10/05/2012 12:52 pm ET Updated Dec 05, 2012

Why Unemployment Should Be 6.8 Percent, Not 7.8 Percent


The latest jobs numbers could have been much worse -- but they also could have been a lot better.

September's stunning drop in the unemployment rate, from 8.1 percent to 7.8 percent, could boost President Obama's reelection chances, and it is clearly a step in the right direction. But that could be a small comfort to the hundreds of thousands, if not millions, of workers who might still be employed right now if the government had made different choices.

For example, had Congress passed the American Jobs Act last year instead of letting it die, there might have been an extra 1.3 million to 1.9 million new jobs created this year, according to estimates by Macroeconomic Advisers and Moody's Analytics, respectively.

If you simply divide those estimates up by quarters -- an unscientific approach, admittedly -- you could guesstimate that the AJA would have produced an extra 975,000 to 1.4 million jobs through the first three quarters of the year (i.e., through September). Let's call it a million, just for funsies. Assuming no change in the labor force, and just subtracting that million people from the 12 million unemployed in September, you get the unemployment rate down to 7.2 percent from 7.8 percent.

On top of that, you could add the 575,000 government jobs that have been cut since Obama took office in January 2009. Had the federal government not shed workers and cut off aid to the states, it's theoretically possible -- arguably, would have been preferable -- that the government could have added jobs, or at least not cut any. That extra 575,000 workers -- again, assuming no change in the labor force -- gets unemployment down to 6.8 percent. We haven't seen 6.8 percent unemployment since November 2008.

Obviously, these numbers are complete speculation. We'll never know for sure what would have happened had different decisions been made, but we can bet the jobs numbers would look a good bit better.

Congress certainly bears a large share of the blame, particularly for standing in the way of the AJA. But Obama deserves some blame, too, for falling sway to the perverse deficit obsession that has gripped Washington, despite the worst recession since the Great Depression and an anemic recovery. He's allowing government to shrink when it should have expanded to offset weak private demand.

The risk of a half-decent jobs report like September's is that it might cause policymakers to lose sight of how far the job market still has to go. The bulk of the jobs picked up in the September report were part-time jobs. Many of the jobs created in the recovery have been lower-wage jobs. The unemployment rate among those ages 18 to 29 is 11.8 percent. African-Americans are suffering a 13.4 percent unemployment rate. More than 1.7 million Americans have been unemployed for 99 weeks or more.

Meanwhile, the fiscal cliff of tax increases and spending cuts is looming at the end of the year, and Europe could blow up at any moment. It's not time to celebrate.