The problem with our employment stats

Last Friday’s jobs report seriously disappointed Wall Street, which was looking for 573,000 new non-farm jobs in November — and got only 210,000. Real job recovery is lagging and unevenly distributed, even as we head into another winter of deep uncertainty given the Omicron variant of the novel coronavirus. The job market needs a laser-targeted stimulus of its own, but it’s not in the infrastructure bill or the Build Back Better Act.

Those spending programs will create jobs, just not on the scale we need.

The Economic Policy Institute projects BBBA could support 2.3 million jobs a year for its first five years, which would cut current official unemployment by a third. But the key word here is “official.”

The official 4.2 percent unemployment rate only registers those who recently lost a job and are actively looking for one — about 7 million Americans. It excludes those who have given up looking or who determined that available jobs aren’t worth the effort or risk or travel. That describes a majority of the 100 million jobless adults currently considered outside the workforce. Some of them are retired, happily or not, some are unable to work. But it’s a safe bet that most of them would choose to work, or work more hours, given reasonable job opportunity, which they lack.

Despite all the buzz about the “Great Resignation,” labor shortages, and 10 million unfilled job openings, that’s the underlying reality: Many tens of millions of Americans are jobless for lack of job opportunity.

One group trying to illuminate this is the Ludwig Institute for Shared Economic Prosperity (LISEP), which tracks what it calls the True Rate of Unemployment (TRU). Using U.S. Bureau of Labor Statistics data, it expands the definition of unemployment to measure “functional unemployment,” including those who want full-time work (35+ hours) but can only find part-time, and those whose work doesn’t pay a living wage ($20,000 before taxes). That definition captures five times more Americans than the BLS unemployment rate. In October, when official unemployment was 4.6 percent, TRU was 25.3 percent. LISEP also has an alternative indicator that bypasses BLS data, and sensibly measures those who can’t find work, or full-time work, or work that pays a living wage, as a straight percentage of the adult population. That number is twice as high as TRU: 52.7 percent in October.

With these measures, LISEP found that during the first year of the pandemic, living wage jobs shrank in 84 of the nation’s largest metro areas — five of them by double digits. Fitch Ratings noted some downturn in job recovery in northeast metro areas in September, but attributed it to COVID restrictions in the region. LISEP’s numbers better reflect Americans’ reality. 

They also track with analysis by the non-profit Get America Working! (for which I consult). It parses BLS data to show that for many years now, even with low official unemployment, fewer than half of American adults have full-time jobs, and only about half the hours that could potentially be worked are actually being worked. People with disabilities, people of color, seniors, youth, women, and immigrants are disproportionately affected.

That suggests lagging job recovery, low labor force participation, and persistent if hidden mass joblessness aren’t attributable to COVID restrictions, or lack of paid leave, or other temporary or contingent factors used to explain them away. They’re structural and endemic. Unwinding them will require many tens of millions of new jobs.

Infrastructure and Build Back Better spending could help incrementally, but they aren’t designed to create jobs at this scale. In fact, earlier proposals to fund them by raising payroll taxes on incomes over $400,000 would have hurt job creation, because payroll taxes raise hiring costs and slow job growth. 

Thankfully those proposals were dropped, though Sen. Joe Manchin (D-W.Va.) is still arguing that any paid family leave should be funded with a payroll tax on workers and employers. And although BBBA would lower most people’s tax bills in the first years, starting in 2023, it would raise income and payroll tax bills for many households earning $50,000 to $100,000.

Politicians often resort to hiking payroll taxes as a cash cow for new spending, despite their drag on job growth. Washington state raised payroll taxes to fund its long-term care and paid leave benefits. Some now propose more federal payroll taxation to shore up Social Security. When FDR introduced them, payroll taxes represented 1 percent to 2 percent of federal revenue. Last year, they generated 36 percent — or $1.3 trillion (income tax generated $1.5 trillion).

It’s self-defeating to levy so much money at the expense of job growth when half of Americans are functionally unemployed, and dozens of metro areas are losing living-wage jobs. We dodged a bullet by not hiking payroll taxes (much) to pay for BBBA. But we could have a stronger, faster, more equitable job recovery if we phased them out completely — and replaced the revenue with taxes that don’t undercut employment.

This strategy is known as payroll tax shifting. It replaces taxes on jobs, which we want to maximize, with revenue-neutral equivalent taxes on things we want to reduce, like consumption of energy or raw materials and associated waste and pollution. That would correct decades of tax-induced increases in the cost of hiring people relative to the cost of consuming things. Freed of tax distortions, labor costs would shift roughly 30 percent — a powerful price signal.

Unlike massive spending programs, tax shifting is budget-neutral. It doesn’t cost anything or raise net taxes or deficits; it simply shifts the tax burden from work to waste.

The Congressional Budget Office found that dollar for dollar, cutting payroll taxes on employers and workers is the most powerful job stimulus, creating many times more jobs than infrastructure or any other government spending. Get America Working! estimates payroll tax shifting could generate 40-45 million full-time equivalent jobs.

No other policy — not the 2017 tax cuts, the new infrastructure bill, or BBBA — can create jobs on that scale. Yet if we’re honest about the true extent of unemployment in the U.S., it’s the scale we must achieve. New spending programs may chip away at mass joblessness incrementally, but to finally resolve it and unleash robust job and economic growth for all Americans, we need fundamental tax reform.

Stephen Kent is president of the public interest PR firm KentCom LLC, and a consultant to the employment policy group Get America Working! These are his own views.