Still losing the war on unemployment
By Mohamed A. El-Erian,
Mohamed A. El-Erian is chief executive and co-chief investment officer of the investment management firm Pimco and author of “When Markets Collide.”
The first Friday of every month, you will find me among those eagerly waiting for the release of the latest government data on jobs. Such eagerness, however, should not be confused with joyfulness. While the numbers have markedly improved over the past year, too much of the commentary has been overly partial and, sometimes, dangerously misleading — a situation that is likely to grow worse in the run-up to the November elections.
My problem is not with what the data reveal about the economy’s performance. The consensus on this has been correct: After massive destruction, the United States has been generating jobs at a healthier rate, albeit one that is still too anemic given the huge employment shortfalls caused by the 2008-09 global financial crisis. The pace of job creation is certainly picking up but, as yet, is insufficient to overcome our unemployment crisis.
The focus on the headline jobs number — be it the estimate of new jobs created (a strong 243,000 in December, according to Friday’s report) or the measure of the unemployment rate (down to 8.3 percent, a three-year low) — is understandable. And the importance paid to those summary statistics will naturally increase as analysts seek to draw implications for the outcome of the November presidential election. Meanwhile, attention is diverted from something critical to the future of the economy — namely, what is happening to the composition of U.S. joblessness.
The composition indicators have been flashing yellow, if not red, for a while. With 43.9 percent of the unemployed (5.5 million people) out of work for 27 weeks or more, today’s America faces the unusual challenge of “long-term unemployment”: The longer people are unemployed, the harder it is for them to return to the labor force at the same level of productivity and earnings, and the poorer the prospects for national competitiveness and prosperity.
The numbers for youth unemployment are even more disturbing. A staggering 23.2 percent of 16- to 19-year-olds in the labor force do not have jobs. A prolonged period of inactivity at that stage of life risks turning these younger adults from unemployed to unemployable.
These disturbing realities — and they don’t cover the significant number of workers who are no longer counted because they have dropped out of the labor force — should always influence the high-frequency chatter about the monthly headline numbers. Yes, the latter are encouragingly better than the rates that prevailed in 2009-10, but they are insufficient to prevent our unemployment problem from becoming deeply embedded and therefore much harder to resolve.
All this stands in sharp contrast to Washington’s endless bickering on virtually every initiative that is put forward to deal with unemployment. The longer that corrective measures are delayed, the harder the task at hand will be and the greater the eventual costs to society.
Now, given that the unemployment rate has come down markedly in the past year, some analysts are inclined to see our unemployment problem as both containable and reversible quickly enough. The compositional aspects, however, suggest that they are being too optimistic. In fact, our current unemployment crisis is a force for broad and disruptive economic, political and social dislocations.
It will continue to undermine a still-fragile housing sector, discourage banks from lending to households and small businesses, and limit the appetite of large companies to invest in new plants and equipment. It will also further polarize an unusually dysfunctional political discourse, worsen income inequality and fuel protest movements around the country.
In recent months, some elected leaders and their appointees have gotten off the sidelines and proposed important policy changes, including President Obama’s jobs initiative. But their efforts have been frustrated by political opposition and, on the economic front, by those searching for the single “killer app” that would allow for dramatic and immediate progress.
There is no killer app. Instead, Congress and the administration need to move simultaneously on three fronts that incorporate multiple measures: those that address the immediate impediments to job creation, including a better mix of demand stimulus and medium-term fiscal reform involving both federal spending and revenue, as well as stronger remedies for housing and housing finance; those that deal with the longer-term enablers of productive employment, such as education, retraining and retooling; and those that strengthen the social safety nets to appropriately protect citizens in the interim.
Have no doubt, this is a complex, multiyear effort that involves several government agencies acting in a delicate, coordinated effort. It will not happen unless our political leaders come together to address what constitutes America’s biggest national challenge. And sustained implementation will not be possible nor effective without much clearer personal accountability.
One would think that, given all this, it has become more than paramount for Washington to elevate — not just in rhetoric but, critically, through sustained actions — the urgency of today’s unemployment crisis to the same level that it placed the financial crisis three years ago. But watching the actions in the nation’s capital, I and many others are worried that our politicians will wait at least until the November elections before dealing more seriously with the unemployment crisis.
Perhaps this is inevitable, given political realities. In the interim, however, let us not confuse chatter about monthly jobs data with the clear and present danger of America losing the war against the curse of joblessness.