Yale economist Ray Fair predicts the outcome of presidential elections based on economic variables, and his model suggested that the vote on Tuesday would be a landslide of 57.7 percent of the popular vote for President George W. Bush.[1] History will instead remember that the election hinged on Ohio. In fact, Ohio was not close at all and mirrored the nation by giving the President over 51 percent of votes cast. (Indeed, President Bush won Ohio by more votes and a higher percentage than John Kerry won Pennsylvania.) Still, economists remain impressed at the Kerry campaign's ability to convince the public that the American economy was weaker than it really is.
The employment numbers released today confirm again that labor markets are healthy. The labor force is 147.9 million strong, a record high. Liberal bromides about employment in America-that net jobs have been lost, that workers are discouraged, that outsourcing is a serious threat, and that new jobs are low-quality-have all been exposed as myths.[2] Now that the election is over, it is time for Congress to set aside political mythmaking and get back to the hard work of legislating.
The economic context for making policy in a second Bush term as evidenced by today's report from the Bureau of Labor Statistics (BLS) is a very healthy labor market:
Job gains in the payroll survey of 337,000 were double consensus forecasts. The unemployment rate ticked up slightly to 5.5 percent, mostly as a result of a large increase of 367,000 in the labor force. Hourly earnings continue to outpace inflation and have increased 2.6 percent this year. In real terms, hourly earnings have risen 2 percent higher over the course of entire Bush presidency.
Payroll job growth in October is the highest since last spring, and not just because of hurricane-related construction. Both the household and the payroll surveys report strong gains, with new jobs totaling 298,000 and 337,000, respectively. Pessimists, grasping at straws, will try to "blame" the good news on construction employment after Florida's hurricanes, but construction added only 71,000 jobs: robust, but really just icing on the cake. The cake is that a quarter-million of all new jobs were in the private sector, often in the service industry.
Put simply, America does not need to "fix" employment in the short term because nothing is broken. But the number of serious competitors overseas is growing fast, and there are dark clouds in the form of domestic pension programs and excessive government spending on the horizon. Only Congress can shape the business environment in a way that minimizes the tax burden on future businesses and workers: by making permanent the pro-growth components of the 2001 and 2003 tax cuts.
During the past year's presidential campaign, much attention was focused on alternative rates of unemployment. An argument was made that the official unemployment rate does not paint an accurate picture of the number of unemployed workers because it does not include individuals who are so discouraged by the job market that they no longer seek employment. In October 2003, the unemployment rate counting discouraged workers was 6.3 percent, and that number has since declined to 5.7 percent. Every other alternative measure of unemployment has shown a brightening employment picture and a decline of at least 0.5 percent age points over the past year.
Americans understand that they live in the wealthiest nation in world history, made so by their own hard work. They also recognize how jobs are created: by successful private enterprises. And Americans embrace the competitive marketplace, which is always stronger when the heavy hand of government intrusion is made less heavy. The agenda President Bush has promised for his second term-fixing Social Security before a meltdown and simplifying the burdensome federal tax code-is both brave and vital for the long-term growth of employment opportunities.
Tim Kane, Ph.D., is Research Fellow in Macroeconomics, and Rea Hederman is a Senior Policy Analyst, in the Center for Data Analysis at The Heritage Foundation.
