The Corner

Jobs Report: What Recovery?

As Patrick noted, according to BLS, in August 96,000 U.S. jobs were added and unemployment felt to 8.1 percent.

The only reason for this reduction in the unemployment rate is a 368,000-person drop in the labor-force participation. That’s more than last month. More and more people are giving up looking for work in this grim economy, and the boomers are retiring. Interestingly, this trend would probably be more pronounced if the economy was better, since the recession has caused many seniors to defer their exit from the labor force. The only age group that saw its labor-force participation go up since the recession is those 65 and older.

If you are interested, read this post from a few months ago by PoliticalMath, in which he shows that the shrinkage of the labor force participation isn’t quite a result of the boomers retiring. This is consistent with what my colleague, and former BLS commissioner, Keith Hall has been saying for months.

There are many unanswered questions about why this is happening, but whatever the reasons behind the labor-force exit trend, it’s a real problem. In addition, 96,000 jobs added is barely enough to keep up with population growth, so overall things are looking grimmer today than even a month ago.

As I have mentioned before, the single best labor-market indicator is the employment-to-population ratio — what share of the working-age population (16 years old and above) has a job. When the ratio goes up, things are getting better. When it doesn’t, the labor market is not recovering. Here is a chart of that statistic, which I should have updated soon. As you can see, the line during the last three years is flat, and last month, it even dropped. That trend is likely to continue. Fewer people as a share of the population are working. 

If you add to this to the fact that after falling dramatically during the recession, wage growth over the last twelve months has been the slowest ever — it even dropped again this month — you end up with an even bigger than expected sustainability issue for programs like Medicare and Social Security. Remember that by 2030, half of the budget will be going to pay for seniors. That point moves forward to 2023 if you add the seniors receiving Medicaid.

All this considered, it is hard to argue that the economy is recovering.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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