The major focus of President Obama’s State of the Union address tonight is expected to be on jobs. But as he pushes for more of the same solutions to get folks back to work maybe we should ask how well his policies have been working out after his first year in office. The White House recently announced that during the president’s first year between 1.5 to 2 million jobs were “saved or created” by the stimulus. When the December unemployment numbers were released, Christina Romer, President Obama's chairwoman of the Council of Economic Advisers, pointed out that while jobs were still being lost, the rate of loss had slowed dramatically. "In the first quarter of 2009, when we first came in, we were losing on average 691,000 jobs per month. With these new numbers in the fourth quarter, we were losing 69,000 jobs," Ms. Romer claimed.
Many graphs have appeared in the media illustrating Ms. Romer's point. Figure 1 shows the period of time that she refers to, and since July 2009 there has indeed been a significant decline in the number of unemployed Americans.
Check out Figure 1 here.
What is harder to find are any similar graphs on the number of people who have given up looking for work, though there are a lot of discussions about how including this as well as people forced to take part time work raises the unemployment rate to 17.3 percent. People are no longer counted as unemployed if they have not looked for work during the previous 4 weeks. And there are many reasons why people don't work (e.g., women staying at home to take care of children, illness). But the question is how the number not working has changed. Figure 2 shows how the number of working age adults who have left the labor force has changed over the last year. At about the same time that the increase in unemployment began to slow there was a similar increase in the number of people who stopped looking for work. This suggests that the improvement in the unemployment numbers really just represented a shift in people who have given up.
So if the improvement in the unemployment numbers just represents a shift in people who have given up looking for work, what happens if both the numbers are added together? That is what Figure 3 shows, and the result is a virtually straight upward line. During a period of economic expansion as the number unemployed fell and more people entered the labor force, this graph would show a downward sloping line. But this figure indicates that any change in the number of new people being unemployed is more than completely offset by people leaving the labor force.
Check out Figure 3 here.
When the stimulus plan was passed it was passed as a job creation bill, something that President Obama said would "create or save up to 4 million jobs." On January 25, Larry Summers, Obama’s chief economic adviser, predicted that the economy would start improving "within weeks" of the stimulus plan being passed. On May 27, President Obama claimed that nearly 150,000 jobs had already been "created or saved." Now last week the administration claimed that half the 4 million jobs from the stimulus had already been obtained.
Adding the increase in unemployment together with the increase in people who have left the labor force comes to about 6 million people since the stimulus was passed in February. “These charts make it very hard to support the claim that the stimulus has had any noticeable impact on the number of jobs,” Kevin Hassett, Director of Economic Policy Studies and Senior Fellow, told FoxNews.com. Professor Stephen Bronars, a labor economist at the University of Texas at Austin, agreed saying: “I can’t see any [employment] benefit from the stimulus.”
The White House was unwilling to respond to these findings on the record. However, off the record, one senior White House official strenuously objected to both the data used here as well as what that data mean. “The payroll survey is better than the household survey for tracking the impact of stimulus on employment/unemployment,” the official wrote FoxNews.com. Professor Bronars said that they were pointing to the wrong data: “it is impossible to track the number of unemployed workers in the payroll survey. You have to use the Household survey to measure the number unemployed.”
A second point was raised by the White House official: “To say that the stimulus has or has not had an effect you need to have a theory of what the employment/unemployment situation would have been without any stimulus. I would suggest that you contact independent forecasters directly.” Yet, 53 business economists and forecasters surveyed in January by The Wall Street Journal expected the December rate to be at 8.6 percent, well below the 10 percent rate it turned out to be.
Cary Leahey, an economist and senior managing director with Decision Economics, one of the forecasters surveyed by The Wall Street Journal, provided FoxNews.com with one explanation for why the stimulus increased unemployment: “With transitional moves in government spending [from the stimulus], there will be dislocations in the economy that will lead to higher unemployment.” But he emphasized that he thought those effects would be “short-lived, six to nine months, definitely not more than a year.”