An Economic Record of Presidential Performance
Chapter 3 Employment Growth and the Unemployment Rate
- Fig. 3.1 Unemployment Rate
Fig. 3.2 Employment Growth
Table 3.1 Unemployment Rates
Table 3.2 Employment Growth Rates
Introduction
Growth in the number employed and the unemployment rate are essential measures of economic performance. They also correspond fairly closely to GDP growth. If employment is growing or unemployment is falling, then it is likely that GDP is increasing. Employment indicators also measure the extent to which people share in whatever growth is occuring by virtue of their being employed. In today's "safety net" society in which the government makes transfer payments to persons who are unemployed and poor, an increase in unemployment carries a double cost: the lost production from the unemployed worker and the increased expense to the goverment, and therefore to the taxpayer, of unemployment compensation and other transfers. Thus, it is important to national economic health for unemployment to be low.
The unemployment rate is the most commonly used labor market indicator and represents the percentage of workers in the labor force (i.e., those working and seeking work) that are unemployed. The unemployment rate does not take into account that for the last 30 years an ever higher percentage of the population has been seeking employment. The participation rate, i.e., the percentage of the non-institutional population which is part of the labor force, has risen since the early 1960s from around 59 percent to over 66 percent in the 1990s. This increase poses a greater challenge to the economy to meet the demand for jobs and keep the unemployment rate low.
The growth in employment indicator is needed to compliment the unemployment rate because it captures the actual increase in the total number of jobs in the economy, a key criterion of economic performance. Growth in employment, or, the net creation of jobs, is therefore chosen as the second indicator for measuring employment performance and one that has often been the focus of political campaigns.
Overview of Trends in the Long-Run · 1946-93
The unique circumstances immediately following WWII affected both unemployment and employment growth during 1946-47 in ways that, on the surface, might be puzzling. During 1946-47, high unemployment rates might reasonably have been expected given the extraordinarily large demobilization of U.S. military personnel after 1945 and the economy's response. In 1946 alone, the shift to a peace-time economy transferred almost 9 million people out of military and into civilian life. Another 2.8 million followed in 1947. The economy responded by raising civilian employment by 2.4 million (4.6 percent) in 1946 and 2.5 million (4.6 percent) in 1947. The affect on the unemployment rate was a 2 percentage point increase from 1.9 to 3.9 percent during 1946 which held through 1947. But it would have been reasonable to assume that the unemployment rate would have risen much higher due to the release of almost 12 million people into civilian life.
In fact, almost half (about 46 percent) of those demobilized did not seek civilian employment after the war. 5.3 million of the 11.5 million demobilized personnel, a large proportion of which were female, chose not to join the civilian labor force and, perhaps, the ranks of the unemployed.
Unemployment Rate
The peak unemployment rates shown in Figure 3.1, as would be expected, track very closely with the recessionary troughs identified in the GDP Growth graph. Substantial increases in unemployment coincide with the recessions of 1949, 1954, 1958, 1970, 1975, 1980, 1982 and 1991. In addition, there is a perceptible trend upward in unemployment rates, i.e., both the peaks and the troughs are higher as time passes from the 1940s to the early 1980s. Thereafter, this trend flattened out as the unemployment trough of 1988-90 and the peak of 1991-93 were lower than the trough of 1978-79 and the peak of 1982-83. The average unemployment rate for the 1946-93 period was 5.8 percent.
Growth in Employment
The long-term trend in the civilian labor force participation rate was an increase from 55.8 percent in 1946 to 66.2 percent in 1993. This increase is largely due to the increasing participation of women in the workforce. The large influx of women into the labor force started in the 1960s. With the participation rate rising, it has become more difficult for the economy, or the president, to keep the unemployment rate low, since a higher percentage of people are seeking work. The growth rate of employment takes this phenomenon into account by simply measuring the net increase in the total number of jobs in the economy and, thus, provides a useful complement to the unemployment rate.
The general observations over the entire 48-year period depicted in Figure 3.2 are the high degree of fluctuation of employment growth during Truman and Eisenhower relative to succeeding presidents (as was observed in the case of GDP growth), the moderate and sustained growth during 1962-74, and the moderate to high growth occasionally interrupted by declines from 1974 to 1993. The average growth rate for 1946-93 was 1.8 percent.
Presidential Rankings
Unemployment Rate
The presidents' unemployment rates and trend improvements rankings are given in Table 3.1. As unemployment is undesirable the lowest values of averages and trend changes are rated highest. The fact that the economy was in a lower unemployment environment in the first half of the 1946-93 period is not factored into the rankings. Examining both the change in the unemployment rate as well as the average rate for each President is particularly informative in the cases of Reagan, Eisenhower, Nixon and Ford, whose records on unemployment averages were significantly different from their records on unemployment trends.
Table 3.1 Unemployment Rates
|
President |
Term |
Average Unemployment Rate (percent) |
President |
Change in Unemployment Rate - Trend (percentage points) |
|
Johnson |
1963-69 |
3.8 |
Reagan |
-2.3 |
|
Truman |
1945-53 |
4.0 |
Johnson |
-1.7 |
|
Eisenhower |
1953-61 |
5.4 |
Kennedy |
-1.5 |
|
Kennedy |
1961-63 |
5.5 |
Ford |
-1.4 |
|
Nixon |
1969-74 |
5.9 |
Truman |
-1.0 |
|
Bush |
1989-93 |
6.6 |
Carter |
0.6 |
|
Carter |
1974-77 |
6.7 |
Bush |
1.6 |
|
Reagan |
1981-89 |
7.2 |
Eisenhower |
3.8 |
|
Ford |
1974-77 |
7.4 |
Nixon |
4.9 |
|
Average - 1946-93 |
5.7 |
Table 3.2 Employment Growth Rates
|
Ford |
3.5 |
Ford |
4.8 |
|
Johnson |
2.3 |
Kennedy |
2.3 |
|
Carter |
2.2 |
Reagan |
1.0 |
|
Reagan |
1.9 |
Johnson |
0.3 |
|
Kennedy |
1.8 |
Bush |
-0.6 |
|
Nixon |
1.6 |
Eisenhower |
-1.6 |
|
Truman |
1.6 |
Carter |
-2.6 |
|
Eisenhower |
0.9 |
Truman |
-3.1 |
|
Bush |
0.4 |
Nixon |
-3.7 |
|
Average - 1946-93 |
1.7 |
Johnson and Truman had the lowest average unemployment rates while also reducing the rate they inherited. Eisenhower recorded the third lowest unemployment rate averaging 5.4 percent while in office, but left with the unemployment rate 3.8 percentage points above the rate he inherited. Kennedy, who averaged a 5.5 percent unemployment rate, on the other hand, recorded a reduction of 1.5 percentage points. Nixon's average unemployment rate was 5.9 percent. While a desirable rate by today's standards, there was a strong upward trend under Nixon. The unemployment rate was raised almost 5 percentage points (from 3.5 to 8.5 percent) during his tenure, mainly due to the fact that he resigned in the midst of a recession, which worsened his overall unemployment rate record.
The unemployment rate was a relatively high 6.6 percent during the Bush administration, on average, and the trend change was a 1.5 percentage point increase. Carter's unemployment was about the same and he also raised unemployment, although to a lesser degree than did Bush. Reagan had the second highest unemployment rate, but he also reduced unemployment more than any other president, 2.3 percentage points, again showing the importance of the trend change as a compliment to averages in measuring performance. This large improvement in the trend also attests to the high rate of unemployment during Carter's last year. Finally, although unemployment was the highest under Ford, he also must be credited with decreasing unemployment by 1.4 percentage points.
Employment Growth
The presidents' rankings of employment growth rates and trend changes from best to worst are shown in Table 3.2. As employment growth rates were somewhat volatile, often fluctuating between positive and negative values, the trend change indicator should be assigned limited value as an indicator of a president's economic performance.
President Ford ranked the highest both in the rate of growth, 3.6 percent, and in the improvement in the growth rate, 4.8 percentage points. Johnson had the next highest average growth rate, 2.3 percent, and a slight improvement in the growth rate. Carter was third at 2.2 percent, but decreased the growth rate by 2.6 percentage points (similar to his GDP performance). Reagan ranked fourth with a 2.0 percent employment growth while also increasing the growth rate by 0.8 percentage points. Kennedy follows with 1.8 percent and a significant improvement in the trend of 2.3 percentage points. Nixon recorded moderate employment growth, 1.6 percent, but the growth rate fell 3.7 percentage points from what he inherited, which was the largest decrease.
Although he began with fairly rapid employment growth, Truman, somewhat surprisingly, had only a 1.6 percent growth rate and a sharply declining trend (by 3.1 percentage points). Eisenhower, also somewhat surprisingly, had a low growth rate of 0.9 percent and reduced the growth rate by 1.6 percentage points. Eisenhower's average was especially hurt by the recessions of 1954 and 1958. Bush, who spent much of his tenure in a sluggish economy, had only slight growth in employment, 0.4 percent, accompanied by a mild worsening of the growth rate of 0.6 percentage points.
Summary and Selected Issues
Summary
While employment and GDP growth are closely correlated, employment did not grow as fast as GDP mainly because employment can grow only to the point where everyone in the labor force is employed. GDP growth does not have this limitation and can rise rapidly at times due to technological innovations, other productivity increases, or with the discovery of new markets. This constraint explains why the presidents' average growth rates were lower for employment than for GDP.
Similarly, this lower limit on unemployment reduction may explain why some presidents had rather modest employment growth rates. That is, because unemployment during their tenures was already so low, it was difficult to attain employment growth that was any higher than labor force growth.
Over the long-run, it was observed that unemployment rates were substantially reduced during the administrations of Reagan, Johnson, Kennedy and Ford, but that unemployment increased by a greater amount in the Eisenhower, Nixon, Carter and Bush administrations, such that there was a general increase in unemployment over the entire period. Although the Nixon and Carter administrations had some years of good employment growth, the average employment growth over their full tenures did not keep pace with the growth of the labor force and resulted in higher unemployment
Recent Performance Issues
Recent performance questions include the disparate performances of Nixon and Ford, the Carter-Reagan comparison and the characterization of the Bush economic record as the worst in 50 years. On the Nixon/Ford issue, the main reason for the top performance of Ford and the below average performance of Nixon, simply stated, is that Ford took office shortly before the economy began to recover, while Nixon had to resign during a recession, more than two years before the end of his administration. Ford, considering the one-year lagging effect of economic policies, was president only during recovery years. Because Nixon's last year was during a recession, his trend changes were very unfavorable for both the unemployment rate and employment growth. An accounting of the overall Nixon performance under the scenario that he completed his term is presented in Chapter 15.
The comparison of the performances of Reagan and Carter on employment supports the results of the comparison of their performance on the basis of GDP. To assess the relative performances of the two presidents, trend changes and averages for both unemployment and employment growth rates must be compared. Carter recorded good employment growth, although he presided over a sizeable reduction in that growth, 2.6 percentage points. Reagan's average employment growth rate was slightly less than Carter's, 2.0 vs. 2.2 percent, although his performance was aided, to some degree, by his increase in the growth rate of employment, 1.0 percentage point. With respect to the unemployment rate, Carter ended with a high rate of unemployment of 7.6 percent, and averaged 6.7 percent for his administration. Reagan's average unemployment was, however, higher at 7.3 percent, although he reduced the unemployment rate more than any other president, 2.3 percentage points. Reagan's high average unemployment was mainly due to his first two years in which unemployment averaged 9.7 and 9.6 percent. In summary, with Reagan's better performance with respect to the unemployment rate and comparable performance on employment growth, his overall employment performance was superior to that of Carter.
Continuing the examination begun in the previous chapter of the charge that Bush had the worst economic record in 50 years, Bush did, in fact have the lowest employment growth rate, 0.4 percent. On other aspects of employment, he was not the worst. While Bush's record is poor, both Carter and Nixon reduced employment growth by substantially greater amounts. Nixon and Eisenhower also increased unemployment rates more than Bush. In addition, three presidents, Carter, Reagan and Ford, averaged higher unemployment than Bush, although Reagan and Ford actually ended up substantially reducing unemployment. Thus, while it may not be too bold an assertion that Bush did have the worst performance with respect to employment, certainly Carter and Nixon are strong competitors for the distinction of the worst employment performance.
Suggestions for Further Reading
Employment and Earnings, U.S. Department of Labor, Bureau of Labor Statistics. Monthly publication offers current updates on employment estimates as well as historical data on employment.
Labor Force Statistics Derived from the Current Population Survey - 1948-87, Bureau of Labor Statistics, August 1988. Provides a comprehensive data set on employment and explanatory notes on historical comparability and estimating methods.