Are Jobs Really The Answer?

Dr. Kevin Christ

By: Dr. Kevin Christ - Associate Professor of Economics, Rose-Hulman Institute of Technology

Category: Economy

Continuing weakness in the labor market has emboldened those in policy making positions who favor additional fiscal stimulus and job creation. After reviewing the federal government's latest jobs report, Christina Romer, chairman of President Obama's Council of Economic Advisers, declared that "the sense that we need to do more is overwhelming."

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While jobs will obviously be an important issue this year, particularly as mid-term elections draw near, it may nevertheless be worthwhile to consider for a moment whether a myopic focus on jobs is really in our best long-term interests. The problem with focusing strictly on job preservation, job creation, and job growth is that we often end up preserving, creating, and growing the wrong jobs.

Aside from that issue, however, and given our changing demographics, we need to be thinking about how we can maintain prosperity without so many people working. As baby boomers retire, we'll be forced to focus less on how many people are working and more on the productivity of those who do the work.

Kevin Murphy, an economist at the University of Chicago Booth School of Business, hit the nail on the head a year ago in a forum on then President-Elect Obama's proposed fiscal stimulus package, when he said: "People say there are two benefits of the stimulus package. One, we're going to raise GDP (Gross Domestic Product), and two, we're going to raise employment. Just keep in mind that it would be much better if we could raise GDP and NOT raise employment. That would be a much better result because we'd be getting all the output and we wouldn't have to work. So the raising of employment is not the objective here. It's increasing output."

This is the sort of remark that gets economists into trouble because, I think, many people misunderstand the intent. Rather than being a display of cold-hearted disregard for the unemployed, I think it reflects an analytical reality that economic growth, prosperity, and job growth are not necessarily the same things. We can have the first two without the last, but to admit that will require a new mindset that focuses more on productivity than on jobs.

Right now in the United States, out of a population of 308 million people, there are about 236 million between the ages of 16 and 65 who could work if they chose to. Of that number, 153 million are in the labor force, 15 million of whom are currently unemployed. Hence the unemployment rate is 10 percent and our labor force participation rate is about 65 percent. Even though our labor force participation is down from a high point of 67 percent in the late 1990s, it is still among the highest in the world. Furthermore, those who are employed work almost 1,800 hours per year, 10 to 20 percent more than our counterparts in Western Europe. So we work a lot, and a lot of us work.

Nowhere is it written, however, that labor force participation rates and average hours worked must endlessly rise. In fact, they can't. There are limits to how many of us work and to how long we work. On the other hand, there don't seem to be any limits to how productive we can become, and improvements in productivity actually reduce the need to work so much.

On average over the last half century, we've become about two percent more productive each year, and our population is currently growing at less than a one percent annual rate. These trends mean that even without job growth, percapita GDP - the most common measure of economic well-being - can rise by about one percent a year. That would be a lower growth rate than what we've become accustomed to, but it's worth remembering that a good portion of our economic growth over the last couple of decades has been attributable to more of us working longer hours.

Has it all been worth it? When we work more there is a tradeoff - we have less time to enjoy the fruits of our labor. Lower levels of labor force participation and shorter workweeks only translate into lower average standards of living if productivity stagnates, and only if we measure standards of living solely in material terms.

In what may come as a surprise to many, our labor force participation rate has actually been dropping for 10 years. The current recession obviously speeds up the process, and many who are dropping out of the labor force right now are obviously not doing so voluntarily. But overall, I suspect that many Americans were beginning to make different labor market choices before this recession began, and that the recession has merely accelerated changes that were already underway. I think our policies and our personal decisions ought to reflect that.

If we do not adapt to this new mindset, then maintaining our present lifestyle, let alone improving it, will require unimaginable workweeks for those still in the labor force. Putting people back to work is certainly a good idea, but restoring prosperity with fewer people at work would be an even better idea. It is an idea, however, that requires different choices than we've made in the past. Paying attention to those things that enhance our productivity, not hanging on to any job at any cost, is what increasingly will matter most.

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