they constantly push for the importation of more foreign workers.
The declining labor force is not primarily due to the working-age population aging and retiring. Americans are living and working longer, by choice or necessity, and younger people are working less. The Bureau of Labor Statistics (BLS) has projected that labor force participation among the over-65 will continue to grow until 2024 at a higher rate than any other age group, while the labor force participation rate for those 25 to 54 years old will remain flat, and will decline for those 16 to 24 years old. Right now, there are 61.3 million persons in the U.S. under the age of 65 who are not in the labor force.
Immigration will not significantly slow the aging of the U.S. population, but if it continues at its current rate it will almost certainly continue to drive down labor participation rates of Americans between the ages of 16 and 64, particularly minority and disabled workers.
Signs of Life for U.S. Workers
The U.S. did add 313,000 jobs in February, higher than expected, and higher than four-year monthly average. More significant is that 806,000 were added to the labor force, the highest single month increase since 1983, as reported by The Wall Street Journal. This is a very positive sign because it means that many workers who were out of the labor force are now reentering, either working or searching with the expectation of finding work.
An increase in the labor force of this size tells us several things:
- Those described by the Bureau of Labor Statistics as “marginally attached workers” (those who have looked for work in the past 12 months but not in the last four), and “discouraged workers” (those who want a job but have given up looking), are responding to positive labor market conditions and are again seeking work in significant numbers.
- If this trend continues the unemployment rate will tick up. This is not to be taken as a negative economic indicator. Not all who reenter the labor force will find jobs right away, and as more enter the labor force, employers will have a larger pool of workers to choose from. The goal is to continue to grow the labor force by encouraging people who are now sitting on the sidelines to renter the job market, not to keep the unemployment measure artificially low. The most effective way to do this would be to not hand out one million lifetime work permits to immigrants every year, creating a glut in the labor market.
- Despite a positive trend, wage growth will likely remain sluggish as the labor force increases, which the WSJ article explicitly acknowledges. This is reflective of an oversupply of labor relative to job openings, and slow wage growth will likely continue until a better equilibrium is achieved. The key is to maintain the positive wage growth trend. And again, the most effective way to continue this trend is to not hand out one million lifetime work permits to immigrants every year. A claim that there is a “labor shortage” in the United States is no more plausible than a claim that the moon is made of cheese. A persuasive argument can be made that there has not been a labor shortage in this country for the past two centuries.
So, with the millions of jobs that have been created since 2009, and an unemployment rate at 4.1 percent, there is cause for optimism, but only a very cautious optimism is in order.
“Growth” Has Gotten Us into This Mess
Politicians in D.C. have long preferred to “grow the economy” through mass immigration than work to ensure a decent standard of living for all U.S. citizens because, simply put, the former is what they are paid to do. It has become conventional wisdom that the only measure of prosperity is an increase in the GDP, and the only way to achieve this end is to bring in tens of millions of immigrants to grow U.S. population. No one will deny that mass immigration has resulted in economic growth. What no one can effectively argue is that this has concomitantly benefited the American people.
In January 2000, the working-age population was 211.4 million. In January 2018, it was 256.8 million. An increase of 45.4 million. That is a staggering number. Now consider that the number of working-age population who were employed only increased by 17.9 million over that same period, a deficit of 27.5 million. As long as the growth of the working-age population continues to outpace growth in employment over the long haul, the assertion that the fundamentals of the economy are strong will continue to be a pretense.
Over a decade since the onset of the Great Recession, the U.S. economy may be experiencing a genuine recovery, though many Americans will never fully recover financially. Many of the good paying jobs that were lost in the recession are not coming back, at least not anytime soon. And the structural forces that culminated in that dramatic downturn still predominate today.
We should all be grateful that we live in a nation which was able to withstand such an adversity and yet still has the capacity to provide a decent standard of living for all its citizens. And, that amidst all the turmoil, we were still able to hold a free and fair election, the result of which should serve as a wakeup call to all politicians who are not Jeff Flake.
The election of Donald Trump was a clear signal that the economic status quo was not acceptable to tens of millions of Americans. Far from the disaster predicted by many economists, including one with a Nobel Prize to his name, it does appear that the election of President Trump, who campaigned on tax and regulatory reform, gave a boost to consumer and employer confidence. To some extent, the President has been able to carry through with his economic agenda, but no fix will be lasting if the problem of systemic unemployment is not addressed. Reducing immigration is essential to that end. The President has talked quite a lot about making permanent cuts to immigration. Talking, or tweeting, about it is not enough.
ERIC RUARK is the Director of Research for NumbersUSA
