Kerry, jobs and misery

Candidate John Kerry has pledged to create 10 million new jobs in the next four years if elected president. A net gain of 2.5 million jobs a year is an ambitious but not impossible goal. Employment expanded that much and more in the mid- and late 1990s.

Looking behind the Kerry jobs number, however, turns up some problems. The candidate’s Web site explains the derivation of the 10 million jobs figure and includes estimates of employment, unemployment, and labor force for January 2005 (the start of the presidential term) and January 2009 (the end of the term).

Before looking at the 2005-2009 numbers, it’s instructive to compare the Kerry-page employment projection for January 2005 with actual employment for January this year. It projects total employment (household survey basis) at 141.4 million for January 2005, which compares with actual employment of 138.6 million in January 2004 — a difference of 2.8 million.

This amount to a bigger rise in employment this year, under the Bush administration, than the 2.5 million jobs a year promised during a hypothetical Kerry administration. Undoubtedly many Republicans will be gratified to know this.

The Kerry Web page presents four-year increases for both total civilian employment (9.2 million) and nonfarm payroll jobs (10.1 million). For its estimates of future labor force, it uses the latest projections of the Bureau of Labor Statistics (BLS). The Kerry unemployment rate target for January 2009 is 4.1 percent. Employment is derived by applying the projected unemployment rate to the BLS labor force projections.

However, there is a problem of consistency when BLS projections of labor force are combined with a 4.1 percent unemployment rate target. The BLS projections are based on a future unemployment rate of more than 5 percent, or about a percentage point more than the Kerry-page assumption. The labor force in a 4.1 percent unemployment economy would be larger than in a higher unemployment (weaker) economy. A lower unemployment rate means more jobs, and as the economy expands toward the relatively more ambitious goal of a 4.1 percent jobless rate, more people outside the labor force will enter the work force, look for and get jobs. The labor force will expand faster, and, if the unemployment goal is to be achieved, employment will need to be great enough to absorb the additional new job seekers.

The problem is solvable, but not without damage to Mr. Kerry’s job pledge. The future labor force and employment requirements consistent with Mr. Kerry’s 4.1 percent unemployment goal for January 2009 can be re-estimated.

Of itself, the 4.1 percent full employment target is not unreasonable. Experience in late 1999 and the year 2000 provide convincing evidence that such a rate is attainable without the risk of accelerating wage and price inflation.

Indeed, such a rate should have been the goal in the recent long-term projections of the BLS, the Congressional Budget Office, and the President’s Council of Economic Advisers, who projected unemployment rates above 5 percent.

To meet the Kerry unemployment target and absorb the greater labor force growth in an economy expanding toward full employment, about 3 million jobs a year would have to be added for the next four years, or about a half million more yearly than Mr. Kerry’s pledge. This would lift the Kerry four-year target to 12 million jobs — a more difficult goal. Mr. Kerry will either have to raise his four-year job number or abandon his full-employment target.

The senator’s recently announced misery index is also not without shortcomings. He describes it as “a measure of the pressures faced by American families.”

It’s a composite index of seven indicators: median family income, three cost measures — college tuition, health and gasoline — personal bankruptcies, the homeownership rate, and private sector job growth. Not surprisingly, the key finding is that misery worsened during the current administration. The index was estimated back to 1976 and shows a reduction in misery under Presidents Carter and Clinton and an increase in misery under Presidents Reagan, Bush I and Bush II.

The index is ingenious in its own way. There are numerous indicators one might choose to construct a composite measure of well-offness, and to sift through the many choices and come up with a carefully selected handful that yields so perfect a political result is not an easy task.

There was an earlier misery index used in the Carter campaign that added the inflation rate to the unemployment rate. But that index today gives a better reading for the current administration than for Mr. Carter and for Mr. Clinton’s first term, not an ideal political fit.

Though the Kerry misery index is labeled middle class, it is not. The component series are for the population, including the rich and the poor, who can’t be presumed to cancel one another out.

To measure changes in costs, one might wonder why the Kerry index didn’t include the overall consumer price index. Instead, political instincts prevailed and three cost measures were chosen that have been rising faster than total prices in recent years. One of them, college tuition, is restricted to public universities, where prices have been rising faster than in private universities. As for gasoline, it’s not as if its price is set domestically, independent of the Organization of Petroleum Exporting Countries. Clothing prices might have been included in the index, but they have been declining in the past three years.

For a labor market indicator, the Kerry index chooses a job measure excluding increases in government jobs and self-employment, thus downward biasing the trend. A possible alternative indicator is the unemployment rate, but it has declined since last summer and presumably didn’t pass the Kerry political test.

For its income measure, the misery index uses real median family income before taxes, with a Kerry estimate for 2003. The Census Bureau publishes five definitions of income, with variations including or excluding taxes, capital gains, health benefits, noncash transfers, and the annuity value of home equity. The Kerry index uses the one definition that omits the benefits of the Bush II tax cuts. For a measure of well-offness, it would have made more sense to count the money people had left over to spend, save or invest.

Of the five Census definitions of income, three did not show a statistically significant change, i.e., showed no worsening in 2002, the latest year of available data. An obvious alternative measure from the Commerce Department, real after-tax disposable personal income, could have been used, but it has been steadily rising for the last three years.

The choice of personal bankruptcies as a component of the misery index is also questionable. Congress has recognized the rise in bankruptcies is partly due to abuse of bankruptcy laws, and corrective legislation has been proposed. This is hardly something that can be blamed on the present administration, particularly since the uptrend started in the 1980s.

Of the seven components chosen for the misery index, only one shows an improvement for the past three years, the homeownership rate. Low interest rates have helped out home buyers and enabled homeowners to refinance mortgages and come away with additional cash. However, in the misery index the rise in homeownership is more than offset by declines in the other six components.

One wonders why such measures as the stock market or the well-being of young people weren’t included in the Kerry index. The middle class has become solidly entrenched in the stock market, both by direct participation and through pension plans. Also, children and young adults have been doing better. A highly regarded index of their well-being is published by the Foundation for Child Development. It includes measures of material well-being, health, safety, crime, mortality, drug use, reading and math scores, college completion, suicide, teenage births and parental employment. The index has shown a steady improvement since 2000.

The pick-and-choose Kerry misery index can’t be taken seriously. Fortunately, the Bush administration has no plans to compete by constructing a new composite index. That would be madness.

Alfred Tella is former Georgetown University research professor of economics.