- The Washington Times - Thursday, December 11, 2003

Payroll jobs rose last month, by 57,000, up 328,000 since July. The rise would have been greater had it not been for strikes in the retail sector. The November increase was the fourth in as many months, and in the context of other economic indicators the upward trend in payroll jobs is taking on the look of, if not great strength, at least sustainability.

Employment as measured by the government’s more comprehensive household survey showed considerably stronger growth in November, rising by an impressive 589,000. The official unemployment rate ticked down from 6 percent in October to 5.9 percent. It’s down from 6.2 percent in July and is below 6 percent for the first time since March.

The discrepancy between the payroll and household employment surveys is not new and is a subject of study. Part of the difference reflects the inability of the payroll survey to pick up new small firms except with a lag. Also, the payroll survey counts jobs, not people. So if a worker leaves two part-time jobs in favor of a better paying full-time job, the payroll data show that as a drop while the household data do not.

But the big untold story buried in the November data is the dramatic drop in hidden unemployment. These are people who have left or not entered the labor force because of a shortage of job opportunities, but who return to active job-seeking when prospects begin to improve. Their return to the job market is reflected in the labor force participation rate, which rose from 66.1 percent in October to 66.3 percent in November.

In the absence of new job opportunities, an influx of new job-seekers would drive up the officially measured unemployment rate. But that didn’t happen last month, which means the labor force entrants found jobs. Hidden unemployment thus declined by more than 300,000 in November, 3 times as much as the 105,000 drop in officially measured unemployment. Taken together, the adjusted unemployment decline exceeded 400,000, equivalent to a 0.3 point drop in unemployment.

The conclusion that the official jobless count understated the improvement in the labor market last month is supported by the official household survey count of the number of people who say they currently want a job. That number fell suddenly and dramatically in November, by 439,000. The reason? Most of them found jobs.

Hourly and weekly earnings also showed further improvement last month, as did hours worked in both the manufacturing and nonmanufacturing sectors. Factory overtime was up again as well. Significantly, for the third month, job gains by industry continued to be more widespread, an indicator of future growth in hiring. Though manufacturing employment showed continued weakness, job losses in the past three months have slowed dramatically.

Most key indicators are now signaling a broad-based and robust recovery with the promise of continued gains next year. Real gross domestic product (GDP) shot up at a phenomenal 8.2 percent annual rate in the third quarter of this year, buttressed by nonfarm productivity growth that soared to a 9.4 percent annual rate. Output, profits, and compensation are all up, labor costs are down, and inflation remains contained. In its breadth and depth, the recovery is taking on the character of self-nurturing growth, thanks to the impetus of this year’s tax cut and an accommodating monetary policy.

GDP growth will likely settle down to a more sustainable but still respectable 4 percent to 5 percent rate this quarter and next year. With the recovery looking more secure, businesses should be less risk-averse. As labor-saving efficiencies begin to wear thin in the usual cyclical pattern, businesses can be expected to accelerate their hiring to replenish drawn-down inventories and to satisfy rising demand.

One uncertainty is the extent to which technology has lifted the floor on productivity. There has been an upward shift in productivity growth since the mid-‘90s, though how much is long term vs. cyclical is unclear. If productivity growth continues to account for most of GDP growth in the quarters ahead, which seems unlikely, employment gains may not be large enough to absorb labor force growth and reduce unemployment.

In the longer run, however, technology creates more jobs than it destroys, raising living standards for all. Indeed, productivity gains are non-zero sum: They raise incomes and tax revenues, lower public debt, and restrain inflation.

The exporting of jobs is likely to continue. However, if the normal cyclical pattern of slowing productivity in manufacturing clicks in, the need for new factory workers could well more than offset the secular drag of job outsourcing, and manufacturing employment will rise — the final ingredient in a growing economic pie.

In the longer run, in the absence of free-market impediments, international differences in labor costs will inevitably narrow, the exporting of jobs will slow, and domestic workers will regain their competitive edge.

Alfred Tella is former Georgetown University research professor of economics.

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