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Questions and Answers on America’s Unemployment

We asked The Heritage Foundation’s William Beach, Director of the Center for Data Analysis, to answer some questions about America’s economy and unemployment following the Department of Labor’s release of the June 2011 payroll report. Here are his responses:

Question: How does this job market recovery compare to past recessions?

Answer: By this point in every other recession in the post-war era the economy had recovered all or nearly all of the jobs it had lost. You have to go back to the 1930s to find a job market this bad. If we continue the current bad public policies, it may be years before we recover to normal job levels. Don’t listen to people who say the structure of the economy has changed. It’s policies, not people that are holding us back.

Question: How long will it take for unemployment to recover at this pace?

Answer: Several years, at least. Job creation in the first six months of the year was barely enough to keep pace with population growth. If the economy immediately began creating jobs at the pace it did in the 2003-2007 expansion (+176,000 jobs/month) then unemployment would not return to its natural rate (5.2 percent) until mid-2018. (See chart below.)

Question: What kind of job growth should the economy be creating?

Answer: Based on our talents, resources, and capital structure, the economy should be growing now at four to five percent. That growth rate would produce over 250,000 jobs per month…enough to reduce the unemployment rate. Instead, we have a huge output gap: the economy can barely make a 2 percent growth rate, and that translates into fewer jobs per month than we need just to keep up with normal growth in our population.

Question: Why aren’t businesses creating more jobs?

Answer: Given how smart and educated Americans tend to be, how entrepreneurial and innovative a people we have in this country; there’s little reason why we shouldn’t be growing like gang busters. Sometimes politicians blame the people for not working hard enough or making job-creating investments. However, workers and business owners aren’t holding the economy back. Rather, it’s government policies.

Question: Specifically, what types of policies are holding the economy back?

Answer: Businesses look out into the near future and see higher costs everywhere, largely from government regulation and taxes. For example and only to name a few:

  • Obamacare promises to increase health care costs and taxes on business owners.
  • EPA promises to increase the energy costs through new mandates on businesses.
  • Obamacare included 18 tax hikes. Income taxes are scheduled to go up on the first day of 2013. The President is threatening still more tax hikes in the debt ceiling negotiations on everything from corporate jet owners to oil producers to the 1/3 of businesses that depreciate equipment.
  • And, many business owners and investors are worried about inflation following the huge build up of bank reserves just waiting to become loans.

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