Today’s jobs numbers shattered expectations—313,000 new jobs in February against an expectation of 200,000. The numbers provide yet more support to the argument that supply side measures such as tax cuts and deregulation are working. Unfortunately, several questions remain as to whether this can continue.
The jobs numbers illustrated some interesting developments. Almost a third of the jobs created were in production industries such as mining, construction, and manufacturing. Moreover, there was significant growth in retail, suggesting that predictions of a “retail apocalypse” are overblown. Perhaps most interestingly, the number of “discouraged workers” fell by almost a third from a year ago, down by 149,000 to 373,000. Discouraged workers are “persons not currently looking for work because they believe no jobs are available for them.” That is a sure sign of confidence returning to the economy.
Moreover, wage growth kept at a steady pace rather than increasing. That is a sign that growth is still strong. Inflation (including in wages) happens when more money chases the same economic output. The wage growth number is an indicator that more money is instead chasing more economic output.
Unfortunately, recent studies have shown that not all areas of the country are benefitting from this strong growth. It is likely that these are areas that are disproportionately affected by environmental and financial regulation. Environmental regulation stops new development of natural resources, while financial regulation has caused Main Street and community banks to stop lending. The passage of the proposed Dodd-Frank reforms by the Senate next week would go a long way to solving at least one of these problems and would be another supply side reform that could work quickly.
Unfortunately, one supply side reform that could really help has just been stymied. The National Labor Relations Board recently had to vacate its reversal of the joint employer standard owing to a dispute over the non-recusal of one of its members. The joint employer standard threatens expansion of franchise industries, which could be a major source of new jobs in these areas. Congress needs to fix the issue through legislation in order to give franchise owners the certainty they need.
Finally, it is likely that these regional considerations were one of the reasons for the president’s announcement of new tariffs on steel and aluminum this week. Those tariffs may well increase jobs in some areas, but likely at the expense of far more in others. It would be better to stay the course with supply side reforms rather than making the mistake of protectionism, which is simply another form of socialism. If anyone in the White House needs to know why, I can recommend nothing better than Henry Hazlitt’s classic “Economics in One Lesson.”