March 17 2014

Jobs Numbers: There's Hidden Rot

Charlotte Hays

The Obama years have seen an enormous shift in how America works—or doesn’t work because full-time jobs are scarce.

The Illinois Policy Center had a sobering article last year (January 2013) on President Obama’s push to hike the minimum wage (an issue addressed earlier today). It leaves the reader with the disquieting impression that President Obama doesn’t have the slightest understanding of how an economy works. It quotes him saying…

…today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line ? Let’s declare no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour.?

That quote sort of sums up President Obama’s economic philosophy in two words: Let’s declare… . Yes, let's just declare.

The article points out that the President doesn’t understand who the nation’s minimum wage workers are: about half of them are young adults, under 25, in entry level jobs. Such jobs will be harder to come by if President Obama is successful in his minimum wage quest. These are the people who desperately need a toehold in the world of work.

An analysis this morning in the Wall Street Journal headlined “The Hidden Rot in the Jobs Numbers” shows just how difficult it is becoming to land full-time jobs.

Edward P. Lazear, former chairman of the president's Council of Economic Advisers (2006-09), and a Stanford Business School professor and Hoover Institution fellow, reads the March 7 jobs report and sees less good news than the White House touted.

While the report showed jobs added, it also showed, upon a closer reading, that many are working less. Lazear writes:

Although it is often overlooked, a key statistic for understanding the labor market is the length of the average workweek. Small changes in the average workweek imply large changes in total hours worked. The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period….

The total hours worked per week is obtained by multiplying the reported average workweek hours by the number of workers employed. The decline in the average workweek for all employees on private nonfarm payrolls by 3/10ths of an hour—offset partially by the increase in the number of people working—means that real labor usage on net, taking into account hours worked, fell by the equivalent of 100,000 jobs since September.

Here's a fuller explanation. The job-equivalence number is computed simply by taking the total decline in hours and dividing by the average workweek. For example, if the average worker was employed for 34.4 hours and total hours worked declined by 344 hours, the 344 hours would be the equivalent of losing 10 workers' worth of labor. Thus, although the U.S. economy added about 900,000 jobs since September, the shortened workweek is equivalent to losing about one million jobs during this same period. The difference between the loss of the equivalent of one million jobs and the gain of 900,000 new jobs yields a net effect of the equivalent of 100,000 lost jobs.

We don’t know quite how to assign responsibility for this bleak situation. But it does seem, according to the piece, that the Affordable Care Act is a likely cause. The Affordable Care Act leads many businesses to keep the number of full-time employees (defined as 30 hours a week) under 50 so that the company won’t be legally required to provide health insurance.

The Affordable Care Act, passed with arcane parliamentary maneuvers and over strong public objections, is the ultimate representation of the “Let’s declare…” mentality.

If it is not repealed, it will change the way America works permanently and not in a good way.

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