Friday, January 07, 2005

A Carrot Without the Stick

News out of the Labor Department this morning that only 157,000 jobs were added in December, about 20,000 fewer than expected on Wall Street.

Today's figure means that the economy has edged close to the number of jobs that existed before the 2001 recession began, although the adult population has grown by about four million since then.

Overall, the rebound in jobs since the official end of the recession, in November 2001, has been slower than after any economic downturn since World War II.

For several years now, both Wall Street the White House have had a problem explaining the "rationality" of business hiring in this continuing job recession. They seem to have forgotten that macroeconomic management contains two prongs: incentives (i.e., tax breaks) and punishment (i.e., audits, loss of tax breaks, changes in quotas, imports, embargos, etc). Left to their own whims and devices, corporate boards - and smaller firms - seem at odds with behavior predicted from economic models - models, by the way, that were created to explain hiring practices during the 20th century. Throwing more fiscal breaks and oversight control their way has not worked since 2001, and seems unlikely to in the near term. Perhaps the WH economic team might consider making overtures to the corporate world contingent on real hiring trends (i.e., stable salaries with benefits, not part-time, flexible workers thrown back into the unemployment lines when the stock options seem weak), but I doubt it.

UPDATE 9:00 AM PST has updated their final analysis of the Bush employment record with today's figures. Not only is it grim, it echos the statement of reasonable economists that the tax cuts (i.e., the incentives) did nothing to help job growth:

With the newly released payroll employment data for December 2004 it is now possible to assess whether the administration's tax cut strategy produced the employment growth that was projected (see table and figure below). The final verdict is grim. Job growth over the last 18 months has fallen short by 1,703,000—more than one-third less than the number of jobs the administration said would be created without the tax cuts. Given that the economy failed to produce the number of jobs expected with no policy change, it seems hard to argue that the tax cuts were a successful strategy in adding any jobs—the promised 1.4 million additional jobs never materialized. The announced revisions (up 236,000 in March 2004) to the payroll employment series (see Data Note below) do not materially change this assessment.

Red - Bush's favorite color. Posted by Hello

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