But Where Have All the Jobs Gone?!

Before you rush to celebrate last month’s unemployment rate that ticked down to 7.6 percent from 7.7 percent, consider what has happened to labor force participation.  The labor force participation rate fell to 63.3 percent, its lowest level since 1979.  In fact, Austan Goolsbee, former chair of President Barack Obama’s Council of Economic Advisers, called the March jobs report a “punch to the gut.”

Of course, the White House is singing the same old tune: it’s the sequester’s fault!  But Heritage Foundation experts predicted this reaction last month when they explained:

Looking ahead, policymakers need not fear slower job growth due to the recent sequestration, which will force the federal government to cut $85 billion in budget authority this year. That will slow the growth of 2013 spending by only about $42 billion.

The federal cuts from sequestration, which will be enacted gradually over the next two years, should not negatively impact private-sector job growth. Economists Alberto Alesina, Carlo Favero, and Francesco Giavazzi have found that spending-based corrections are followed by little decline in gross domestic product (GDP), with recovery following within a year.

The Obama administration wants to replace the sequester with a so-called balanced approach; however, their idea of balanced is more taxes and ultimately more spending.  Increased taxes – like the higher payroll taxes imposed upon us by the fiscal cliff deal – will not contribute to economic improvement. 

President Obama’s idea of a balanced approach would simply prolong the recession, which is the fundamental reason for high unemployment and low labor force participation.  Heritage added:

International experience suggests that if the federal government attempted to balance its budget using large tax increases, an extended recession would follow. If recent recessions are any indication, a new recession would lead to large automatic and discretionary increases in government spending, which would use up the new tax revenue without dealing with the deficit. 

Heritage also explains that the weak labor market is the true reason for the decrease in labor force participation, and this decline has been underway since the recession began.  Demographics – retiring baby boomers – explain only one-fifth of this shift.  The rest is in fact due to a weak labor market.

In turn, the weak labor market results from several factors, some of which are not in the immediate control of Congress, such as economic slowdowns in Europe and China.  However, Congress does have control of the excessive taxes and increased regulation they have imposed, which discourage risk-taking and investment, and pose a significant burden on small-business owners.

The takeaway from this low labor force participation should not be that the (not so) big bad sequester is to blame.  On the contrary, the repressive policies of this administration have certainly contributed to the joblessness of so many Americans.

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WH conveniently & erroneously blames sequester for bad March jobs report.

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