Job Growth Still Weak, Like the Recovery

Last week brought more mediocre news about the Nation's economy. According to the Bureau of Labor Statistics ("BLS"), the economy added a seasonally-adjusted 223,000 jobs in June, 2015, the 73rd month of this economic recovery.  (The current recovery started in June, 2009.)   The BLS also revised downward the employment growth figures for April and March.   These results follow prior reports that the economy grew a mere 0.2 percent in the first quarter of 2015, "nearly grinding to a halt," as a report in the Washington Post put it.

The New York Times, for instance, claims these latest employment figures show "healthy" job growth, consistent with its prior claim that May job growth (now revised downward) was "strong." (To be fair, another Times analyst opines that the June numbers are "weaker than they look.")  Analysis of the historical record, particularly that of the nation's recovery from the 1981-82 recession, suggests that June job growth, like that throughout this recovery, was quite disappointing.

As noted above, June, 2015 is the 73rd month of the recovery that began in June, 2009.  By comparison, the so-called Reagan recovery began in November, 1982.  The 73rd month of that recovery, November, 1988, saw job growth of 339,000, about 52 percent larger than that of June 2015.  (Go to this website and insert the appropriate dates to generate these figures.)    Moreover, this 52 percent figure actually understates the gap between job growth in these two months. After all, the workforce and thus total employment was significantly smaller (106,277,000) in October, 1988 than it was this most recent May (141,619,000).   Hence, employment grew at a rate of just over three tenths of one percent in November 1988 compared to the prior month's level, slightly more than double the June 2015 rate of growth. The significant disparity between these two months is not an anomaly: total employment increased by nearly nine tenths of one percent in the combined months of September, October and November of 1988, compared to less than five tenths of one percent in April, May and June 2015.     Previous posts on this blog have reached similar conclusions about the relative strength of employment growth during the Reagan recovery and the Obama recovery.  (See here and here, for instance.).  The left-leaning Center for American Progress apparently agrees.  In a recent essay about the state of the employment market, the CAP concludes that: "job growth remains weak compared to previous recessions."  (By "previous recessions" the essay apparently means "recoveries from previous recessions."). 

Such disappointing employment growth should not be surprising, given the slow pace of economic growth during this recovery which, as noted above, began in June, 2009.  Here are the annual rates of GDP growth for the last five years, according to the World Bank, beginning with 2010, the first full year of recovery from this most recent recession:


2010:   2.5

2011:   1.6

2012:   2.3

2013:   2.2

2014:   2.4

Thus, annual GDP growth averaged 2.2 percent during this period.

Here, by contrast, are the annual rates of GDP growth during the Reagan recovery, beginning with 1983, the first full year of recovery from this recession:

1983:  4.6

1984:  7.3

1985:  4.2

1986:  3.5

1987:  3.5

1988:  4.2

Annual GDP growth averaged 4.6 percent during this period, more than twice that during the Obama recovery.  (Note that excluding the 1983 figure results in the same rate of average annual GDP growth, namely, 4.6 percent). 

Economists and others will no doubt spend decades debating why the Obama recovery is so weak.  However, there can be no doubt that, judged by the rate of economic expansion and employment growth, this recovery is a disappointment that still leaves millions of Americans without the economic opportunities they deserve.   

Happy Birthday to the Sherman Act!

Had a Good Ghost Writer

Said Ghost Writer

The Sherman Act, ostensibly authored by Senator John Sherman (R-Ohio) (pictured first above), turned 125 today.   The Senate passed the Act 51-1 on April 8, 1890, and the House followed suit unanimously on June 20.  President Harrison signed the bill into law on this date in 1890.  For a photo of the Act, go here.  

While the Act contains eight sections (see the complete text reproduced below), the statute's basic prohibitions are found in the first two. Thus, Section 1 forbids: "contracts, combinations and conspiracies in restraint of trade or commerce among the several states."  Section 2 forbids "monopolization," "conspiracy to monopolize," and "attempt[s] to monopolize."  Senator George F. Edmunds (R-Vermont) (pictured second above), Chairman of the Senate Judiciary Committee, drafted these two sections in late March and early April, 1890, narrowing Sherman's pending draft, which exceeded the scope of the commerce power.  See Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 115 & n. 59  (1988).

Although the Supreme Court initially held that Section 1 merely prohibits "direct restraints" of interstate commerce, see United States v. Joint Traffic Association, 171 U.S. 505 (1898), it would subsequently hold that Section 1 bans all "unreasonable" restraints.  See Standard Oil v. United States, 221 U.S. 1 (1911), while Section 2 only forbids unreasonable methods of acquiring or maintaining a monopoly.  See American Tobacco Co. v. United States, 221 U.S. 106 (1911).  These three limiting constructions ensured that the Act did not interfere with liberty of contract, thereby assuring that the statute banned only those practices that reduce wealth. (See here and here.)  While once controversial, Standard Oil's "Rule of Reason" survives to this day as the definitive construction of the Act.  

The Act has proved remarkably resilient, in part because of the Rule of Reason's flexibility.  To be sure, Congress has exempted various industries from the Act.  Moreover, Congress partially suspended the Act when it passed FDR's National Industrial Recovery Act in 1933.  Under the NIRA, President Roosevelt approved over 500 so-called "Codes of Fair Competition," limiting competition in each such industry.  Fortunately the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), restoring the Sherman Act.  Thus, the operative language of Sections 1 and 2 survives, protecting markets from wealth-reducing restraints.

As promised above, here is the text of the original Sherman Act:

An act to protect trade and commerce against unlawful restraints and monopolies.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

Sec. 1. Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, at the discretion of the court.

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof; shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.

Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.

Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties complained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises.

Sec. 5. Whenever it shall appear to the court before which any proceeding under section four of this act may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the marshal thereof.

Sec. 6. Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section one of this act, and being in the course of transportation from one State to another, or to a foreign country, shall be- forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law.

Sec. 7. Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act, may sue therefor in any circuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover three fold the damages by him sustained, and the costs of suit, including a reasonable attorney's fee.

Sec. 8. That the word "person," or " persons," wherever used in this act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

Go Tribe!

Good Omen? 

Tonight's CAA Championship game between William and Mary and Northeastern will tip off at 7:00 PM. at the Baltimore Arena.  William and Mary, led by CAA player of the year and Tribe all time leading scorer Marcus Thorton, has already enjoyed a remarkable season: Coach Tony Shaver chalked up his 500th coaching victory, and the Tribe finished first in CAA regular season play with an 18-11 record.  With a win tonight, the Tribe can earn its first NCAA tournament berth,  Let's hope that the Tribe's 78-62 January 24 victory over the Huskies is a harbinger of this evening's result!  

Go Tribe!!  

Welcome Dr. Condoleezza Rice!

William and Mary has announced that Dr. Condoleezza Rice will speak at the College's Commencement exercises on May 16, 2015.  The College will also confer upon Dr. Rice a well-deserved Doctorate of Public Service (Honoris Causa).   Dr. Rice's extraordinary life and career include service as Secretary of State, National Security Advisor, and Provost of Stanford University. She has engaged in numerous other forms of public service and currently serves as the Denning Professor in Global Business and the Economy at the Stanford School of Business, the Thomas and Barbara Stephenson Senior Fellow on Public Policy at the Hoover Institution and a Professor of Political Science at Stanford University.  Dr. Rice is also a Fellow of the American Academy of Arts and Sciences and has received ten honorary degrees.  

The College is fortunate indeed that Dr. Rice will address those present at Commencement. The Griffin has already started a standing ovation! 

Reflections on 2014 Employment Growth: Neither Boom Nor Bust

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.

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.

On the Cause(s) of and Cure(s) for Low College Graduation Rates

In a thoughtful essay Thomas K. Lindsay explores several causes of insufficient graduation rates at the nation's public universities and suggests some possible cures.  As he notes, Department of Education Data demonstrate that fewer than half of the nation's college students graduates in four years.  Even after six years, more than 40 percent still have not obtained a degree, he says.  (Go here for some recent Department of Education data showing that, for those students who entered college in 2006, about 41 percent had not graduated after 6 years.) As Lindsay points out. these low graduation rates impose various costs.  Perhaps most importantly, the annual cost of attending college is significant, particularly when one includes the opportunity cost in the form of income that students forgo.  Lindsay quotes a study concluding that: "the average added cost of just one year at a four-year public university is $63,718 in tuition, fees, books, and living expenses, plus lost wages each of those many students could have been earning had they finished on time." Lindsay also points out that students who have not graduated thereby delay their entry into the workplace, reducing their own lifetime earnings.  

Lindsay attributes these low graduation rates to several factors. First, he cites evidence suggesting that students themselves are either unaware of graduation requirements or, if they are aware, fail to take the courses necessary to satisfy such requirements.  Second, Lindsay contends that some colleges and universities have de-emphasized the role of the faculty in academic advising, relying instead on what he calls "professional advising offices."  Compared to faculty, he says, such professional advisors have inferior knowledge about the "strengths and weaknesses of their advisees" and also lack the sort of "deeper understanding of which courses contribute best to a meaningful college experience."  More reliance on faculty advising, he concludes, will improve students' selection of courses and thus increase graduation rates.   Finally, Lindsay contends that some colleges do not offer "the courses required for graduation . . . with sufficient regularity to make a four year stint possible." He concludes by admonishing students and their parents to "get the message" about the importance of graduating in four years and urging universities "to devote more effort to making the four year degree a practical reality once again."

Lindsay has identified a significant shortcoming of American Higher Education, a shortcoming states and the industry itself should be working to address.  Here are a few reactions to Lindsay's thoughtful piece, most of which simply supplement what he has said.

1.  Graduation rates at public universities vary widely among the states, to say the least.  According to this 2012 article in the Washington Post, the 2008 four year graduation rates at state flagship institutions ranged from less than 25 percent (the Universities of Alaska, New Mexico and Nevada) to 85 percent (the University of Virginia).  Moreover, this site maintained by the Chronicle of Higher Education reports that overall four year graduation rates for states's public universities range from 8.2 percent, 14 percent and 20 percent (Alaska, Idaho and Arkansas, respectively) to 68 percent, 69 percent and 70 percent (Washington, Iowa and Delaware, respectively).  Thus, while some states have a large amount of work to do, others are already doing something right.  Perhaps the nation's system of competitive federalism will induce those states who lag to adopt reforms that help close the gap with leaders like Delaware.

2.  Advanced Placement Credits earned in high school can be an important tool for improving graduation rates.   According to this study, for instance, students who enter college with such credits are more likely to graduate on time than similarly-situated students who do not.  Unfortunately, some high schools offer few if any advanced placement courses, thereby hampering the ability of their graduates to complete college in four years.   Indeed, according to this source, slightly more than 40 percent of the nation's high schools offer no advanced placement courses at all.  Moreover, states and even individual universities within a state differ in their policies governing the acceptance of such credits. States that wish to improve the rates at which their citizens graduate from college (including those who attend colleges in other states), should consider expanding the number of high schools that offer Advanced Placement courses and accept such courses, where appropriate, for college credit.

3.  In my view Lindsay overstates the cost that students incur for an additional year of college, for two reasons.  First, like many others, Lindsay includes the cost of room and board in his calculation of this cost. However, and as previously explained on this blog, individuals must purchase food and housing whether or not they attend college.  Thus, policymakers and commentators should not include room and board in the "cost" of college, except to the extent that students attending college incur higher costs of such room and board than they would have incurred had they instead entered the job market without attending or completing college.  Second, the study on which Lindsay relies apparently employs the "sticker price," that is, the price that universities charge to those students who receive no financial aid.  As previously explained on this blog, however, many universities, including public universities, offer generous financial aid, including in some cases free tuition and room and board.   Thus, while colleges must themselves incur the (social) cost of educating such students, many students do not bear such costs themselves.  Thus, the average cost that students incur for an additional year of college is likely less than Lindsay supposes.  Nonetheless, even if one ignores the cost of room and board, the cost of an additional year of college is still substantial.

4.  Finally, there is one additional factor that may explain the failure of some students to graduate in four years, namely, the absence of meaningful employment opportunities upon graduation.  As explained previously on this blog, job growth during the current economic "recovery" has been slow to say the least.  As between remaining in college for an additional year and graduating into a dismal job market, many students will choose the former.  Put more technically, the opportunity cost of an additional year in college is likely lower for many students than the study Lindsay invokes supposes. Thus, policies that facilitate the creation of good, high paying jobs will likely encourage some students to graduate more quickly.