LABOR PAINS

I’ve written about labor issues in these pages many times. However, it seems that each recent jobs report, there is more to say about what is going on in this country. Right now, I am bullish on the economy and think we are going to continue to see positive growth. There might be some small corrections over the next several months, but for the most part, things are looking good. This past month, the Bureau of Labor Statistics reported that 304K jobs were added. That’s a good number. The unemployment rate is low, approaching “full employment” as defined by many economists. However, as I have cautioned before, the unemployment numbers are not always the best indicators of the health of our labor force.

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Things are a lot better than they were when Obama was President. As I wrote about in the last newsletter, the equity markets are robust, inflation is essentially flat and more people are working. That’s all good, but there is one number I keep coming back to, and that is the labor participation rate. To keep the status quo in employment in the United States, businesses need to produce around 190K jobs a month. This is the number that matches the influx of individuals who reach age 16 and are then eligible to be counted in the workforce. Thus, if the government reports more than 190K jobs being created, then we are likely to see unemployment go down. Of course, a lot depends on the participation rate. Today, that participation rate is 63.2%. This has been a steady number for the past several years, but is far below the 66+% of just a decade ago. It may not be realistic to think that we would ever get back above 67% as we once were just a few years ago, but a goal of 66% participation rate seems workable and important to achieve. If the nation were to get to 66% participation rate, that would mean an additional seven million people working. If we were able to get seven million more people into the workforce, we would likely see an additional $60 billion in federal tax revenue come into the treasury each year. These additional wage earners would also contribute nearly $500 billion dollars to the Gross Domestic Product. This additional consumption would be a 2.5% increase in GDP—a healthy shot in the arm of the economy. So that we do not all run over the ledge with this good news, we should consider whether or not we have the fiscal and monetary policies in place to support this level of participation and economic expansion. What else really needs to be done?

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Of course, the elephant in the room (pun intended) is that we must get on top of our national debt. Congress and the President must come together to agree on ways to cut spending to eventually get to a balanced budget. I am a proponent of the Penny Plan, where we cut spending one percent a year until the budget comes into balance. I am not holding my breath that Congress will ever see the wisdom of this level of frugality. Better trade deals, more direct foreign investment and preparing the workforce for future jobs ought to be on the agenda, as well. It is not a bad thing that we will have an economy so robust that we must consider bringing foreign labor into the country to meet specific labor requirements. During great times of growth in this country, this is exactly what we had to do to keep the engines of prosperity cranking along. I am hoping we will be able to get a friendly Congress that will support the President and his pro-growth economic agenda. I’m with him.

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