Matters Column

Best of times? Worst of times? Check the data

September 2, 2016
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Most people would say that the first step in solving a problem is to define the issues.

Documenting the magnitude of the problem and identifying what’s making things better or worse should point people to the necessary steps to fix things.

One of the current problems many folks are talking about involves the labor market. Our current political climate and pending national elections almost demand such discussions, because discussion of creating more jobs wins votes. That is what politicians believe, because they can get the attention of those people who are feeling a job-related economic pinch, especially when they say they can fix the problem.

The discussion should be tied to a rigorous analysis that allows people to understand the situation and take necessary actions. So, the first step should be to define the size of the problem.

However, what should be a straightforward discussion gets bound up in emotional rhetoric. It is fueled by politicians who have jumped on the issue to claim we are going to hell in a handbasket, but if you elect this one or that one, the situation will improve based on enacting their economic strategies. People react before getting a firm understanding of the situation.

What is the situation?

To help have a rational discussion, perhaps we need to clarify the situation and try to get some perspective on how well or poorly current practices are working.

There probably are three critical aspects to the discussion: Who is able to get work and who can’t? Are the jobs paying a living wage? Is the situation getting better or worse?

We also need to establish a timeframe for the assessment. Since this discussion is about the politics of this situation, it seems reasonable we tie it to the most recent presidential election period, which began in 2012. Why not go back to the beginning of the Obama White House period? If we begin our examination in 2008, we were in the middle of the most severe economic downturn in decades. We had nowhere to go but up or into world depression. Decisions at that time generally were all crisis avoidance. Similar decisions would not likely be useful at this time.

By 2012, we were beginning to look at a more typical economic situation — not good, but not a cliffhanger environment. The more current practices and outcomes that we can look at and measure from that point may give us perspective for the near future (the next presidential administration).

What were the conditions in January 2012? According to the U.S. Department of Labor’s Bureau of Statistics, the national unemployment rate was 8.3 percent with 12.8 million unemployed people. In Michigan, there was a 9.2 percent unemployment rate.

Without going into a lot of detail, these rates were coming down slowly from somewhat higher levels. The average national weekly non-farm wage was $803. This number is good to watch, except that you also need to be aware that it is important to look at how many average hours of work drives this number. It is not based on everyone working 40 hours per week. In January 2012, the average weekly work hour number was 34.5.

Another critical number is how many people are looking for work. That makes a big impact on the unemployment rate. When jobs are plentiful and easier to get, more people show up looking for work. This seems almost counterintuitive. One would think when economic times are bad, more people would need work and show up in the statistics, but they just melt off into the fog and don’t get counted. So, it plays a bit of havoc with the labor stats: The unemployment rate may not go down even though more people are working.

We should start with the total number of people in the country, then see how many people are working and publish what percent are employed. After all, these folks pay the taxes and support all the non-working folks. Then we would have a much better picture of the real labor market. That employed percent of the population was 58.5 percent in January 2012.

How are we doing now?

On Friday of the first full week in each month, the U.S. Department of Labor reports the number of new jobs created in the past month, as well as the unemployment rate. The job tally is a net difference from the previous month. It considers all the jobs that are lost, as well as the new ones created. In case you haven’t noticed, the numbers frequently get revised retroactively, but over time it gets sorted out. Economists suggest the better perspective is to look at the average number per month over the course of a year. That number combined with the average weekly wage and the average hours worked can give a fairly good picture of what is going on.

Let’s take a look at these critical numbers and see if our politicians and various other people who express strong opinions know what they are talking about:

Date             Pop. Emp. %     # Emp.     Avg. Weekly $     Avg. Hours     U.S. Unemp.     Mich. Unemp.

Jan. 2012     58.5%                141M       $803.51               34.5                8.3%                  9.2%

Jul. 2016      59.7%                152M       $886.31               34.5                4.9%                  4.6%

The average number of additional jobs created over the period is 208,000 per month.

Another notable labor market discussion that usually hits the political news during the election season is the size of the government. (It is never clear if this discussion is really focused on size, as in the number of employees, or the amount of money they spend.)

In any case, reducing the size of the government payroll can reduce the amount of government cost. For the record, the size of the federal government payroll has been reduced by more than 50,000 people during the past 3.5 years.

Believe politicians or numbers?

Yes, this is based on government numbers, but it will be the same bureaucrats who produce the numbers regardless of who wins the elections, and they are more sound than campaign speeches. So, it appears things have improved a lot on average. There are 11 million more people working, making 10 percent more money, with reduced unemployment rates in the U.S. by 40 percent, and 50 percent in Michigan.

This is not to say things can’t improve. Focused training for those who can’t find work to match skills with business needs would be a good start. This should also include recent college graduates. Higher pay rates also would help people and the economy. The rates may accelerate as a significant number of jobs go unfilled or with adjustments in the minimum wage.

Stock market numbers seem to reflect profits are good for many organizations. Helping small- to medium-sized businesses increase profits could be a win for everyone.

My conclusion: Let’s tone down the broad-brush rhetoric and focus on the pockets that need help. Don’t throw out the baby with the bathwater.

Ardon Schambers is principal at P3HR Consulting & Services.

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