EPI News November 12, 2009

November 12, 2009

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Double-digit unemployment, rising GDP, and the need for more policy action

In the latest sign that the jobs crisis remains severe, nationwide unemployment reached 10.2% in October, the first time since 1983 that the jobless rate has been in the double digits. President Obama has announced plans to holds a jobs forum in December, noting that “the economic growth we’ve seen has yet to lead to the job growth that we desperately need.” EPI President Lawrence Mishel applauded the action and said in a statement that with “nearly 16 million Americans looking for work, we should take decisive action as quickly as possible to create jobs.” In addition to high unemployment, the country’s underemployment rate now stands at 17.5%, meaning one in six workers cannot find the amount of work they want.

Recovery Act investments show up in GDP
The latest jobs data came on the heels of a Commerce Department report showing that gross domestic product rose 3.5% in the third quarter, the largest increase in two years. Although the two reports might appear to say two different things about the health of the economy, EPI’s research and analysis showed that they both point to an economy that is beginning to heal, but which needs more public investment to sustain a robust recovery. A total of 8.1 million jobs have been lost during the recession, and when population growth is factored in, the country needs 10.9 million new jobs to return to pre-recession levels of employment.

In an analysis of the latest GDP data, economist Josh Bivens noted that much of the recent growth reflects investments, safety net spending, and tax cuts made under the American Recovery and Reinvestment Act. Bivens also called out critics who have argued that “without the public spending required by the Recovery Act, the economy would just crumble.” Bivens noted that many of those same critics had initially opposed the Recovery Act and had maintained it would have no effect at all.

“It’s true that the economy remains fragile and will for quite some time,” Bivens wrote, citing Congressional Budget Office forecasts for an average unemployment rate of 10% in 2010. “In short, a second round of recovery spending is needed to keep the economy afloat and finally fix the leak.” Economist Paul Krugman cited Bivens’ analysis in his New York Times blog, calling it a “good overview of the evidence that the stimulus is working.” In a related column, Krugman concurred that more stimulus was needed. “The good news,” wrote Krugman, “is that (the Recovery Act) is working just about the way textbook macroeconomics said it would. But that’s also the bad news—because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems.”

EPI co-hosts the Vice President’s Middle Class Task Force
Amid so much talk of getting the economy back to its pre-recession condition, Vice President Joe Biden stressed that many American families were struggling long before the recession began, and could be left out of an economic recovery without the right policies to address the economic challenges of the middle class. Biden, who heads the White House Middle Class Task Force, convened a panel discussion on November 5, co-hosted by EPI and the Center for American Progress, to examine the factors causing the long-term middle-class squeeze. Biden noted, “middle-class life is much more fragile than it needs to be or should be.”

EPI President Mishel was one of the five experts appearing at the event. During the meeting, Mishel outlined a longstanding pattern of salaries rising sharply for the top 1% of earners but stagnating for the bottom 90%, and said that the benefits of higher productivity “have largely flowed upward.” Describing the middle-class condition today, Mishel said it was like rowing a boat in choppy waters: “Even if you are a strong rower, it is difficult if not impossible to make headway.”
Mishel also challenged the popular argument that globalization, technology, or other economic factors had constrained the country’s ability to raise middle-class incomes. He said the wage stagnation most workers have experienced occurred even as productivity per hour rose, workers logged longer hours, and became better educated than they were decades ago.

A long tradition of public investment
In the Issue Brief, Generational Theft, Thrift, or Investment, EPI researcher Alexander Hertel-Fernandez outlined how deficit spending, when directed toward positive investments such as infrastructure and high-quality education, can generate important returns for future generations. Hertel also offered historical perspective and stressed that far from being a recent phenomenon, debt-financed public investment facilitated the building of U.S. rail networks, sewage systems, and many other developments of the industrial revolution.

Congressional Quarterly spotlighted the paper and featured a Q&A with Hertel-Fernandez, who defended the stimulus investments made under the Recovery Act. “Public infrastructure spending is going to give returns for many generations to come,” he said.

EPI in the news
EPI’s analysis of the September jobs data was widely cited in the media. The Minneapolis Star Tribune quoted economist Heidi Shierholz noting that about a third of the country’s unemployed have been jobless for more than six months. The Washington Post noted that the White House is considering EPI’s Plan to End the Jobs Crisis and Job Creation Tax Credit. The Los Angeles Times quoted Mishel highlighting the positive part of the latest jobs data—the decline in monthly job losses—that signals that the economy is starting to heal. EPI’s new Economy Track Web site, meanwhile, was featured on National Public Radio, which called it a resource that helped non-economists identify trends and compare the latest recession to past downturns.

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