source: tradingeconomics.com
To throw a bit of cold water on the glowing descriptions of the U. S. employment situation, there are some things that need to be kept in mind.
- As the graph above shows, the U. S. labor participation rate is lower than it’s been since the 1970s. That can’t be attributed entirely to retirements or kids in college.
- The long-term unemployment rate remains too high.
- Wage growth has been flat or slow (ibid.)
- The jobs that have replaced the jobs lost during the Great Recession don’t pay as much as the old jobs and frequently don’t carry benefits.
There’s a lot of heavy-lifting left to do. Not that I see any. We shouldn’t be hanging out that “Mission Accomplished” banner just yet.
One more sobering thought. It is all but certain we will have an economic downturn before the end of the present presidential term or some time in the next regardless of who is elected. We’ve already experienced the third longest expansion in the post-war period and, if it were to continue through the entirety of the next presidential term, it would be the longest. We will have almost no tools left for fighting the next economic downturn. Feel lucky, punk?
Average labor force participation over the last 50 years, per your source, is about 63%, pretty much where it is now. What should it be? It started dropping after hitting a record high in 2000. Should that be considered the anomaly?
Steve
Which is another way of saying what I said in the post: it’s about the same now as it was in the 1970s while having been much higher in the years intervening. Do I need to show you that real wages per earner were much higher 50 years ago?
There has been substantial social change since 50 years ago. Women entering the work force, greatly increased percentage of immigrants, and so on. Your implicit claim that the present rate of labor force participation is some sort of equilibrium sounds a little hard to support.
Why not consider another alternative? We’re not creating enough jobs with high enough pay. That seems to me a much simpler Occam’s Razor-satisfying conclusion.
“Your implicit claim that the present rate of labor force participation is some sort of equilibrium sounds a little hard to support.”
No. I am asking a serious question. I really don’t know. My sense is that it should be a bit higher, but I haven’t seen anyone offer an optimal LFPR and a rationale for their choice. I agree that we aren’t creating enough good jobs with good pay. The money goes to the top.
Steve
The question is unanswerable in isolation. What interest rate should be paid to borrow money? What should the rate of inflation be? How much should we pay for defense or healthcare? None of these questions have a priori answers.
Let me try to answer you. First, there should not be deflation. Deflation is bad. Second, real household income should grow slightly faster than the rate of inflation. When the real median hourly wage is flat or declining (as has been the case for some time), if real household incomes are to grow the labor force participation rate must rise. It should rise fast enough that real household income grows slightly faster than the rate of inflation.
That’s not the case now and touting a low unemployment rate because the economy is producing minimum wage jobs is perverse.
“if real household incomes are to grow the labor force participation rate must rise. ”
So you don’t think it is possible for people to attain better pay for the jobs they are doing? That we can’t create jobs that pay well? The only way to increase household income is to have more of those in the household work. That is pretty pessimistic.
Steve
Rather than quoting half a sentence, quote the whole thing:
For the real median hourly wage to grow productivity must grow. That won’t happen as long as minimum wage jobs are the ones being created. And even if productivity increases wages won’t increase in a slack labor market. That’s been the history of the last several decades when even when productivity increased little of the surplus went to labor.
My immediate question on seeing that Labor Force Participation Rate graph also had to do with the change in participation by gender, over the past six decades. Google pointed to two graphs published by the Federal Reserve Bank of Atlanta and St. Louis. It’s pretty striking: 1950-2015, male participation fell from 90% to 69%, while the female rate rose from 34% to 57%. Obviously, the dominant long term trend is household income being maintained by more members entering the wage economy. (Women entering as men drop out.) Elizabeth Warren wrote a good book on this, some time ago.
All well and good to discuss creating (large numbers of) middle class jobs, but the three big trends have been automation, outsourcing, and the wage-depressing effects of mass immigration. Soon to be joined by robotics and artificial intelligence, e.g. long-haul truckers are now in the sights.
Wish I was offering solutions instead of channeling Cassandra.
Note that nearly all of the decline in LFPR has been since 2008. That doesn’t suggest a long-term trend. It suggests poor job growth. Or, moving the words around, growth in poor jobs.
which is why the latter two issues are frequent topics here. I honestly don’t see how creating a slack labor market helps most of the people who are already here.
I honestly don’t see how creating a slack labor market helps most of the people who are already here.
Black market, that’s how. check gigs on Craigslist and you can find an unliscenced and uninsured Mexican to fix your car, paint or roof your house, mow your lawn, fell and remove trees, install carpet, you name it, and cheap too. All the wealthy use them, only through a subcontractor to avoid legal hassles. How do you suppose Al Gore maintains eleven mansions ready to occupy and entertain guests at any time? Hard work?