To repair budget, fix jobs deficit first

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Updated: March 6, 2012 8:18AM

The most significant aspect of January’s jobs report is political. The fact that America’s labor market continues to improve is good news for the White House. But as a practical matter, the improvement is less significant for the American work force.

President Obama’s only chance for rebutting Republican claims that he’s responsible for a bad economy is to point to a positive trend. Under ordinary circumstances, January’s unemployment rate of 8.3 percent would be terrible. But compared to September’s 9.1 percent, it looks quite good. And the trend line — 9 percent in October, 8.6 percent in November, 8.5 percent in December, and now 8.3 percent — is enough to make Democrats gleeful.

But America’s job deficit is still mammoth. Our working-age population has grown by nearly 10 million since the recession officially began in December 2007, but many of these people never entered the work force. Millions of others are still too discouraged to look for work.

The most direct way of measuring the jobs deficit is to look at the share of the working-age population in jobs. Before the recession, 63.3 percent of working-age Americans had jobs. That reached a low last summer of 58.2 percent. Now it’s 58.5 percent. That’s better than it was, but not by much.

At January’s rate of job gains — 243,000 — the nation won’t return to full employment for another seven years.

When they’re not blaming Obama for a bad economy, Republicans are decrying the federal budget deficit and demanding more cuts. But America’s jobs deficit continues to be a much larger problem than the budget deficit.

In fact, we can’t possibly achieve the growth needed to reduce the budget deficit as a proportion of the total economy unless far more people are employed. Workers are consumers, and consumer spending is 70 percent of economic activity. And cutting the budget means fewer workers, directly (as government sheds workers) and indirectly (as government contractors lay off workers) and therefore fewer consumers.

Yet deficit hawks continue to circle. State and local budgets are still being slashed. The federal government is scheduled to begin major spending cuts less than a year from now. Republicans are calling for more cuts in the short term.

Meanwhile, Congress is debating whether to renew extended unemployment benefits. This should be a no-brainer. The long-term unemployed, who have been jobless for more than six months, comprise a growing share of the unemployed. (In January, they rose from 42.5 percent to 42.9 percent).

Republicans say unemployment benefits are prolonging unemployment, that people won’t get jobs if they get unemployment checks from the government. That’s claptrap, especially when there’s only one job opening for every four people who need a job. Republicans also say we can’t afford to extend jobless benefits. Also untrue. Jobless workers spend whatever money they get, and their spending keeps other people in jobs.

Government should extend unemployment benefits, and not cut spending until the nation’s rate of unemployment is down to 5 percent. Then, and only then, should we move toward budget austerity.

The job situation is better than it was, but it’s still awful. The jobs deficit is still our No. 1 economic problem. Forget the budget deficit until we tame it.

Robert Reich was secretary of labor during the Clinton administration.