The Biden administration and the most hackety-hackish of its media facilitators argue that our recession cannot be a recession because of the “strong labor market,” as evidenced by the unemployment rate of 3.6 percent.
I am glad the unemployment rate is low; things could be worse.
But.
“Strong labor market”?
I have a hard time accepting that we have a genuinely strong labor market while real wages are declining — and prices are rising about twice as fast as wages. A strong labor market is not one in which workers are working more but producing less (which is what the contracting real GDP means) and being paid less (which is what “declining real wages” means). That doesn’t seem quite right.
But how to explain that low unemployment rate?
It is a pickle.
The labor-force participation rate is one of those metrics that people seem to talk about only when the unemployment rate says something that is politically inconvenient for them. Not only do we have a low unemployment rate, we also have a growing population and a shrinking labor force — making it difficult for businesses to fill some positions but apparently not so difficult as to have a large positive effect on real wages. At least to some extent, workers are scarce in certain industries not because they have been lured away by better wages elsewhere but because they have left for a wage of $0.00, exiting the labor force entirely. Retirement is only part of the reason for that, recent experience suggests.
The labor-force participation rate has declined significantly since 2000, from 67 percent to 62 percent, a decline of about 7 percent. That means (approximately) that for every 14 workers the United States had in the labor force in 2000, we now have only 13. That would be a not especially great development on its own, but this has happened during a period in which the United States has added 50 million people to its population.
Our current labor-force participation rate is higher than it was at any point before the 1970s, but pretty low by the standards of the past 40 years.
Here is the employment-to-population ratio, which seems to have peaked in the 20th century.
Everything should be on the side of wages at least keeping up with inflation, but they aren’t.
I know that 9.1 percent inflation is the big variable here, but it must say something about our economy that the people selling labor, at least at the lower end, don’t seem to have as much pricing power as the people selling potatoes and used cars do.
In any case, don’t try to tell me there’s a “strong labor market” when Americans’ paychecks are shrinking in real terms. We may have a larger share of our shrinking labor force at work, but that isn’t quite the same thing.