DMR: Challenge for Trump: Job growth is slowing

The pace of job creation slowed dramatically in Obama’s last year, and it slowed even more during Trump’s first year. (I point this out to show that job creation generally has very little to do with a President’s policies even though all Presidents will take credit for gains and blame someone else for losses.)

These days, we are constantly bombarded with one politician or another claiming that his or her new policies, regulations, or tax plans will “create new jobs.” Why should we renegotiate trade deals? “Create new jobs.” Why should we cut taxes? “Create new jobs.” And on and on.

Cutting tax rates and reducing regulatory burdens are important (though spending should be cut as well in order to keep these things from piling up more debt for us), but these will not solve the labor force problem. What can we do then? One avenue is to enact policies that increase the labor force participation rate. This is frequently cited as one justification for the need to reform our welfare system. Indeed, our welfare system does need to be reformed: it is too expensive and does not do enough to encourage its recipients to reenter the workforce. That said, increasing the labor force participation rate is a short-term solution–a Band-Aid. Why? Because that means increasing the number of workers out of the population that currently exists.

Therein lies the real problem: regardless of our labor force participation rate, the absolute size of our potential labor force is now shrinking. In order for the labor market to continue growing organically, each American woman must have MORE than 2.1 children. That hasn’t been the case in this country in a long time, and as of today, each American woman has an average of only 1.5 children. That means that our organic labor force is shrinking–more and more older people and fewer and fewer younger people.

If we want to lower our debt, increase our standard of living, increase the rate of economic growth, and increase government revenue without increasing tax rates, then we must ensure that our labor force continues to grow. (This is especially true when one considers how much larger China and India’s labor forces are than our own, something that could give them a considerable advantage over us over the long term.) Thus, there really are only two types of policies that we should be pursuing to this end: those that encourage families to have more babies and those that encourage more immigration.*

*Caveat: “More immigration” doesn’t mean no-holds-barred, beat-down-the-borders immigration. It means tailoring immigration quotas annually to the needs of our economy and issuing visas based on these needs.