Charts of the Day: Employment

posted at 8:30 am on July 10, 2010 by Ed Morrissey

Barack Obama likes to tell people that we should thank him for his interventionist economic policies, and that without them, unemployment would be much worse in the US than it is now.  For instance, he told Racine that without his economic stimulus, we’d be at 12, 13, even 15% — even though Racine itself is at 14.2% unemployment.  D’oh! Otherwise, this looks like a classic Churchill conundrum.  Had the UK elected Winston Churchill as Prime Minister in 1936 and he fought Hitler early, forcing him from power, would Churchill have gotten credit for saving Western civilization?  Or would he have been seen as a war monger, without the context of tens of millions of dead people in World War II?

Actually, we can test the hypothesis in this case, at least to some extent.  The financial collapse also battered our northern neighbor, Canada, although not quite to the same extent it did us.  (Canada has more conservative banking and lending policies, which shielded them from the worst of the problems.)  Instead of using a blizzard of government spending to correct a downturn in unemployment, Canada tightened its belt and rode it out.

So how do the two compare?  First, let’s look at the US levels of civilian employment since January 2007, eleven months before the recession started, to see how we’re doing:

As before, the red star denotes the passage of Porkulus.  Since that point in time, employment sharply declined for most of the year, plateaued, and then rose a bit before falling off — but the rise was minimal.

How did Canada do without massive government stimulus spending?  Well …

Employment rose by 93,000 in June, pushing the unemployment rate down 0.2 percentage points to 7.9%. This is the first time the rate has been below the 8% mark since January 2009.

Employment has been on an upward trend since July 2009, increasing by 403,000 (+2.4%). These gains offset nearly all the employment losses observed during the labour market downturn which began in the fall of 2008. The June unemployment rate, however, remained well above the October 2008 rate of 6.2%, due to a large increase in the number of people in the labour force over this period.

For those who have trouble recognizing it, that’s what a recovery looks like.  Canada’s job creation really has gone in the right direction, not simply plateaued at the nadir of the curve.  Maybe Canada’s private sector has been hiring because it doesn’t have to worry about the price signals of the massive government interventions created by the Obama administration that the US private sector has to deal with.  (via King Banaian)

Update: Just to restate: the charts show the actual number of civilians employed, not percentages of the population. I understand the confusion; the first chart looks very similar to one I produced earlier this week looking at the percentage of civilian population participating in the workforce, whose similarity comes from obvious reasons, but is based on different data from the BLS.

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I very much appreciate Ed’s comparative analyis of Canada’s economic performance without a Government spending “stimulus,” but how many times and how many ways does it need to be proven that Keynesian deficit spending does not work and does not stimulate for people to understand accept that Keynesian deficit spending does not work and does not stimulate?

Phil Byler on July 11, 2010 at 6:31 AM

So if you’d point out a past scenario when austerity measures effectively reduced the length or severity of a recession- or resulted in lower deficits- your argument would be more credible.

You obviously are not paying attention to what is being said. No government has ever used spending to come out of recession that did not reduce its solvency. It is basic common sense that you can’t create wealth by spending. You can only borrow and put off the final accounting to some other generation. That accounting is now coming due. Feeding the croc so he eats you last is not a valid economic strategy. It is a political strategy. America is less solvent today because of the stimulus, and that will make investment that much harder to attract – which in turn fundamentally worsens the prognosis. That is how a first world country can turn into a second world country – debt and an inability to pay it back.

keep the change on July 11, 2010 at 8:34 AM

Obama supporters remind me of the Kevin Bacon character in “animal House.” “All is well!”

Bevan on July 11, 2010 at 10:20 AM

Obama supporters remind me of the Kevin Bacon character in “animal House.” “All is well!”

It was Cheney who pushed the policy of “deficits don’t matter” and forced Paul O’Neill in Treasury to quit when he raised the specter of huge deficits resulting from Bush’s latest round of tax cuts. No single party is to blame.

It is basic common sense that you can’t create wealth by spending. You can only borrow and put off the final accounting to some other generation. That accounting is now coming due

First, I completely agree with the spirit of what you’re saying. It’s completely unacceptable to push problems out to future generations. Most people aren’t willing to make real sacrifices, such as paying higher taxes or accepting fewer government services, for the future of the country.

But what I’m trying to tell you is that common sense can be misleading when applied to economic policy. In the past, countries often reduced spending during severe recessions because it was considered a ‘responsible’ course of action. Over time, economists realized that reduced government spending resulted in higher unemployment, longer recessions, and even higher deficits. A common misperception is that government spending is the main cause of the deficit. But during a recession, the primary driver of deficits is reduced tax inflows that result from reduced economic activity.

More recently, Japan witnessed this play out. When the government cut spending to reduce the deficit, the deficit actually INCREASED that year. Yes, I know this doesn’t seem obvious and that’s why it’s so important to look at the hard data. (Japan’s recession occurred under circumstances very similar to what the US is now confronting.)

Let me be clear- I strongly opposed deficit spending under normal circumstances. I repeatedly pointed out the foolishness of Bush’s large deficits during a period of strong economic growth (here and on Captain’s blog). But we aren’t living in ordinary times. Deficit spending is bitter medicine that will keep the economy alive until businesses and individuals are ready to spend again. When the economy has recovered, then we can balance the budget and even pay off part of the debt. To cut deficit spending during this severe recession will only make things much worse- both for us and for future generations.

bayam on July 11, 2010 at 9:24 PM

I never thought I’d see the day a bunch of American conservatives started praising Canada.

I hate to burst your folks’ bubble, but our Conservative party prime minister is to the left of Obama. He is a Conservative from a Canadian perspective, but in Canada you guys would be voting for the Heritage Party or some other party that in Canada is considered fringe far right.

We have COMPLETELY socialized medicine, we have state run health insurance, the only private health insurance in Canada is for “extended” health insurance for things like eye care and dental. The reason our banks are an impregnable bastion against the financial crisis is that they’re regulated to within an inch of their lives, as is the lending industry. Also, Canada passed a stimulus as well, we just called it the “Economic Action Plan”.

James Dahl on July 12, 2010 at 2:54 PM

More recently, Japan witnessed this play out.

bayam on July 11, 2010 at 9:24 PM

Are you sure you’ve got the correct assessment of Japan’s economic policy woes?

Japan went into the heavy debt-laden deficit spending in 1990; and their 1990-2000 years are called their economic “lost decade”. Spending 110-140% of their government tax receipts every year as Obama proposes to do for the foreseeable future… how did that “stimulus spending” work for them?

When the rest of the world was seeing huge economic increases, Japan had stagnant growth and no economic expansion; and we should look to that as an example of what to do?

An article from 2006 that makes me chuckle:

How insane is the Japanese fiscal profligacy? Let me count the ways:
1. … To equal the Japanese deficit spending, the U.S. would have to be running a deficit of $1 trillion– about triple the current deficit of $300 billion.

I love how the writer has the attitude that this could never happen here; and it’s just those crazy Japanese continuing a lost decade caused by massive deficit spending.

Anyone proposing a deficit of a trillion dollars for the foreseeable future now? I guess we’re now looking forward to a decade-plus of no economic growth or expansion. Are we so happy with where we’re at that we’re willing to stay here for a decade?

Deficit spending is bitter medicine that will keep the economy alive until businesses and individuals are ready to spend again. When the economy has recovered, then we can balance the budget and even pay off part of the debt.

Ok, so Japan has had 20 years now, they’re balancing their budget I take it?

June 2010:

Japan has about 190% debt-to-GDP … according to the IMF (Goldman Sachs estimates the figure at 216% of GDP).

Even with the benefit of cheap financing the Japanese budget deficit is expected to be 10% of GDP this year.

So after 20 years Japan still isn’t ending or reversing deficit spending, they’re not paying down debt, they’re not fixing the problem. When does the economy get declared “good enough to start paying down debt”? I’m guessing the 14th of never, but I might be off by a week or two.

Pardon me if I don’t want this ride; but Japan is 20 years ahead of us and their economy doesn’t exactly look “glowing” to me. No growth for 20 years is a goal now?

In this 1960-2005 chart comparing the US and Japan GDP numbers; do you think in 1995 Japan started heading the ‘right way’?

gekkobear on July 12, 2010 at 3:16 PM

Oh yeah, as for the Canada employment increase; how much of that was public employees and not private ones?

Or the year over year numbers:

Actually, I fully expected this to be a fake recovery (like the one Obama’s numbers had late last year; only public increased, and Private tanked)… I’ll have to admit to being wrong.

Changes June 2009 to June 2010:
Public +86,000
Private +291,500

Their recovery is actually numerically consistent.
Overall workforce:
Public: 3,498,800
Private: 10,996,400

3.5/14.4 or 24% of the workforce is public? That seems like a large ratio of government employees but I can’t find a comparable number for US now…

Wait, got it… sort of.

Total: 150931700
Education, Public & Private: 13471100 (so some undisclosed fraction of this)
Government: 11038900

gekkobear on July 12, 2010 at 3:56 PM

Anyone know what Canada’s unemployment benefit system is like? It is just nuts here, people have no motivation to go back to work if they aren’t going to make more money (or enough more to justify) than they are on unemployment.

clement on July 12, 2010 at 9:50 PM

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