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First, the good news about the economy: The unemployment rate hit a new pandemic-era low of 3.9% in December, according to the jobs report released on Friday. The new data comes with some pretty significant caveats, however – only 199,000 people joined the workforce last month, as Goldman Sachs analysts expected. more than double that for new jobs, and the number of people who are not working at all because of the pandemic has not budged. And while wages are rising, they are not rising as quickly as the prices of rents, gasoline and other goods that fuel inflation.
The unemployment rate is a rosy data point that appears to be detached from a wider disaffection in the economy, but it’s still crucial to understanding what’s going on right now. The majority of Americans blame President Biden for his management of the economy, according to a recent poll, and consumer confidence is at its lowest level in a decade. It’s not much of a surprise that there is so much malaise – inflation is high, the pandemic is approaching its second anniversary – but what is surprising is that Biden is now the third consecutive US president. learning the hard way that low unemployment doesn’t make people feel better.
Previously, when the economy was buzzing and jobs were plentiful, this was a pretty reliable indicator that people were happy with whoever nominally ran the country. Thirty years ago, James Carville’s joke that “it’s the economy, stupid” helped Bill Clinton crystallize his successful bid for the White House, ultimately taking over from incumbent President George HW Bush, who saw the unemployment rate rise to 7.8%. Before that, Ronald Reagan made voters wonder “are you better off than four years ago?” Is it easier for you to buy things in the store than it was four years ago? Jimmy Carter oversaw the painful stagflation of the late 1970s and they said no.
What has changed since then, especially after the 2008 financial crisis, economists tell me, is that although the number of jobs is exceptional, the quality of those jobs has eroded. This has been the case since Barack Obama’s second term, when the unemployment rate fell to a low of 4.7%, but the weakness of the labor market left an opportunity for Donald Trump to gain support on his anti-free trade platform, betting on disgruntled Midwesterners who had seen their manufacturing jobs relocated to low-wage countries like Mexico and China. When Trump became president, unemployment continued to drop to 3.5%, a 50-year low, even though he did very little to bring one of those manufacturing jobs back to the United States. And these unemployment rates are all based on a shrinking workforce, in large part due to the number of aging baby boomers without jobs, although this accelerated during the pandemic as people stayed behind. home to care for children or protect their health. When you factor in these people, and those who would like to work even more than they do now, it creates a wide range of dissatisfaction.
While politics play a big role in how people view the economy – essentially by reversing people’s views on how things are based on who is in the Oval Office – the big picture is darker. The work, in general, becomes more and more difficult and pays less. “The scales have really been tilted towards employers in general,” said Elise Gould, labor economist at the Economic Policy Institute. “The workers feel deprived of their rights. Even workers with higher wages feel that they cannot quit their job and take another because they are bound by non-compete agreements or other factors that have not allowed them to leave. ” have the freedom to look for another job in their field. Another way to look at this is through labor productivity, essentially a measure of a worker’s output, which has been rising steadily since the 1950s, when real wages have not really changed for a long time. decades until recently. So when the pandemic struck, the lingering problems of job insecurity, low wages and paltry benefits only became more evident. “People don’t look at the unemployment rate and decide what to think about jobs. They look at their salary. They look at the career path they have, if they have one, ”said Claudia Sahm, former economist and section chief at the Federal Reserve. “They are looking at the benefits, if they have any. “
End of December, Biden boasted his report on employment: “When I came to power, our economy was in crisis. But in the past 11 months, we’ve created almost 6 million jobs. This is the largest increase in recorded history. But in the months to come, it will not be the White House that will set the hiring agenda, but the Federal Reserve. The central bank, which has a dual mandate of keeping employment high and inflation low, is likely to step up its war on price hikes next year by raising interest rates and by making borrowing more expensive. While it is evident that there are many more people who want to work than they actually can, the rapid decline in the unemployment rate is bringing the United States closer to full employment. So when rates go up, Sahm says, that would also mean hiring has to slow down to keep the economy from overheating. “The Fed has the biggest bullying chair on the economy,” Sahm said. “When the Fed says the job market is as good as it gets, that’s a signal to every policymaker, every businessman.”