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Conor Sen

Trump's Stimulus Would Strain Tight Labor Market

If government creates new demand, are there enough workers to capitalize on it?
Back to work? Well, lots are already working....
Photographer: Travis Dove/Bloomberg

The fiscal stimulus plan President-Elect Donald Trump and congressional Republicans hope to pass in 2017 is intended to increase real economic growth. But fiscal stimulus doesn't exactly create growth. It creates demand. Whether demand leads to real growth depends on factors out of the government's control: productivity and the labor force.

While real growth in the gross domestic product during this economic cycle has been lower than it was in past cycles, the drop in unemployment has surprised people for being as rapid as it has. Even with real GDP growth that has averaged only around 2.1 percent during this recovery since 2010,  the unemployment rate has fallen sharply, from a peak of 10 percent in October of 2009 to 4.6 percent last month. Even in the slowest year of economic growth of this cycle, 2012, with 1.3 percent real GDP growth, the unemployment rate fell 0.6 percent.