I have been hearing Mr. Mitt Romney, nominee of the Republican party to the U.S. presidential elections in November, refer to the "fact" that a 3 percentage point drop in the unemployment rate, from current 8 percent to 5 percent, would create nine million new jobs. Whether this is a fib or lack of knowledge of basic labor market statistics, such statements are equally disturbing when coming from someone who's aim it is to lead the world's foremost economy.
The population of the United States is at the moment of writing around 312 million, and Mr. Romney's statement would be approximately correct if unemployment statistics were based on this total. However they are not, as that figure includes some 75 million persons under the age of 18 and around 41 million who are 65 years or older.
The unemployment rate is defined as the percentage of the labor force out of work at any one time.
The United States labor force currently numbers a bit above 153 million, which in turn represents 78 percent of the population's 18-to-64 age group segment.
So, if Mr. Romney's - so far unknown - economic policies were to bring the unemployment rate down to the 5 percent level, we are not talking about 9 million jobs, but rather about half that figure. Not an unsubstantial difference.
Mr. Romney is also pledging to create 12 million new jobs during the first four years of his presidency, were he to be elected. This is another statement that takes some credulity.
U.S. labor statistics indicate the total number of unemployed in 2011 to be about 13.7 million. A 5 percent unemployment rate is generally equated with full employment, and historically the rate seldom dips under this threshold. The math to refute Mr. Romney's 12 million new jobs claim is therefore not overly complex. He is again overstating the situation by a factor of two.
In this context it is also important to note that, during the remaining part of the decade, the 18-to-64 age segment - the main source of new labor - will only grow by less than a compounded 0.3% per year, primarily due to retirement of the baby-boom generation born during the years immediately following WWII.
On the opposite side of the political spectrum the incumbent presidential candidate, Mr. Obama, pleads with the electorate for the opportunity of another four years term to finish what he has begun, while admitting that there is still much to be done with respect to the level of employment.
When it comes to the jobs market, current trends actually do not bode badly for an Obama second term.
The dramatic increase in unemployment witnessed in the United States during the period 2008-10 was primarily rooted in the collapsing housing market, subsequently cascading over into plummeting state and local government employment levels forced on by shrinking tax revenues.
The housing market crash was a combined consequence of over-building and a simultaneous price bubble, aided and abetted by irresponsible and outright fraudulent financial market lending practices, leaving behind a household rate of debt never before experienced in the United States.
The long term rule of thumb for annual U.S. housing starts has been about 4.5 new units per 1,000 inhabitants. During the period between 2000 and 2006 this ratio climbed steadily to a peak of about 6.0, creating a situation of substantial over-supply. Subsequently, between 2006 and 2009 housing starts fell off a cliff, bottoming out at 1.2 units per 1,000 inhabitants.
When one realizes that housing starts - including attendant household goods industries - in normal times represent roughly 3 percent of U.S. Gross National Product, it is not hard to imagine what sort of impact sharp fluctuations in this market segment do to levels of national employment, in either direction.
The good news is that the 2000-06 housing over-supply has by now been corrected by the 2006-09 implosion of activity. The housing market is coming back to life, although still hampered by so-called "under water" mortgages, where the value of loans exceed the market value of the property.
With the supply over-hang out of the way, now would be a good time for the government to double down on unraveling the financial impediments still blocking the way to full recovery.
Further good news is that the U.S. auto sales, falling to 10 million units in 2009, is currently at some 15 million units and on its way back to the annual average16 million units prevailing in the early 2000s. This is further strengthened by a revitalized U.S. auto industry and a small but steady trickle of returning manufacturing jobs from overseas.
Darkness is greatest during the hours before dawn, and the United States deserves to be lead back into the sunlight by a leader who gets the facts straight.
