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Wisconsin's Remarkable Job Growth Should Be Celebrated

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Wisconsin's Remarkable Job Growth Should Be Celebrated

Milwaukee Journal-Sentinel June 16, 2017
EconomicsEmployment

Overzealous political promises notwithstanding, Wisconsin’s job growth over the past six years has been extraordinarily strong.

Over the past few years, the Milwaukee Journal Sentinel and others have repeatedly sought to explain the supposedly slow pace of job creation under Gov. Scott Walker. Indeed, the governor invited this analysis after famously promising to create 250,000 new private sector jobs in first term as governor — a mathematically impossible target for a state that counted fewer than 250,000 unemployed job-seekers when he took office.

Overzealous political promises notwithstanding, Wisconsin’s job growth over the past six years has been extraordinarily strong. In fact, job growth has slowed recently only because Wisconsin essentially has run out people who are unemployed due to broad economic factors.

In other words, one cannot reduce a jobs deficit that no longer exists.

As background, economists consider an unemployment rate of around 4% to be “full employment.” Even when jobs are plentiful, roughly 4% of the workforce is temporarily transitioning between jobs at any given moment. Economists typically set aside this base level of unemployment, and look for additional joblessness that would reflect economic weakness or labor market deficiencies.

And yet Wisconsin’s current unemployment rate — 3.2% — is even better than full employment. It is America’s 11th lowest unemployment rate, and Wisconsin’s second-lowest unemployment rate since the 1970s.

The recent slowdown in job growth is no mystery. It is the predictable result of a state successfully eliminating the jobs gap created by the Great Recession.

After all, the number of new jobs that can be created is limited by the number of unemployed people seeking jobs. Wisconsin’s total labor force has grown by just 2% over the past decade due to retiring baby boomers and modest population out-migration. This leaves virtually all net job creation to come from reducing the ranks of the unemployed.

Wisconsin’s “excess unemployment” (the number of jobless above the 4% baseline that is temporary between jobs) averaged 30,000 under Gov. Jim Doyle before soaring past 160,000 during the 2007-2009 recession. By January 2011, when Walker took office, he inherited an excess unemployment figure of 126,000, and then proceeded to reduce that level to 26,000 during his first term. This essentially reversed the recession’s job losses.

Of course, at that point, job growth must slow down because the vast majority of Wisconsinites disrupted by the recession already had found new jobs, and population growth was largely stagnant. Yet excess unemployment continued plummeting to 10,000 at the end of 2015 and just 2,000 through 2016.

Then, this past January, excess unemployment fell below zero on its way to a remarkable minus-25,000 (yes, that is a negative), reflecting a 3.2% unemployment rate that somehow has fallen significantly below the 4% baseline level.

Thus, by economist standards, Wisconsin has run out of people who are jobless due to broad economic or labor market failures. Struggling job seekers always will be with us (and deserve our best job-matching efforts), yet jobs are as plentiful as they have ever been.

Critics point out that other states experienced stronger job creation in 2016. This is in large part because slower economic recoveries left those states with larger populations of unemployed job-seekers. Michigan could create more jobs than Wisconsin in 2016 because it entered the year with 49,000 excess unemployed, compared to Wisconsin’s 10,000. In fact, Wisconsin’s continued 2016 job growth was remarkable given that Midwestern states such as Illinois (138,000 excess unemployed entering 2016) and Ohio (50,000) still lost jobs last year despite outsized populations of desperate job-seekers.

Within the Midwest, only Iowa (3.1% unemployment) has matched Wisconsin’s success, and even that state finally ran out of excess unemployment and lost jobs in 2016.

But Wisconsin continues to create jobs, lower its unemployment rate and defy economic expectations.

Not all is rosy. Wisconsin faces persistent economic challenges such as slow wage growth, a declining manufacturing sector and problems modernizing itself for the 21st century economy.

So rather than criticizing the job creation record of a state with a scalding 3.2% unemployment rate, policy-makers should be setting their minds to the next challenge of building productive, high-paying careers for Wisconsinites of all backgrounds and skills.

This piece originally appeared in the Milwaukee Journal Sentinel

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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here

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