Politics & Policy

Who Lost the American Worker?

Washington, of course.

Who lost the American worker? If the anemic employment recovery since the Great Recession’s end doesn’t prompt that question, perhaps the painful March jobs report finally will. Some context: If the economy were to produce 88,000 jobs every month, as it did last month, the labor market would never return to pre-recession employment levels. Like, ever. That paltry level of jobs more or less matches monthly labor-force growth.

Still, it’s just one data point and just the government’s first pass at measuring April job growth. Alan Krueger, head of the White House Council of Economic Advisers, again reminded us last Friday “not to read too much into any one monthly report.” Indeed, the Bureau of Labor Statistics has consistently upgraded these monthly reports the past two years. So let’s assume, optimistically, next month’s revision doubles April payrolls to 176,000. At that pace, assuming no recessions between now and then, closing the jobs gap would still take nearly a decade.

#ad#Even at this dismal pace, the unemployment rate is dropping — slowly. That’s because many Americans have stopped looking for work, so they don’t count when the government calculates the jobless rate. That’s what should really concern policymakers. The share of the working-age population either employed or seeking work — that is, the labor-force-participation rate — fell to its lowest level since 1979. When MSNBC asked Gene Sperling, director of President Obama’s National Economic Council, about this issue on Friday, he waved it off: “Labor-force participation has been declining for over a decade, overwhelmingly for reasons that have to do with our population trends and our demographics. . . . Most of what we see reflects [that].”

In other words, blame those 10,000 Baby Boomers retiring each day. Except there’s nothing new or unexpected about aging, and four years ago, everyone from the Obama White House to the Congressional Budget Office to respected private forecasters such as Macroeconomic Advisers thought labor-force participation would be far higher today.

So why is participation continuing to fall fast despite 42 straight months of economic growth? (Wall Street economists think that, measured by GDP growth, the first quarter actually might have been one of the recovery’s strongest.) More ominously, why is participation for 25- to 54-year-olds — Americans in the prime of their working life — continuing to decline? J. P. Morgan economist Michael Feroli finds this phenomenon “at odds with the idea that the decline is simply due to the changing age-structure of the population. . . . The idea that labor-force participation is structurally or institutionally impaired gains increasing credence with each passing jobs report.”

The impairment Feroli refers to could, and likely does, come in many forms. The slow job-market recovery may have left many long-term unemployed less employable, due to diminished skills and employer prejudice. Workers, even young ones, might simply lack the education and training businesses are looking for. That problem could also stem from the accelerating pace of workplace automation (i.e., robots and algorithms increasingly substitute for labor). As Richard Posner recently pointed out, “There is nothing inevitable about the virtuous process whereby automation . . .  merely shifts workers to other jobs that are equally or more desirable.”

Or maybe government policy has changed incentives for the worse. Health-care reform has raised the cost of hiring. It’s also not unreasonable to conclude, as a Boston Fed study recently did, “the availability of unprecedented amounts and durations of unemployment benefits” may mean long-term unemployed are “searching less intensively” for work. What at first was a problem of weak economic growth may have metastasized into far broader and pervasive problems with the labor market, something faster GDP growth alone can’t fix.

Given such a long-term, multifaceted problem, our politicians present a stale solution set — more short-term fiscal stimulus from Democrats, balanced-budget austerity from Republicans.

Who lost the American worker? Washington, of course.

— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.

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