- The Washington Times - Sunday, March 7, 2004

If one believes official government projections, full employment is no longer a realistic long-term possibility. The recently released Bureau of Labor Statistics (BLS) projections of employment growth to the year 2012 show civilian employment increasing by an average of 1.2 percent a year, or by 1.7 million persons, well below the employment growth achieved in the economic recovery of the 1990s. The economy is assumed to expand an average of 3 percent annually, or by slightly less than the economic growth rate in the decade preceding the projection period. Productivity is assumed to grow at a modest 2.1 percent a year. All in all, a cautious, if not overcautious, set of assumptions.

The unemployment rate for 2012 that emerges from the BLS projections is 5.2 percent, well above the approximately 4 percent rate most economists, including Federal Reserve Chairman Alan Greenspan, consider the economy’s noninflationary full-employment rate. Indeed, in its previous 10-year projections of two years ago, the BLS assumed a 4 percent jobless rate for the year 2010 and a 3.4 percent average annual economic growth rate for the projection period.

Granted that the weakness in the economy in the past two years means a steeper hill to climb in the years ahead, it would take an economic growth rate only slightly faster than the 3 percent rate used in the latest projections, extended over years, to achieve 4 percent unemployment by 2012.

The BLS acknowledges its shift to a less optimistic scenario, saying, “By the end of the projection interval, the economy is expected to make a transition towards full employment.” “Towards?” One might ask, why not “to” full employment?

This year’s Congressional Budget Office (CBO) long-term economic projections are also less than optimistic, assuming modest economic and productivity growth. The near-term outlook calls for a rebound in economic growth for this year and next. But for the out years 2006-2009, the CBO anticipates modest economic growth of 2.8 percent, and for 2010-2014, it sees 2 percent. Consequently, the CBO-expected unemployment rate is estimated at 5.1 percent and 5.2 percent for the two periods, respectively.

The 2004 Economic Report of the President includes the Council of Economic Advisers (CEA) annual economic forecasts to the year 2009. Nonfarm employment is expected to increase by a healthy 2 million-plus a year between 2003 and 2009, with the economy anticipated to expand at a slightly declining rate averaging 3.3 percent annually for the six-year period. However, the unemployment rate declines to a low of only 5.1 percent in the years 2007-2009.

Consistent with the BLS and CBO projections, productivity is anticipated to grow only modestly — a fingers-crossed employment-maximizing assumption.

Since the base periods of the three sets of projections are rooted in recent years when the economy operated at well below full capacity, part or all of the projected years are a continuation of the current economic recovery. Typically, the economy’s fastest-growing years take place during recoveries. Once the economy’s full-employment or potential growth rate is achieved, forecasters prudently limit further economic expansion to the economy’s noninflationary potential growth rate.

From 1992 to 2000, economic growth averaged about 3.7 percent a year, culminating in a 4 percent unemployment rate in the year 2000. For the current recovery, it would not have been unreasonable if government agencies projected a medium-term or long-term economic growth rate somewhat higher than they did, one that would eventually have yielded a full-employment economy as projected by BLS two years ago.

When Alan Greenspan submitted the Federal Reserve’s semi-annual Monetary Policy Report to the Congress in February, he presented the Fed’s economic forecast for this year. The forecast called for the unemployment rate to decline to between 5.25 and 5 percent in the fourth quarter.

Since no one in government projects an early end to the current economic recovery, one can only wonder why Congress and the administration predict a jobless rate in the years ahead that is well short of full employment and not much different from what the Fed and other forecasters expect later this year.

Alfred Tella is former Georgetown University research professor of economics.

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