What it will take for President Obama and big business to bring back American jobs

The immediate crisis confronting the U.S. economy is the jobs deficit, not the budget deficit.

Nearly 14 million Americans are unemployed, another 8.4 million are working part time because they cannot find full-time jobs, and yet another 2.8 million want a job and are available to work but have given up an active search. At 64 percent, the labor force participation rate is lower than it has been in nearly three decades.

The magnitude of this jobs crisis we’re in is best measured by the jobs gap—the number of jobs the U.S. economy needs to add in order to return to its pre 2008-2009 employment level and absorb new entrants to the work force since then. The jobs gap at the end of August was more than 12 million jobs.  Even at double the rate of employment growth realized during the last year, it would take more than 12 years for the U.S. economy to close this gap. The U.S. labor market, long admired for its flexibility and strength, is badly broken.

Most American jobs are in the private sector, and private sector jobs  have in fact been growing for 17 consecutive months; indeed, the private sector added about 1.8 million nonfarm payroll jobs during the last year. This pace of job creation is faster than during the previous recovery in the early 2000s and in line with the recovery of the early 1990s.

But there’s one major problem: Private-sector job losses were more than twice as large in the recent recession as in the previous two, and job growth has fallen far short of what is necessary to offset these losses. In addition, public-sector employment has been declining in this recovery—this in contrast to other postwar recovery periods, in which such employment has  increased. We’ve lost 550,000 public-sector positions in the last year alone, making the jobs crisis even more severe.

Since the private sector creates (and eliminates) most jobs in the United States, and since budget constraints will likely mean more painful cuts in public-sector employment for the foreseeable future, Americans are understandably looking to business for solutions to the jobs crisis.  To uncover the business solutions that could work, however, we first must  acknowledge the fundamental cause of the problem: the dramatic collapse in aggregate demand that began with the 2008 financial crisis and that triggered huge job losses.

Even with unprecedented amounts of monetary and fiscal stimulus, the recovery has been weak because consumers have curbed their spending, increased their saving and started to reduce their personal debt. And they still have a long way to go. Business surveys confirm that for both large and small companies, the primary constraint on job growth is weak demand, not regulation or taxation. In the apt words of a small business owner, “If you don’t have the demand, you don’t hire the people.”  

So what can the business community do to boost demand and job creation?

It can convince Congress to establish a National Infrastructure Bank and pass a multi-year surface transportation bill to boost infrastructure investment. And while it’s at it, business can work with the Obama administration to reduce multi-year delays in the approval of infrastructure projects that would otherwise create tens of thousands of good-paying jobs in the next few years.