Glenn Hubbard muses over why, despite the nonminal recovery, total employment is lagging so badly. He proposes a number of explanations, I think they’re all inadequate, and I’ll answer them in turn.
The Baby Boomers are retiring
Actually, the Baby Boomers are continuing to work in record numbers. They can’t afford to do otherwise:
“The fact of the matter is that this aging-but-not-yet-aged segment of the baby boomer class can’t afford to retire,” said David A. Rosenberg, the chief economist of Gluskin Sheff, a Canadian firm, noting that overall household net worth was 15 percent lower than at the prerecession peak. “Dreams of the 5,000-square-foot McMansion being a viable retirement asset have morphed into nightmares of a deflationary ball and chain.”
The accompanying charts show the percentage of various age groups with jobs since the end of 2006, when the overall percentage of people with jobs hit its cyclical peak. Each of the charts has a different range, but the same spread between the top and the bottom, so that a move of a given size represents the same gain or loss in percentage points.
For the first time since the government began keeping track of the numbers in 1981 — and probably the first time ever — one in nine American men over the age of 75 was working in April. About one in 20 women over that age have jobs.
Dr. Hubbard doesn’t believe that explanation, either:
A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of baby boomers.
Baby boomers can’t be the whole story, though, since the participation rate has declined for younger workers too.
There are too many malingerers
That the number of people who are on Social Security Disability has grown enormously over the last half dozen years is indisputable. Dr. Hubbard presents no evidence that those who’ve enrolled are fraudulent. He merely assumes it.
Quite to the contrary I think a better explanation is that SSDI is the unemployment insurance of last resort. The long-term unemployed who no longer qualify for unemployment insurance payments and who qualify for it go on disability as a desperate means of bringing some money into the household. Rather than proving that there are a lot of malingerers out there, I think it proves that a lot of people who are tired and sick just keep working anyway.
Inadequate schooling and training
There is practically no evidence of this. Dr. Hubbard merely takes the assurances of the multi-billionaires who want to hammer down the wages of their skilled workers by importing workers from overseas who’ll work for less and over whom they have a hold into the country.
If this were actually the case, you’d expect to see rising wages in the technology sector. That hasn’t been the case for years.
It’s also unclear to me how much effect this will have when in our cities 50% of kids don’t graduate from high school. The one thing we can be confident it will do is boost the incomes of people in the educational sector. Since Dr. Hubbard is the Dean of the Columbia School of Business that may appear to him to be an unqualified good. Increasing incomes in the educational sector are only good for the country as a whole if the sector is actually producing more education and the evidence for that isn’t particularly good. There’s actually more evidence that education has reach the point of bureaucratic displacement and less education is being produced for every dollar spent.
In this Dr. Hubbard and I are in agreement. The stimulus was poorly timed and structured. But let’s not limit the list of bad policies to bad economic policies. We have bad security policies, bad healthcare policies, bad trade policies, bad immigration policies, and bad financial policies.
Workers are discouraged
They should be. There are too many long-term unemployed and not enough jobs for them.
Here are Dr. Hubbard’s prescriptions:
- Increase the Earned Income Tax Credit
- Tax reform
- Make it harder to receive disability payments
- Stop extending the duration of unemployment insurance
- Block grants to states to support training and educational development
- Eliminate the “retirement earnings test”
I agree with #1, #2, and #5 and disagree with #3 and #4, both of which assume that Americans are lazy layabouts. I don’t think that #5 will do much to boost employment but it might make life a little easier for seniors in the second and third income quintiles.
To Dr. Hubbard’s list I would add:
- Impose a duty on imports from countries who don’t have environmental and labor laws as strict as ours in the estimated amount of their cost to American businesses
- Encourage energy production in the United States
- Impose the commonsense reforms to immigration that I’ve mentioned around here any number of times.
- Healthcare reform
Our trade deficit is around a half billion dollars a year. As I’ve mentioned before that’s a drastic underestimate since it doesn’t take into account intracompany transfers, many of which are in fact imports. Producing more here would mean more jobs here.
Manufacturing demands energy and, frankly, renewables don’t produce enough energy to meet the needs of manufacturing. Rather than discouraging energy production here we need to encourage energy production. If you’re worried about carbon production, limit its production by raising the tax on gasoline to European levels. Limit road production. After transportation and energy, cement production is the largest producer of greenhouse gases.
We need healthcare reform that will lower the cost of employment.
We need measures that will actually incentivize job creation here. Americans aren’t lazy layabouts and policies that assume they are are misguided.