Americans Need More than an Economic Boom*

During the 1990s boom, the longest economic expansion on record, the U.S. unemployment rate fell from 6.8 percent in March 1991 to 4.3 percent in March 2001. Over those ten years, the economy created almost 24 million jobs, an average of 200,000 jobs a month. That was enough to more than comfortably absorb the 150,000 new entrants into the labor force each month, pushing the jobless rate to 4.5 percent or below for 34 months.

Many predicted that the sustained economic boom would make a significant dent in the nation’s persistent racial inequality. From the end of World War II to the 1990s, the unemployment rate for blacks had typically been twice that of whites, and black earnings had been 25 percent less than white earnings. The 1990s boom did substantially improve the absolute and relative economic positions of African Americans, although not as much as some hoped. By the end of the boom, the ratio of black to white unemployment rates had fallen below the two-to-one ratio. The black unemployment rate fell below 10 percent for a sustained period and the black employment-population ratio increased to a series record of 61.1 percent. The earnings of African Americans, particularly of young African Americans, increased.

What a difference a few years makes! The short recession that began in March 2001 and the weak jobs recovery that started in November 2001, which is now in its 41st month, has eroded a portion of the hard-fought gains made in the 1990s. Since the recovery’s start, average monthly job growth has been 50,000. Since August 2003, monthly growth has averaged 163,000, barely above the 150,000 new jobs needed to accommodate the U.S. labor force’s natural growth. This monthly growth translates into just over 2.0 million new jobs created since November 2001, compared to 4.7 and 10.6 million at similar points in previous recoveries (Figure 1).

A direct consequence of this weak growth has been an erosion of the 1990s employment gains of both men and women, but not during the recession. Instead, the erosion in employment has occurred during the recovery, affecting all workers, but particularly less-skilled and less-educated blacks (Figure 2a and Figure 2b). Through a slightly different pattern of erosion, inflation-adjusted earnings have stagnated or fallen for some (Figure 3a and Figure 3b).

The apparent fragility of the gains, particularly for African Americans, can be attributed to the policy choices of the administration and Congress. The 2001 and 2003 tax cuts that were targeted to the wealthiest Americans, the dramatic shift in the composition of federal expenditures, and the failure to help state and local government finances have weakened the government’s ability to stimulate the labor market. The irony of pursuing this policy agenda is that it has been done during a period in which social safety nets are considerably less supportive than in the past. And the administration has clearly signaled that it wants to continue with this agenda.

Some critics of this position will immediately say that I am dredging up an old campaign issue, that I still haven’t gotten over the election’s outcome. However, weak job growth is no longer a partisan election issue. Kevin Hassett, research director of the AEI, and others have expressed concern about the lack of job growth and its growing repercussions.

To generate an economic boom that changes the structural features of racial and gender inequality, the public and private sector must adopt a range of policies that have disproportionately positive impacts on young, less-skilled, women and minority workers. This includes improving education and training opportunities, increasing the federal minimum wage, vigorously enforcing anti-discrimination laws and affirmative action, but also implementing the appropriate fiscal policies. For example, the dollar value of the 2001 and 2003 tax cuts should have been tilted toward lower and middle-income households. These families were the ones that have borne the brunt of the recession, today’s weak jobs recovery, as well as rising energy and health care costs. They would have spent their tax, providing the economy with greater stimulus.

The labor market is now in its 41st month of an unprecedented weak jobs recovery and the casualties are mounting. The debate on Social Security’s future is extremely important, but it is being used to distract Americans from the immediate and short-term challenges that the lack of job creation has created. The administration and Congress need to confront the jobs puzzle, and not continue to use productivity growth as the reason for the weak jobs growth.

In work that I did with Professor Richard Freeman of Harvard University, we reject productivity growth as an explanation for the weak jobs recovery. It is a circular argument. Increases in productivity shift out the U.S.’s aggregate supply curve, which increases the growth of potential GDP and permits greater growth in employment without inflation than would otherwise be the case. The puzzle is why increased productivity coupled with the unprecedented fiscal stimulus and low interest rates have not generated enough GDP growth to crank up the job market as quickly as it did in all previous recoveries.

Figure 1

Figure 1

Figure 1

Figure 1

Figure 1

*This column draws from the following papers:

“Blacks Need More than an Economic Boom,” in Real World Macro, 21st Edition, Daniel Fireside, Ed. Dollars and Sense (Forthcoming, 2005).

“What do the Future Labor Market Prospects of Non-college Educated Adults, Youth and Minorities look like?” in Extended Opportunities, Edited by Ronald Mincy, Columbia University and NPCL, (Forthcoming, Fall 2005).

“Jobless Recovery: Whatever Happened to the Great American Jobs Machine?” Centre Piece Magazine, London, 9: 3, Autumn 2004, 22-27; New York Federal Reserve, Economic Policy Review, (Forthcoming, May 2005) (with Richard B. Freeman).

“The 1990s Economic Boom, another Period of Missed Opportunities,” Harvard Journal of African American Public Policy, 10: Summer, 2004.

William M. Rodgers III is a professor and chief economist for the John J. Heldrich Center for Workforce Development, Edward J. Bloustein School of Planning and Public Policy at Rutgers, The State University of New Jersey. Professor Rodgers is also a member of our Academic Advisory Committee.