- The Washington Times - Tuesday, December 2, 2008

ANALYSIS/OPINION:

COMMENTARY:

President-elect Barack Obama has proposed a new fiscal stimulus plan designed, in his own words, to “save or create” 2.5 million jobs in the first two years of his administration.

The word “save” is worthy of note. It subtly introduces politics into what otherwise would have been an objective target capable of evaluation. No matter what the job count turns out to be in January 2011, it’s always possible - and unprovable - to say the jobs “saved” are 2.5 million more than would otherwise have been the case, i.e., without the stimulus. The “otherwise” scenario is, of course, an unknown quantity, whereas actual net job creation is statistically observable.

Is a two-year 2.5 million jobs program timid or ambitious? If successful, how much of a job market dent is it likely to make?

If jobs in the next few months continue to decline as they have in the last few months - not an unrealistic expectation in our current economic predicament - then in January 2009 when Mr. Obama takes office, the job count will be down to about 136.2 million, or 1.8 million below a year earlier.

As the recession has worsened, job losses have accelerated. Economists predict 2009 will be another year of declining employment, more severe than in 2008. In this time of unusual financial and economic turmoil, the downturn in the labor market looks to be long and deep, more like the recession of 1981-82 than the recession of 2001. The job recovery, when it comes, will more likely be gradual than robust.

In his effort to create jobs, particularly in 2009, the president-elect will be fighting an uphill battle. Population growth will continually add to the work force and, judging from worker behavior this year, labor force participation will remain high, making it harder to reduce unemployment.

In the current recession to date, the proportion of the working-age population in the labor force has held steady rather than declining as in past recessions, probably reflecting the unusual combination of job insecurity and uncertainty coupled with asset loss. A continuation of this trend means the participation rate will not shave the unemployment count as it has in past recessions, and more jobs will be needed to offset the pressures of population growth.

If, as expected, the recession persists throughout the first year of the Obama administration and the rate of job loss independent of the stimulus plan is comparable to the 1981-82 recession, then the predicted job total for January 2010 is about 133 million, or 3.2 million less than the job count at the beginning of Mr. Obama’s term. A job loss of that amount added to this year’s unemployment would be consistent with a jobless rate in excess of 8 percent.

Assuming there is a moderate economic recovery in the second year of Mr. Obama’s administration, there could be enough of a rise in jobs to offset an increase in jobseekers due to population growth. However, that would still leave the 8 percent-plus unemployment rate predicted for January 2010 about unchanged a year later. By this scenario, the net loss in jobs for the first two years of the Obama administration independent of the stimulus plan comes to about 2 million.

So if Mr. Obama’s stimulus package succeeds in “saving” those 2 million jobs and creates an additional half million to meet his overall goal of 2.5 million jobs, how pleased should we be?

By historical standards, a 2.5 million or 1.8 percent job-creation goal over a two-year period is a modest target. Some say it is deliberately modest so political credit can be claimed if the goal is surpassed. However, an economy with an unemployment rate two years into a new administration that is more than a percentage point higher than when Mr. Obama took office would not, in the eyes of many, be deemed an overwhelming achievement.

Nevertheless, in these difficult times whatever number of jobs that can be created in the next two years will be welcome, be it by the private sector or government. Every new job is a treasure and it’s less important who gets the credit for job creation than it is that the jobs become available and give a badly needed boost to the economy. Some of the jobs will leak to other countries, but that’s unavoidable. Including tax reduction as part of the recovery strategy will go a long way in helping to raise employment.

We can hope the new administration will avoid policies that further bind the “invisible hand” and instead allow the self-correcting forces in the marketplace to help return us to economic prosperity.

Alfred Tella is former Georgetown University research professor of economics.

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