Can government really create jobs?
That’s a question candidates in the throes of a political campaign, whose rhetoric promises endless prosperity, will sometimes put to economists like me. My answer has always been that there is a lot our leaders can do to destroy jobs, but very little they can do to create them, at least in the short run.
But recent events have caused me to reconsider this.
Our government, or more accurately, the statistical agencies we employ to keep track of the economy, have succeeded in creating more than 62,000 jobs in the Indiana economy over the last 12 months. That’s how many jobs the Department of Workforce Development now says were created in the state economy since January 2004.
These so-called benchmark revisions to the preliminary estimates of employment can always pull the carpet out from under our feet when it comes to assessing the state of the state’s economy, particularly when the pace of growth is rapidly changing. And that’s exactly what has happened this time.
Up until a few days ago, DWD estimates depicted the Indiana economy as growing very slowly. The December employment total for the state was a scant 0.5 percent above payrolls for the same month in 2003. Growth in the Indianapolis metropolitan statistical area, the state’s largest, was particularly disappointing, with payrolls actually 0.1 percent lower over the same period.
You can toss those conclusions out the window. Revised data now say the state grew its payrolls 2.2 percent in the 12 months since the beginning of last year. That’s the best job growth we’ve seen in five years and better than the 1.7-percent growth of the U.S. economy over the same period.
And what metro area is leading the pack? You guessed it. The Indianapolis economy has swung from laggard to leader, posting a 2.7-percent growth in its job base that was better than all but three of the state’s 15 MSAs. The message in the DWD’s new data is simply this: The sluggish economy we thought was outside our windows all these months has been only a bad dream.
Of course, DWD didn’t create those jobs; the private sector did. But the fact that it took statisticians more than half a year to discover that the state economy was creating jobs much faster than it once thought tells us something about the nature of job growth, and about the limitations of preliminary economic data for the state and its major cities.
The most timely economic information is based out of necessity on surveys. And statisticians have always known that surveys of job growth do a much better job of capturing job destruction-the layoff of workers by existing companies-than they do in picking up job creation. That’s because job growth frequently comes from the startup of companies whose existence takes time to be incorporated into the survey base.
So it’s hardly surprising that the sector of the economy with the fastest new-company birth rates is the same one that produced the biggest revisions from DWD: the services economy. New estimates now put job growth in professional and business services employment for the state at 5.5 percent for the 12 months ending in January. In Indianapolis, job growth for this same industry was a blistering 8 percent. Other services industries show a similar, if slightly less pronounced, pattern.
For those who have not lived through a comprehensive revision of regional economic data, no doubt this story is a little bewildering. It’s a bit like the old “Saturday Night Live” skit in which the hard-of-hearing lady finally grasps her misunderstanding of an issue she’s been venting about and declares, “Never mind.” But it’s good news for those of us who’ve waited for signs of life in the state economy, even it if does come at the cost of making our earlier conclusions look a bit silly.
Barkey is an economist and director of economic and policy studies at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at [email protected]