The Vanishing Worker

The Obama recovery is the story of the vanishing worker. The economy saw the emergence of 115,000 new jobs last month according to government statistics, but it also saw 342,000 workers leave the workforce, and the shrinkage of the workforce continued apace. We have now reached the same level of worker participation as the first year of the Reagan years, hardly a successful economic plan in action. The United States has been a job creation machine in the past, but today it is Stag-Nation with an economy merely floating as opposed to truly recovering.

Normally you should see the labor participation rate increasing in a recovery as new jobs are being created, but instead we are seeing the shrinkage of jobs and of opportunities. The argument that the decline in participation rate is due to the graying of the workforce does not account for the deep drop in the present rate. As of late early 2007, the participation rate was 66.4%, below the peak of 67.3% of January 2000, but far above the present rate. The rate was 65.7% when the recession was officially declared over in the summer of 2009. We are actually taking steps backward in a supposed recovery. The numbers show positive gains, but for job hunters, the recession still exists.

The Wall Street Journal summed up part of the problem, “Still, the recent fall is so sharp and surprising that aging baby boomers can't be the entire reason. Another explanation is surely the slow pace of job growth which means fewer opportunities to entice what economists call the "marginal" worker back into the labor force. Older workers who've lost a longtime job may find themselves unemployable in a rapidly changing economy. They may retire earlier than they might have preferred."

Another problem is that many second earners are not finding work and Wall Street observed, “A recovery that is really cooking, like the Reagan boom, these workers find that the opportunities reward more work. In today's mediocre expansion, not so much.” Since 2009, women lost 92% of the jobs, adding pressure to many household budgets and showing what a real war on women actually looks like. With the Federal Reserve easy money policy, inflation has outstripped wage growth, adding even more pressure on the family house hold budget.

The present recovery has been tepid at best and for many Americans, the recession never ended. The declining unemployment number is hiding the true economy and the number of workers unemployed more than six months has reached numbers not seen since the Great Depression.

The Wall Street Journal noted that another culprit to the present unemployment numbers is the expansion of transfer payments as programs like food stamps have risen sharply, beginning in the Bush Administration but accelerating under Obama. The extension of unemployment benefits has discouraged others from re-entering the job market and the Wall Street Journal noted, “This is a particular disincentive to low-skilled workers to enter the job market because in some high-benefit states they need to earn $30,000 or more to compensate for the benefits they lose. This is an insidious high marginal tax rate that deters many from ever acquiring the basic skills and experience they need to move up the income ladder."

As baby boomers retire, the need to increase the labor participation while increasing worker productivity is a necessity. The present policies have done the opposite, reducing labor rate participation and adding to the long term threat to the economy.


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