1. News & Issues
Kimberly Amadeo

You Can't Push a String — Why Only 80,000 Jobs Were Created

By July 6, 2012

Follow me on:

The Dow dropped 180 points after the June Employment Report was released this morning by the Bureau of Labor Statistics. Economists had forecast a 100,000 job gain, so investors were disappointed when employment only grew by 80,000.  Businesses aren't hiring because they don't see the demand. Consumers aren't purchasing because they don't have as much income.

Supply-side economics, like tax cuts, won't help because it's like pushing a string -- lowering business costs won't create jobs because the demand isn't there. However, fiscal policy can stimulate demand by shifting spending to more jobs-intensive areas, such as construction and education.  Because the debt is so high, this would mean cutting spending in areas that don't create as many jobs for the buck, such as the $851 billion now budgeted  for defense. For more, see Unemployment Solutions.

Year-over-year, the economy added 2.044 million jobs, a 1.56% increase. This anemic jobs recovery is similar to that from the 2001 recession, in which unemployment actually continued to rise until June 2003. When the recovery was about where we are now, only 2.065 million jobs were added year-over-year, a 1.65% increase as of June 2005.

To boost demand, the Federal government returned to deficit spending, doubling the U.S. debt. to $10 trillion by September 2008. Interest rates were dropped and derivatives were deregulated, allowing banks to push low-cost exotic mortgages and other loans. Consumers used their home equity like ATM machines, and the housing and financial services industries boomed. Many jobs were created, but unless you were in those growth industries, the jobs were primarily in the service sector, and these jobs are not particularly well-paying. As a result, income inequality grew.

Now we can't rely on these same stimulants to boost demand. Even though tax and interest rates are at historical lows, demand hasn't returned. Monetary policy has pretty much done all it can to boost the money supply. Fiscal policy can be used to boost demand by creating jobs in the right areas, but some hard choices will have to be made. The priority must return to those policies that will create the most jobs for the investment -- unemployment benefits, public works construction, and education -- and away from those that don't -- tax cuts and defense.

What This Means for You

If you are looking for a job, here's where the growth was in June:

  • Leisure and hospitality -- 13,000 jobs.
  • Health care -- 11,400 jobs.
  • Manufacturing -- 11,000, thanks to a 6,700 job boost in the auto industry.
  • Temporary help -- 25,200 jobs.

The unemployment rate has stayed at 8.2% since March. There are 12.7 million people who are without a job and actively looking for work. This includes 5.4 million long-term unemployed (basically 6 months or more), who comprise nearly 42% of the unemployed. It does not include the 8.2 million who are working part-time, but would prefer a full-time jobs, or the 2.5 million marginally attached who did not look for work in June. These are all people who would be spending more if they had good, full-time jobs. (Source: BLS, Employment Situation Summary )

Share your opinion in What Causes Unemployment?

Related Jobs Articles



No comments yet. Leave a Comment

Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.