The Obama Administration and its allies are pointing to employment growth in 2014, during which the economy added about 2.95 million jobs, as evidence in support of the President's economic policies. The President even bragged in his State of the Union Address that: "the economy is growing and creating jobs at the fastest pace since 1999." More recently, media outlets characterized January job growth of 257,000 as "strong," (see here and here, for instance), and February job growth as evincing a "labor market boom." (see here).
It is certainly true that job growth in 2014 was an improvement over the very slow growth or negative growth from 2008 through 2012. The economy lost 3 million jobs in 2008, and another 4 million in 2009. It added just over 2 million jobs per year from 2010 to 2013. (Go here for these data). However, closer analysis reveals that 2014 job growth is still nothing to brag about and that reports of a "boom" are premature to say the least.
The years 1999 through 2013 did not display particularly strong job growth. Between 1999 and 2007 the economy was at or near full employment. Indeed, the unemployment rate only exceeded 6.0 percent (peaking at 6.3 percent) during one year of this period (2003), and then for only seven of the twelve months of that year. (Go here for these data) As the economy nears full employment, job growth naturally slows. After all, employers must compete for a diminishing pool of qualified workers willing to work at current wages. Such competition puts upward pressure on wages, dampening hiring. These wage increases can also impact inflation, inducing the Federal Reserve to tighten the money supply in an effort to increase interest rates and slow economic growth, further reducing the demand for labor and resulting job growth.
The years 1999 through 2013 did not display particularly strong job growth. Between 1999 and 2007 the economy was at or near full employment. Indeed, the unemployment rate only exceeded 6.0 percent (peaking at 6.3 percent) during one year of this period (2003), and then for only seven of the twelve months of that year. (Go here for these data) As the economy nears full employment, job growth naturally slows. After all, employers must compete for a diminishing pool of qualified workers willing to work at current wages. Such competition puts upward pressure on wages, dampening hiring. These wage increases can also impact inflation, inducing the Federal Reserve to tighten the money supply in an effort to increase interest rates and slow economic growth, further reducing the demand for labor and resulting job growth.
By contrast, the economy has remained far from full employment for several years now, leaving room for faster growth in employment than was sustainable between 1999 and 2007, for instance. Nonetheless, job growth has been sluggish from 2008 through 2013. Thus, thus, job growth that exceeds that in the years 1999-2013 is not necessarily something to write home about.
Any assessment of the relative strength of last year's employment growth must begin by identifying a period, like 2008-2014, during which the economy strayed far from full employment. The obvious candidate for such a comparison is the period 1983-1984, during which the economy was recovering from the deep recession of 1981-1982. During the 1981-82 recession, which followed high inflation and record high interest rates, the unemployment rate peaked at nearly 11 percent in 1982.
According to this website, job growth during 1983 and 1984 was significantly more robust than in 2014. In particular, the economy added 3.45 million jobs in 1983 and 3.88 million jobs in 1984. Thus, the average job growth for these two years was 3.67 million. almost 25 percent higher than the 2.95 million figure for 2014.
Moreover, this gap actually understates the relative strength of employment growth in the two periods in question. After all, the labor force was significantly smaller in 1983 and 1984 than in 2014. That is, the civilian labor force averaged 112,547,000 for 1983 and 1984 combined and numbered 155,922,000 for 2014. (Go here for these data). Thus, the annual rate of job growth for 1983-84 was about 3.26 percent, compared to 1.9 percent for 2014. Replicating the 1983-84 rate of job growth would thus have required the economy to create 5.083 million jobs in 2014, or 72 percent more jobs than the economy actually created that year. Compared to 1983-84 anyway, employment growth in 2014 was about 2 million jobs short. While not a "bust," such growth was, by historical standards, not really a "boom" either.
Any assessment of the relative strength of last year's employment growth must begin by identifying a period, like 2008-2014, during which the economy strayed far from full employment. The obvious candidate for such a comparison is the period 1983-1984, during which the economy was recovering from the deep recession of 1981-1982. During the 1981-82 recession, which followed high inflation and record high interest rates, the unemployment rate peaked at nearly 11 percent in 1982.
According to this website, job growth during 1983 and 1984 was significantly more robust than in 2014. In particular, the economy added 3.45 million jobs in 1983 and 3.88 million jobs in 1984. Thus, the average job growth for these two years was 3.67 million. almost 25 percent higher than the 2.95 million figure for 2014.
Moreover, this gap actually understates the relative strength of employment growth in the two periods in question. After all, the labor force was significantly smaller in 1983 and 1984 than in 2014. That is, the civilian labor force averaged 112,547,000 for 1983 and 1984 combined and numbered 155,922,000 for 2014. (Go here for these data). Thus, the annual rate of job growth for 1983-84 was about 3.26 percent, compared to 1.9 percent for 2014. Replicating the 1983-84 rate of job growth would thus have required the economy to create 5.083 million jobs in 2014, or 72 percent more jobs than the economy actually created that year. Compared to 1983-84 anyway, employment growth in 2014 was about 2 million jobs short. While not a "bust," such growth was, by historical standards, not really a "boom" either.
