Unemployment Since 2022: Bidenomics vs AI
Unemployment rates fell to abnormally low levels in 2022, and began to rise in 2023. Why? There are three aspects of labor markets to consider. First, there was an historic reduction in the US working age population, starting in 2019. Baby boomer ageing, fentanyl overdoses, Covid 19 fatalities, reduced immigration, and an increased suicide rate (especially among Iraq and Afghanistan War veterans) caused this shrinkage in the working page population. Reductions in the working age population during 2019, 2020, and 2021, help explain low unemployment during these three years. The working age population grew in 2022- so something else must have reduced unemployment in 2022.
The Federal minimum wage hasn't changed in decades, and inflation has eroded its value. Devaluation of the minimum wage has kept teenage unemployment rates low. Some states (e.g. California) have increased their minimum wage rates, but it isn’t clear that state minimum wage increases can explain either the 2022 minimum in the national unemployment rate, or the slow rise in unemployment in the past two years. States like Texas continue to let inflation devalue their statewide minimum wage rates.
There was a dramatic surge in gross private domestic investment (GPDI) during 2021 (graph #1 below). Biden signed his America Rescue Plan (ARP) on March 11th 2021. ARP provided financial assistance to American homes immediately. Biden’s industrial policies took longer to deliver real results. Biden pushed Auto companies to increase production of EV’s, and there was a small surge on auto-industry employment in 2022. Increases in Auto-industry employment were too small to affect unemployment rates.
Employment growth in construction did hold steady as US unemployment rates rose. Employment growth in the financial and manufacturing sectors coincided with rising unemployment (see the green and red lines in graph #4). However, the most dramatic shifts were in the IT industry. Private AI investment surged in 2021 (see graph #4). More investment in AI affected employment in the AI supplying IT industry directly. AI demanding industries have used this technology to make better business decisions. To the extent that AI has worked, it has helped businesses to grow and demand more labor. AI may have limited job losses in AI using industries, after AI implementation. Whereas, AI spurred IT employment, during AI implementation. The IT industry did have relatively strong employment growth in late 2021 and in 2022. IT employment stalled in April 2023, after which time unemployment rates began to rise.
Unemployment fell to unusually low levels during a relative boom in IT employment, from June 2021 to December 2022. Unemployment bottomed out as IT employment growth slowed to match job growth rates in other industries- finance, manufacturing, construction- in the first quarter of 2023. Unemployment rates increased gradually while IT employment decreased from May 2023 to the present.
President Biden allowed large numbers of foreigners to enter the United States at a time when the domestic working age population wasn't growing. Immigration didn't raise unemployment because there were so many unfilled jobs a couple of years ago. President Biden didn't increase the Federal minimum wage, though he would have if he had had more political support for such a measure .
Investment in AI and EV technology were shocks to the US and World economies (which we might refer to as “Electric Shock”). The surge of 2021 AI investment set a economic boom in to motion- not unlike the Dot.Com tech boom of the 1990’s. The surge in green-renewable investments by Biden- especially in his Inflation Reduction Act- likely had little impact on recent fluctuations in unemployment rates. Federal deficit spending usually just crowds out private spending; it has no substantial effect. The impact of Biden’s policies on unemployment, if any, appears to be trivial.
The idea that a revolutionary new technology would trigger an economic boom is hardly controversial. What this all means is that Biden deserves little or no credit for the 2022 decline in US unemployment. Electric Shock appears to have ended by 2023, at which time unemployment began to rise to more normal levels. What this means is that Biden deserves little or no blame for the 2023-2024 rise in unemployment.