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Editorial: Job One; Companies Still Slow to Expand Payroll

The U.S. jobs data for April released last week provided ample evidence for two different economic narratives — call them the half-full and half-empty story lines.

The numbers released by the Labor Department showed that the economy added 165,000 jobs during the month and the unemployment rate declined to 7.5 percent from 7.6 percent. Moreover, the numbers originally reported for earlier in the year were revised upward, to 332,000 jobs created in February instead of the 268,000 initially reported, and 138,000 in March, up from the initial 88,000. The total number of unemployed Americans dropped by 83,000 to 11,659,000, while the size of the labor force increased.

These solid, if not spectacular, job numbers helped ease fears that the economy was slowing down again. The stock markets greeted the news exuberantly, with major indexes closing up 1 percent for the day on Friday.

But in this economic recovery, there seem to be dark clouds on every new horizon. These could be detected by looking at the jobs data for April a little differently. Private employers actually added 176,000 jobs last month, a number that was dragged down by the public sector, which continued to shed workers — another 11,000. Indeed, several economists suggested in interviews with The New York Times that fiscal belt tightening in Washington is likely to slow both hiring and the economy in the second quarter.

“The drag from the government sector is quite substantial,” said Gregory Daco, senior principal economist at IHS Global Insight. “Given the fiscal headwinds, the private sector is doing OK.”

These headwinds are of two varieties: Payroll taxes, which returned to their pre-2010 levels in January, reducing disposable income for millions of Americans; and the across-the-board spending cuts mandated by Congress that are expected to ripple through the economy as the year progresses.

This raises once again the very good question of why Congress and, to a lesser extent, the White House appear fixated on deficit reduction at a time when what the economy demands is a robust expansion of employment. The jobs data for this year tell us that the economy is creating an average of 200,000 jobs a month, which sounds like a lot but basically is just keeping up with population growth. Put another way, the economy is not making any dent in recovering the 10 million jobs lost in the Great Recession. The share of adult Americans with jobs was 58.6 percent in April, about four percentage points lower than before the recession began.

As we have noted before, no one is suffering from this situation as much as younger workers, who depend on the creation of new jobs to a greater extent than older ones. As David Leonhardt wrote in the Times last week, over the past 12 years, the United States has gone from having the highest share of employed 25- to 34-year-olds among wealthy economies to having among the lowest. This is not a prescription for building a thriving economy in the future.

Exactly why companies have been so reluctant to hire during the recovery is anybody’s guess. The theories that make the most sense to us are that employers simply learned to do more with less during the recession, with technology a significant factor; that it has proven more lucrative for companies to create jobs overseas than at home; and that there simply isn’t sufficient demand for new products as wages remain subdued and unemployment high. The structural element may be hard to address, unless a new wave of innovation gives rise to a nexus of vibrant start-ups . But surely government could provide incentives to create jobs at home and a stimulus to boost consumer spending. At the very least, it could contribute by not pursing policies that restrain growth.