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Pennsylvania Investment Observer

Employment, Unemployment, and Outsourcing

by Daniel J. Nestlerode

April 15, 2004

The contender for the White House, John Kerry, has lamented the so-called poor record of the Bush administration related to creating jobs in the private sector of the economy. The notion is that the Bush tax rate reductions have not, at least yet, produced the hoped for increase in employment that is consistent with a healthy and growing economy. Further, if the tax rate reductions have not done the job hoped for by the politicians, then maybe some change in fiscal policy by next president might just be the ticket to a vibrant and healthy economy that is demonstrating full employment. Full employment then becomes the goal of the economic policies of the Federal Reserve and the administration in control of the White House.

The first notion that must be addressed when talking about this issue is the reliability of the numbers. Clearly some people are employed and some people are out of work. Some people are underemployed, so maybe they are partially employed. The PhDs flipping hamburgers at McDonald’s comes to mind. There are the people who are so depressed that they no longer are seeking employment. There are those who lose their jobs and start their own businesses, who are typically not counted by the federal number crunchers. There are people with two full time jobs, but nobody mentions the notion of "over employment," just those who are overworked and under appreciated. There are people on strike and those that are locked out my management. There are seasonal workers and there are project workers who become unemployed at the end of each project, jut like movie stars. The federal government collects two general sets of data, the employment figures from existing large employers and the household employment survey. Each series of numbers tells a little different story largely because the employer survey overlooks new businesses and many small employers. Then the news organizations report employment stories focusing on large layoffs and anecdotal hardship stories, but never reporting the creating of new employers, hires and most success stories. With all this in mind, we all form opinions about what the numbers mean, depending on our particular point of view and then ends towards which we want our opinions to matter.

So after dealing with all these crosscurrents in the employment, unemployment situation, the first thing you need to understand is that more people are now working in the United States than at any time in the history of the country. Outsourcing jobs to other countries amounted to 250,000 jobs in 2003, compared to 146,526,000 who are employed. By the way, according to industry estimates, 2,000,000 people lost their jobs to the "Don’t Call" legislation that became federal law last year. So the outsourcing conversation is generally unimportant in the big scheme of things. Not mentioned are the jobs "in sourced" to the United States from other countries.

The unemployment rate has been generally falling for more than two decades, since it was over 10% during the Carter administration. Not very long ago the so-called "full employment" unemployment rate was 6%. However, with the growth in the economy in the late 1990s, the unemployment rate got down to 3.9%. So now 5.7% is considered a high unemployment rate, buy some people. Unemployment during the great depression was about 25%.

If we look ahead to the next ten years, with the retirement of the baby boomers, I anticipate that the unemployment rate will drop to 2% or less. With all the retirees, there won’t be enough new people entering the work force to handle all the jobs that will need to be done. Let’s hope that productivity continues to improve so that we don’t have a slow growth economy because of a shortage of qualified workers.

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