On the campaign trail, Donald Trump’s view of the economy was that it was in a shambles, with an unemployment rate that understated the economic pain Americans were feeling. Sure, the official numbers said that unemployment was under 5 percent, but if you looked at the number of black teenagers who weren’t employed (including those in school), the rate of unemployment was over 50 percent! (This is a real argument he made.)
Now that he’s president, of course, the low unemployment rate is real and great and really great. He tweeted about it Thursday morning.
“Unemployment lowest in 16 years,” he proclaimed. That’s basically true: The August rate of 4.4 percent is a tick higher than the 4.3 percent rate we saw in May and July, but we need not split hairs here.
The last time unemployment was that low was in February 2001.
But as Gizmodo’s Matt Novak pointed out on Twitter shortly afterward, this is a weird thing to trumpet while you’re simultaneously pushing a tax cut that you’re selling as boosting employment.
During Trump’s speech announcing the new tax proposal, he cited employment as a specific goal of the policy.
A drastic cut in corporate taxes “is a revolutionary change,” he said, “and the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years.”
Wages going up would be great. But that promise of more jobs is a weird thing to pitch during the same speech in which you brag that unemployment is at a 16-year low (which he did).
Well, you may think, a 4.4 percent unemployment rate suggests that there is still 4 percent of the country looking for work. Except that’s not really how it works.
The Federal Reserve explains that a certain amount of unemployment is part of even the healthiest economy.
Even in good times, a healthy, dynamic economy will have at least some unemployment as workers switch jobs, and as new workers enter the labor market and other workers leave it. The lowest level of unemployment that the economy can sustain is difficult to determine and has probably changed over time due to changes in the composition of the labor force, and changes in how employers search for workers and how workers search for jobs.
That said, the Fed cites estimates that put the natural low point of the unemployment rate in the current economy as somewhere in the 4.5 to 6 percent range.
Or: About where it is.
In other words, if nothing else changes, it would be unexpected for the unemployment to drop much more. (Since April, it basically hasn’t.)
But “if nothing else changes” does a lot of work in that sentence. One thing that can change to increase the number of people working is if more people start looking for work after having dropped out of the labor force. (The basic unemployment rate is calculated only as a percentage of those looking for work.)
During the Obama administration, the decline in the percent of the working-age population that was actually looking for work was cited as a critique of the steady drop in the unemployment rate. If you have 100 people and 10 aren’t working, your unemployment rate is 10 percent. If five of those 10 retire or decide to stop looking for work, your unemployment rate drops to 5.3 percent. (Not 5 percent because the pool of possible employees is now only 95 people.) This, critics argued, made Obama’s economy look better than it should.
Perhaps, then, Trump’s tax cuts for businesses will spur so much hiring that some of those who dropped out of the labor force will come back. In fact, the participation rate has been fairly flat for the past two years, suggesting that perhaps more people are rejoining the labor pool.
But there’s a demographic reason that the participation rate has fallen. Baby boomers are hitting retirement age and, well, retiring. The percentage of the population made up of those age 65 or older begins to swing upward just as the participation rate began to swing downward.
The Congressional Budget Office estimates that the participation rate will continue to drop over the next few decades, falling below 60 percent within the next two decades — mostly because America is getting older.
Not all of the labor force participation drop-off was a function of boomers hitting retirement age; clearly there’s some aspect of this that is related to the recession that hit in 2007 and 2008. But expecting the participation rate to surge back to 2000 levels seems contrary to experts’ predictions.
In other words: There’s not much space for the surge in new jobs that Trump promises from his tax plan. There’s certainly space for improvement on wages and other aspects of employment, but a promise to create thousands of new jobs is usually the sort of thing made when the economy is doing poorly, not when it’s nearing full employment.
Trump wants two things: He wants credit for a robust economy, and he wants to cut taxes for wealthy Americans. That those two things run into conflict on the subject of employment is neither here nor there for him; he’s proved himself to be comfortable with advocating two contrary positions at once.
For everyone else, though, these competing arguments should be a bit baffling.