Growing the US Economy - I : The Obama First Term Record

7/29/2019 Growing the US Economy - I : The Obama First Term Record

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Growing the US Economy - I

The Obama First Term Record

No. Topic Page No.1. Summary 12. Unemployment data for Obamas first term 23. The Employment Gap 44. Historical Data for the Employment Gap 75. Conclusions 12

1. Summary

Instead of the familiar unemployment rate, it is suggested that the focus

should be on the employment gap, the number of jobs needed by the

economy, or the total number of unemployed. The number of unemployed,

lets denote this by the symbol U, is the difference between the labor force,

lets call it L, and the number of employed, E. Thus, U = (L E). This is the

basic mathematical equation that governs all unemployment studies. The

familiar unemployment rate is the ratio U/L = 1(E/L), expressed aspercentage by multiplying by 100. The labor force L always increases over

time due to the natural increase in the population. However, a study of the

historical data (for the period 1980-2012, since President Reagan took office)

shows that the labor force decreased for the first time during the Obama first

term (which can be attributed to the total financial meltdown of 2008).

A simple diagrammatic representation to study the employment data

compiled by the Bureau of Labor Statistics is also suggested here which also

takes into account the natural increase in the population. Three distinctlydifferent periods, distinguished by the slope of E-L graph, are observed. This

slope E/L, is a measure of the efficiency of job creation. This, in turn, is

related to the familiar unemployment rate. However, the focus on the

employment gap, rather than the unemployment rate, helps a better

analysis of the efficiency of the job creation by the economy.


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2. Unemployment data for Obamas first term

Dear All:

I just posted the following message on my Facebook page, along with the table and

the graph given here.

Table 1: The US Unemployment Statistics: Obama First Term

Year Population Labor force Unemployed Percent Change in Change in

in 000s in 000s in 000s Unemployed labor force unemployed

x Y 100*(y/x) delta x (x) delta y (y)

2009 235,801 154,142 14,265 9.3

2010 237,830 153,889 14,825 9.6 -253 560

2011 239,168 153,617 13,747 8.9 -272 -1,078

2012 243,284 154,975 12,506 8.1 1,358 -1,241

Source: Bureau of Labor Statistics,http://www.bls.gov/web/empsit/cpseea01.pdf

Take a look at the data I was able to obtain from the Bureau of Labor Statistics (see

link above). Today, in his SOTU 2013 (State of the Union) address, President

Obama is widely expected to talk about his plans for growing the US economy.The table here gives the record thus far.

Look beyond the unemployment rate (fifth column), which is the ratio of number

of unemployed (y) and the number in the labor force (x), converted to a percent.

The number of unemployed went up between 2009 and 2010 and has since

decreased. But, look more carefully also at the number of people in the labor force

(x). The labor force has increased between 2009 and 2012. This is partly due to the

natural increase in the population (first column) and the entry of fresh high school

and college graduates into the labor force. But, with high unemployment rates that

we have witnessed, the change in the labor force is also due to what is happening

with those who lost their jobs during the financial crisis of 2008 sent the economy

into a tailspin.
http://www.bls.gov/web/empsit/cpseea01.pdfhttp://www.bls.gov/web/empsit/cpseea01.pdfhttp://www.bls.gov/web/empsit/cpseea01.pdfhttp://www.bls.gov/web/empsit/cpseea01.pdf


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Figure 1: Graphical representation of the unemployment data during the Obama

first term (2009-2012) compiled in Table 1. While the number of unemployed has

decreased the labor force has also increased. The ratio y/x, which is the

unemployment rate, has therefore decreased. If the (x, y) data points fall on astraight line with a negative slope, the ratio y/x will decrease as x increases. This

is a mathematical property of a straight line. Hence, the claims of decreasing

unemployment rates must be investigated more carefully.

The labor force shrank dramatically in the first year of the Obama presidency since

discouraged workers left the labor force, reducing the denominator x and thus

increasing the unemployment rate. Some of these discouraged workers are now

returning to the labor force and looking for jobs. So, we have to look carefully at

the changes in the labor force (called delta x, mathematically) and how it is related

to the changes in the number of unemployed (called delta y). This is revealed in the

graph prepared in Figure 1 here. The data for 2011 was clearly an exception and

falls off the trend line seen in this graph.

11,000

12,000

13,000

14,000

15,000

16,000

17,000

152,000 153,000 154,000 155,000 156,000

Labor force, x [in 000s]NumberUnemployed,y[in000s]


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Amazing isn't it? Has the US economy really improved? Look at the numbers and

think about it some more -- it has nothing to do with being a Democrat or a

Republican or a Teapartier. This is about you and me and our children and retiring

parents and about our future.

Has the US economy really improved? Has the number of unemployed really

decreased relative to the changes in the labor force? Are "good jobs", which means

jobs that allow a young person to earn a living wage and start a family, being

produced? That is what the US economy did 100 years ago. Even a high school

graduate, with no college education, had a "good job" as defined above. A young

family could support itself on a single income. That should be the standard by

which we judge the performance of the US economy. That is what we mean by the

American Dream!

Conment:

Vj LaxmananThe data for 2012, see last line of table, says it all. The number of

unemployed decreased by 1,241,000 but the labor force increased by 1,358,000.

In other words, the number of jobs created (which decreased the number of

unemployed) is much less than the additional number of people who entered the

labor force. I need NOT say anymore. These are supposed to be official numbers

coming from the US government. Draw your own conclusions now. Posted on

February 12, 2013 at ~ 6:48 AM.

3. The Employment Gap

Number of Jobs Needed

Instead of the unemployment rate, let us look at the employment gap, i.e., the

number of jobs needed by the economy. If everyone in the labor force has a job,

the gap will be zero, i.e., everyone who is looking for a job is able to find a job.

The gap, (L E) is just the difference between the labor force (x or L) and the

number who are already employed, E, i.e., the quantity E = (xy) in Table 1. So,
https://www.facebook.com/vj.laxmananhttps://www.facebook.com/vj.laxmananhttps://www.facebook.com/vj.laxmanan


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the gap is really nothing more than the number of unemployed y = U. Table 2

summarizes the data for the 2001-2012. The current employment gap U equals

(154,975142,469) = 12,506 thousands, or about 12.5 million (see last row in

Tables 1 and 2). This is the additional jobs that the economy needs in order to

achieve the utopian goal of 100% employment, or 0% unemployment rate, whereeveryone who is looking for a job is able to find a job.

Table 2: The Employment Gap for the US Economy

Year Population Labor force, L Employed, E Unemployed, U

in 000s in 000s in 000s in 000s

The Employment Gap

in 000s

x x-y y2001 215,092 143,734 136,933 6,801

2002 217,570 144,863 136,485 8,378

2003 221,168 146,510 137,736 8,774

2004 223,357 147,401 139,252 8,149

2005 226,082 149,320 141,729 7,591

2006 228,815 151,428 144,427 7,001

2007 231,867 153,124 146,046 7,078

2008 233,788 154,287 145,363 8,924

2009 235,801 154,142 139,877 14,265

2010 237,830 153,889 139,064 14,825

2011 239,168 153,617 139,870 13,747

2012 243,284 154,975 142,469 12,506

If each new employed person contributes an average of about $5,000 in income

taxes, the additional revenues would be about $62.5 billion per year, which means

additional payroll related taxes of $1.25 trillion over the next ten years WITHOUT

THE NEED FOR ANY INCREASE IN THE TAX RATES.

This, to me at least, is what growing the US economy means. If we can do this for

the next few decades, the US national debt (now at $16.433 Trillion) will

automatically magically vanish. The unemployment gap is illustrated in Figure 2.

The solid line is the line for full employment. The gap is the vertical separation


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between the data points on this graph and the ideal line. This is the number of

unemployedthe additional employees who could all be contributing payroll taxes

and thus help reduce the national debt and the annual deficits.

Figure 2: Graphical representation of the unemployment data during the Bush-II

and Obama first term (2001-2012). Instead of the unemployment rate, we focus

here on the employment gap, or the additional jobs needed, i.e., the number of

unemployed. This is the vertical separation of the data point from the full

employment line. The red diamonds are the data for the Bush-II (younger George

Bush years). The blue dots are the data for the Obama first term. The current

gap is 12.5 million and this is the number of jobs needed. If the gap is closed,an additional $1.25 trillion in pay roll taxes can be realized over the next decade

(an average of $5000 in payroll taxes per new job) without the need for any

INCREASE IN TAX RATES.

135,000

137,500

140,000

142,500

145,000

147,500

150,000

152,500

155,000

135,000 140,000 145,000 150,000 155,000 160,000

Labor force, x [in 000s]

NumberEmploye

d,(x-y)[in000s]

Employment Gap

Jobs Needed

Vertical Separation

Full

employment

line


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4. The Historical Employment Gap

Number of Jobs Needed

Figure 3: Graphical representation of the unemployment data for 1980-2012: from

the Reagan-Bush era (1981-1993) to the Obama first term (2001-2012). One major

unit on this graph (vertical separation from full employment line) represents an

employment gapof 10 million. The employment gap was a little more than 10million as the Carter years gave way to the Reagan years (1980-1982) and then

started closing. It has increased again since the financial crisis of 2008 and has

been the highest ever (after allowing for population growth).

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

90,000 100,000 110,000 120,000 130,000 140,000 150,000 160,000


NumberEmployed,(x

-y)[in000s]

Full

employment

line, E = L = x


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Table 3: The Employment Gap for the US Economy

Year Population Labor force, L Employed, E Unemployed, U

in 000s in 000s in 000s in 000s

The Employment

Gap in 000s

x x-y Y

1980 167,745 106,940 99,303 7,637

1981 170,130 108,670 100,397 8,273

1982 172,271 110,204 99,526 10,678

1983 174,215 111,550 100,834 10,716

1984 176,383 113,544 105,005 8,539

1985 178,206 115,461 107,150 8,311

1986 180,587 117,834 109,597 8,2371987 182,753 119,865 112,440 7,425

1988 184,613 121,669 114,968 6,701

1989 186,393 123,869 117,342 6,527

1990 189,164 125,840 118,793 7,047

1991 190,925 126,346 117,718 8,628

1992 192,805 128,105 118,492 9,613

1993 194,838 129,200 120,259 8,941

1994 196,814 131,056 123,060 7,996

1995 198,584 132,304 124,900 7,404

1996 200,591 133,943 126,708 7,235

1997 203,133 136,297 129,558 6,739

1998 205,220 137,673 131,463 6,210

1999 207,753 139,368 133,488 5,880

2000 212,577 142,583 136,891 5,692

This idea of an employment gap, instead of the familiar unemployment rate,

illustrated here graphically in Figures 2 and 3, also takes into account thenatural increase in the population and is, perhaps, a more accurate and

simple measure of what we need to focus on to grow the US economy.


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Figure 4: Graphical representation of the unemployment data for 1980-2012: fromthe Reagan-Bush era (1981-1993) to the Obama first term (2009-2012). The labor

force (higher number, blue diamonds) has been increasing as a function of time t,

in calendar years. The number of employed (lower number, red squares) has also

been increasing. One major unit on this graph, the vertical separation between

labor force and the number of employed, represents an employment gap of 10

million. The employment gap was a little more than 10 million as the Carter years

gave way to the Reagan years (1980-1982) and then started closing. It has

increased again since the financial crisis of 2008 and has been the highest ever(after allowing for population growth).

It is noteworthy that thenumber of employed, E (lower numbers, red squares),did

not increase significantly between 2000-2002 and the labor force (higher

numbers, blue diamonds)shrank, for the first time, between 2008-2011.

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Time, t [in calendar years]

Employed, E

Labor Force, x = L

Employed,E,

orLaborforce,L[

in000s]


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Figure 5: The unemployment data for the Bush-II years (2001-2009) and the

Obama first term (2009-2012) are reconsidered here; see also Figure 2. The solidline is the full employment line with the mathematical equation E = x. The upward

sloping dashed line with the equation E = mx + b passes through or very close

through 6 of the 8 data points for the Bush-II years. The slope m and the intercept

b can be determined using linear regression analysis. However, we take a simpler

approach here by considering the data for the years 2003 and 2006. This yields the

equation E = 1.361x 61,593. The slope m = 1.361 > 1 which means that the

number of employed is increasing faster than the labor force is increasing. Since

the unemployed y = (xE) = (1 - m)x - b, we deduce y = -0.361x + 61,593. Hence,

the graph of unemployed y versus the labor force x has a negative slope (see

Figure 1). Also, it is now clear why the traditional measure of economic

performance, the unemployment rate y/x = (1 m) - (b/x) = -0.361 + (61,593/x)

leads to the conclusion of a decreasing unemployment rate, even as the labor force

increases. (The fractional value for y/x determined from this equation is converted

to a percentage.)

130,000

135,000

140,000

145,000

150,000

155,000

160,000

130,000 135,000 140,000 145,000 150,000 155,000 160,000

Labor force, x [in 000s]NumberE

mployed,E=(x-y

)[in000s]

E = 1.361x 61,593Bush (2001-2009)

Full Employment line

E = x = L

E = 3.135x 343,433Obama 1st term


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Figure 6: The unemployment data for years (1980-2012) is re reconsidered here.

The solid line is the full employment line with the mathematical equation E = x.

Three different regimes can be distinguished with slightly different values of the

slopes m and intercept b. For the first period, E = 1.19x 30,665 with m and b

being determined from the data for 1983 and 1989. For the second period, E =

1.271x44,307with m and b being determined from the data for 1992 and 2000.

This means that the rate at which the economy was producing jobs (as quantified

now by the slope m of the graph) was increasing over the years, as the labor force

increased. After the financial crisis of 2008, which lead a sudden and catastrophicincrease in the unemployment levels (the number of employed E has dropped

precipitously, see Figure 5, the rate of increase of employment levels is again quite

high, as seen by the steep slope suggested by three data points for the Obama first

term (red triangles here, blue dots in Figure 5). However, the US economy is still

far from full recovery as seen by the high employment gap.

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

90,000 100,000 110,000 120,000 130,000 140,000 150,000 160,000


NumberEm

ployed,E=(x-y)

[in000s]

E = 1.361x 61 593

E = 1.271x 44 307

E = 1.19x 30 665


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5. Conclusions

1. The employment gap, or the number of unemployed workers U, in aneconomy may be defined as the difference between the labor force L and the

number of employed E. Thus, U = (L E). This is the basic mathematical

equation that governs all unemployment studies.

2. The familiar unemployment rate is the ratio U/L = 1 (E/L) converted to apercentage.

3.It is suggested here that instead of the unemployment rate U/L, we shouldfocus on the employment gap, i.e., the total number of unemployedworkers, U.

4.A simple and useful diagrammatic representation of the employment gap,which also takes into account the natural increase in the labor force (due to the

natural increase in the population, over time) is suggested here, in the form of

the E-L graphs, the graph of the number employed as a function of the labor

force L. On this E-L diagram, we see three linear regimes with slightly different

slopes, if we consider the historical employment data of the period 1980-2012,

i.e., since President Reagan took office.

5. The slope of the E-L graph is a measure of the efficiency of job creation. Itappears that the changes in the slope (denoted here by the symbol m) of the E-L

graph are accompanied by a short period where the number of employed E is

essentially flat, even with increase in the labor force (sideways movement on

the E-L graph). A shrinking labor force, negative slope for the E-L graph, was

observed, for the first time, during the first Obama term, and can be attributed

to the financial meltdown of 2008 which lead to long term unemployed leaving

the labor force.

See also my Facebook Post on February 13, 2013. https://www.facebook.com/vj.laxmanan

https://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.118905883

0&type=1&theater
https://www.facebook.com/vj.laxmananhttps://www.facebook.com/vj.laxmananhttps://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.1189058830&type=1&theaterhttps://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.1189058830&type=1&theaterhttps://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.1189058830&type=1&theaterhttps://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.1189058830&type=1&theaterhttps://www.facebook.com/photo.php?fbid=4851921934450&set=a.4851921094429.2167039.1189058830&type=1&theaterhttps://www.facebook.com/vj.laxmanan

Growing the US Economy - I : The Obama First Term Record

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