Jan 9, 2020

Latest Jobs Numbers are a Ray of Sunshine in Winter, But There are Still Clouds on the Economic Horizon

U.S. economy continues to create job opportunities, but restrictions on trade and immigration prevent it from reaching its full potential

While net job growth reported today by the Bureau of Labor Statistics (BLS) was slightly lower than anticipated, the U.S. labor market remains strong. Continuing its longest expansion ever, the U.S. economy added 145,000 jobs in December and the official unemployment rate (U-3) held steady at 3.5 percent, the lowest it’s been since 1969. If the unemployment rate drops 0.2 more percentage points in 2020, it will mark the lowest level in 67 years. (The lowest unemployment rate of 2.5 percent was set in 1953).

It may seem the economy can’t get much better. But given recent studies on the effect of the ongoing trade war, as well as research on the economic effects of immigration, it’s worthwhile to consider how much better the economy could be if the U.S. were to reduce barriers to trade and immigration, allowing a freer flow of goods and people.

The recent research on the trade war has found that, contrary to President Trump’s assertions, American importers and consumers have paid nearly all the cost of the tariffs. This shouldn’t be surprising since tariffs are a form of taxation.

Similar to sales taxes, tariffs artificially increase the prices that consumers have to pay for goods and services that other countries can produce more efficiently. And by raising the price of what consumers have to pay, tariffs reduce buying power. Lower-income households, whose consumption is weighted more toward inexpensive, imported goods, bear the brunt of this lost well-being. Furthermore, because tariffs inhibit competition, and the increased efficiency that it promotes, higher tariffs are likely to reduce economic growth over the long run.

The economic effect of immigration is also counterintuitive. Many people believe that increased immigration increases unemployment among domestic workers, who will be competing with the lower paid newcomers for jobs. Economic research hasn’t found much evidence of this, however, and the general consensus among economists is that any downward pressure on local wages due to immigrants is likely to be small and temporary.

In a famous paper on the 1980 Mariel boatlift, which caused an influx of Cuban refugees into southern Florida, David Card found a negligible impact on local wages, despite an 8 percent increase in the Miami workforce over just a few months. One reason for the lack of significant change in wages might have been that new immigrants were also consumers, stimulating local demand for goods and services.

Furthermore, there’s good reason to believe that immigration leads to greater economic innovation and efficiency as highly skilled immigrants add their expertise to the local economy. Even lower-skilled immigrants are able to free up domestic workers to move into higher productivity jobs. By increasing the availability of inexpensive childcare, as an example, stay-at-home parents can rejoin the workforce, creating a net increase in productivity.

Lastly, when immigrant workers were forcibly repatriated from the U.S. in the 1930s and the 1960s (with the intent of reducing the competition facing American workers), the effect on local economies was not what many expected. U.S. workers did not see improved employment or wages—in fact, local labor market conditions seemed to worsen. One explanation might be that the industries that used the immigrant workers  shifted to labor-saving machines or to less-labor intensive products, which offers a lesson for politicians who think they know how the economy will react to their tinkering.

So, as we bask in the warm glow of yet another sunny jobs report, we should ask ourselves “how much better could it be?” The answer is: Probably a lot better. If we open up the American economy to greater trade and immigration, the future could be so bright that we’d have to wear shades.

Quick Statistics from the October 2019 BLS Jobs Report

Headline Employment Statistics

  • Total nonfarm payroll employment increased by 145,000 jobs.
  • The labor force participation rate held steady at 63.2 percent.
  • The headline unemployment rate (U-3) held steady at 3.5 percent.

Other Unemployment Rates

  • The mid- to long-term unemployment rate (15 weeks or longer; U-1) fell 0.1 percentage points to 1.2 percent.
  • The discouraged worker unemployment rate (U-4) held steady at 3.7 percent.
  • The comprehensive jobless rate (U-5b) fell 0.1 percentage points to 6.2 percent.

Deeper Unemployment Statistics

  • The number of unemployed workers fell by 58,000 to 5.8 million.
  • The number of people who say they want a job but were not actively seeking work held steady at 4.8 million.
  • Short-term unemployed workers (under 15 weeks) increased by 16,000 to 3.8 million, accounting for 65.5 percent of those who are unemployed.
  • Long-term unemployed workers (27 weeks or longer) fell by 33,000 to 1.2 million, accounting for 20.5 percent of those who are unemployed.

Full-Time vs. Part-Time Employment Statistics

  • The unemployment rate for those specifically seeking full-time work fell by 0.1 percentage points to 3.4 percent.
  • The unemployment rate for those specifically seeking part-time work increased by 0.1 percentage points to 3.9 percent.
  • The number of people who wanted to work full time, but who could only find part-time work for economic reasons, fell by 140,000 to 4.1 million. The part-time workers who wanted full-time employment constituted 16.1 percent of all part-time workers.

Wages

  • Average hourly earnings (for all private, nonfarm employees) rose by 2.9 percent over the previous 12 months.
  • Average weekly earnings (for all private, nonfarm employees) rose by 2.3 percent over the previous 12 months.

 

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