The Department of Labor has issued its monthly employment report and the item that will attract the most attention is that the unemployment rate marginally increased to 7.3 percent.
That number is worthy of some attention, but I think it distracts attention from a far more important set of data. What we should be more worried about is the overall supply of employed workers.
I don’t want to sound like a boring economist (is there any other kind?), but our economic well being is a function of what we produce, and and what we produce is a function of the amount of labor and capital that is being productively utilized. We economists use jargon about “factors of production,” but what we’re really trying to say is that our living standards depend on good jobs and wise investment.
Which is why the most depressing bit of data from the Labor Department isn’t the unemployment rate. We should be far more worried about the employment-population ratio.
Here’s a chart based on DOL data showing the percent of the working-age population that is employed (click here to see the Labor Department’s explanation of this variable). As you can see, that key number used to be close to 63 percent. Now it’s down close to 58 percent.
To be fair, this isn’t all Obama’s fault. Not even close.
The big drop occurred at the end of the Bush years. Some of that drop was cyclical, caused by the recession. And some of it was presumably the cumulative impact of Bush’s big-government policies.
But what’s noteworthy is that the recession has been over since mid-2009 and the employment-population ratio hasn’t improved. And that’s something that we can blame in part on Obama.
It’s not just cranky libertarians who worry about this trend in the employment data.
William Galston of the Brookings Institution shares some very disturbing numbers in a Wall Street Journal column about the decline in labor force participation in the United States.
The great American jobs machine is faltering, and it is time for Washington to pay attention. Participation in the workforce is falling, the pace of job creation is anemic, and long-term unemployment remains stubbornly high. …the United States was once viewed as the home of the “employment miracle.” As recently as 1989, it was a leader in labor-force participation and employment rates among the world’s most developed economies. That is no longer the case. …When we consider prime-age workers age 35 to 54—past the period of extended education that success in the 21st century economy so often requires—the comparison looks even worse: Average participation rates in the 16 comparison countries are four to six points higher than they are in the U.S. Last year, the U.S. ranked in the bottom third for women, and dead last for men. …prospects for robust growth and shared prosperity are dim unless we can devise more effective labor-market policies.
I suspect Galston and I would only partly agree on “effective labor-market policies,” but I think a big part of the answer is smaller government and less intervention.
If we want more jobs, we need to make it more profitable for employers to create jobs. And, as this very clever cartoon parody indicates (and also as shown in this great Chuck Asay cartoon), we need to make it more attractive for people to get back in the job market.
Let’s conclude by returning to the data on the unemployment rate. I don’t think it’s particularly newsworthy that the joblessness rate crept up by a small amount. Any single month of data, after all, might be a statistical blip.
However, I can’t resist pointing out that today’s unemployment rate is still more than two percentage points higher than the White House claimed it would be if we enacted the failed stimulus.
Here’s an updated version of the chart showing the gap between what the Obama Administration promised and what’s been delivered.
Yup, good old Keynesian economics. Over-promising and under-delivering ever since the failed policies of Hoover and Roosevelt.
P.S. At least one liberal recognizes the dangers of government-subsidized dependency.
[…] was a big drop at the end of the Bush years and start of the Obama years, followed by a gradual recovery that was short-circuited by the […]
[…] was a big drop at the end of the Bush years and start of the Obama years, followed by a gradual recovery that was short-circuited by the […]
[…] We started with an assessment of the labor market, which has been dismal under Obama’s reign. […]
[…] We started with an assessment of the labor market, which has been dismal under Obama’s reign. […]
[…] Via Dan Mitchell: […]
[…] We started with an assessment of the labor market, which has been dismal under Obama’s reign. […]
[…] We started with an assessment of the labor market, which has been dismal under Obama’s reign. […]
Do you think that there may be an underground economy? I find it hard to believe that this many people cannot or will not find work.
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[…] there certainly wasn’t any effort to explain how an $8 trillion output gap and a seemingly permanent reduction in the employment-population ratio are good for ordinary […]
[…] more worrisome, the employment-population ratio seems to have permanently fallen, which is bad news for economic performance since our output is a function of how much capital and […]
[…] more worrisome, the employment-population ratio seems to have permanently fallen, which is bad news for economic performance since our output is a function of how much capital and […]
This idea that so many people have that “outsourcing” jobs to India and China is killing our economy needs to be thoroughly debunked. Here’s my brief shot at it:
Imagine you had a choice of 2 grocery stores at which to shop. Both provide the exact same quality of goods and services, but one is 10% cheaper than the other. If you spend $500 per month on groceries, that is a difference of $50 per month. If you choose to shop at the more costly grocery, you would, in essence, be donating $50 per month to its owner. If you choose to shop at the less costly grocery, you would spend $450 per month to receive the same value with $50 to spare. That $50 does not disappear because you didn’t spend it at the grocery. You would then be able to save it or spend it on things like clothing or paying down your mortgage or investing for your retirement. Now just think of those grocers as onshore and offshore suppliers. We would not personally shop (for long) at the more expensive grocer, so why should we expect anyone else to buy from the more expensive supplier?
We should think of money as simply a measure of productivity – the lower it costs a company to produce something, the more productive the company is. If a company can buy a component of its final product from another company at a lower cost than it could build the component itself, it should simply buy the component. The net effect of such a purchase is to make the company more productive; its costs are lower. But that money not spent on the component doesn’t disappear from the face of the earth; it can be deployed elsewhere.
So, it does not matter whether the supplier is on our side of the ocean or the other side. By buying the less expensive product, we are making ourselves more productive.
But wait, some will say, when we send that $500 to India or China, that is $500 that could have been kept in our economy and used to create other jobs. It sure sounds that way, but that only looks at the monetary side of the equation. In exchange for that $500 leaving our shore (let’s be clear about this, that is 5 pictures of Benjamin Franklin printed on a small piece of paper), we are receiving $500 worth of goods. In fact, because the offshore supplier is cheaper we are really paying $450 for goods that would have cost us $500 to build, so we are really coming out ahead. And that $50 we save can be spent or invested in other things. By buying from the low cost supplier, we make ourselves more productive.
He who is the most productive has the higher standard of living, regardless of whether the he is an individual or a nation.
oh……… and the number of Americans “not in the labor force” has grown by 11 million since president Obama took office… in fact… 932000 people vanished during October…
many democrats are claiming they were abducted by aliens…
and let’s not forget technological advances which enable employers to use fewer workers to achieve the same productivity levels… robots don’t require health care… or a minimum wage… and compliance with government employ mandates are minimized… fewer jobs… a government actively encouraging participation in welfare programs… feverishly electronically printing money… and spending like there is no tomorrow…
ewwww…………….
Another thing that gets me about all this is that for those of us who work hard to avoid taking government handouts funded by money requisitioned (by force) from our friends and neighbors – we’ll be penalized if we fail to sign up for what is essentially another government welfare plan. And worse, if we are already working hard to make ends meet without taking a handout, these potential fines place us under increased financial stress for not jumping when the gun-wielding man with the bullhorn says jump. Makes sense, right?
Still, there’s good news in that some young folks (who the Affordable Care Act so desperately needs in order to work) are waking up. But is it enough to make a difference? See Young People and Obamacare at http://missouritenth.com/2013/11/07/missouris-young-people-and-obamacare/
[…] International Liberty: Obamanomics and the Vanishing American Worker […]
How can raw production increase, when virtually every policy, sanctioned by a voter-lemming majority has the net effect of flattening effort-reward curves?
Sure a country could mismanage raw motivation with macroeconomic intervention. But building a prosperous society on flatter effort-reward curves is the delusional hope of perpetual motion machines applied to economics, and politics. It’s pixie dust. But it seems that the most valuable currency is hope. Hope that the pixie dust and perpetual motion machine of prosperity do actually exist.
It may not all be Obama’s fault. But you haven’t seen the end of yet. Obama, and especially ObamaCare will chip away at the labor participation rate for many years to come. Underemployment, lazy employment, unambitious employment, mediocre career choices, and the long term lessons that the stress of ambition ain’t worth its emotional cost, will all increase.
How do Americans suppose other cultures declined?
All those who have dropped out will now opt for the seemingly easier solution: more redistribution through the majoritarian democratic process. The vicious cycle is closing.
Outsourcing jobs to India and China assure that those countries maintain job growth while here the unemployment lines grow.
It would also be interesting to understand what the trends are in the labor force statists are for participation in the private sector versus the government sector. That might help tell the story of where the economic well being of countries is headed.