The Wrongologist

What’s
Wrong Today:

6 years
on, the budding economic recovery has not raised all boats. Back during the GW
Bush era and in Obama’s first campaign, we heard about the “New Economy” and the
promised new economy jobs. You haven’t seen many of them, but we know they are
here somewhere, because Apple, Google, Facebook say so.

Congress
must have seen those jobs heading our way before they went home for Christmas,
because they let extended unemployment benefits expire for 1.3 million
unemployed Americans, who have not yet met up with a new economy job, or even
with an old economy job. Here are 3 bad trends to consider:

I.  The
Long-Term Unemployed:

Since the
Department of Labor began keeping track in 1948, the US has rarely had more than two million workers go without a job for
more than six months. At the height of the Great Recession, nearly 7
million people who wanted jobs faced extended joblessness, and today that number
sits at a cool 4 million:

That’s
also historically large as a share of population or the workforce. Despite
many positive
signs in the economy, this is Congress’s and the White House’s largest
failure: The US just can’t put its people back to work.

As US
lawmakers return from their winter vacation, President Obama and the Democrats
want to reverse the expiration of unemployment insurance for some 2 million of
these people—1.3 million last week, and another 850,000 at the end of March.
Typically, unemployment insurance only lasts 26 weeks, but during recessions
the federal government offers extensions for as long as 99 weeks; the currently
expired extension was set at 73 weeks.

Republicans
favor the expiration, or want an equal reduction in spending elsewhere in the
government to extend benefits. With roughly three unemployed workers competing
for every job opening in the United States and the long-term unemployed among
the most-discriminated
against potential hires, it’s not clear that unemployment insurance is the
main obstacle to their hiring.

Still, Republicans
contend that ending payments to the long-term unemployed will force people back
to work at minimum wages. But we have an example that suggests that’s not
what’s going to happen: North Carolina cut its unemployment benefits
significantly last summer, and since then, there was no boom in employment.
Instead, more people have left
the workforce, putting stress on local charities and the local economy.

II.  Wage
erosion:

But
there’s another layer to this picture. According to the official wage
statistics for 2012, 40% of the US work force earned less than $20,000, 53%
earned less than $30,000, and 73% earned less than $50,000. The median wage or
salary was $27,519. These are current dollar amounts and they are the gross compensation
that is subject to state and federal income taxes and to Social Security and
Medicare payroll taxes.  

In other
words, take home pay is less. To
put these incomes into some perspective, the poverty threshold for a family of
four in 2013 was $23,550.

The only
incomes that have been growing in real terms are those at the top of the income
distribution. Everyone else has experienced a decline in real income and
wealth.

Slightly
more than one percent of Americans make more than $200,000 annually and less
than four-tenths of one percent make $1,000,000 or more annually. There are
simply not enough people with discretionary income to drive the economy with
consumer spending.

III.  Unequal
impact on the young:

We are
seeing catastrophically high unemployment levels among young people. As Wolf
Richter has written,
the civilian labor
force in the US represents the official number of people working or
looking for work. It’s what the official government unemployment rate
(U-3) is based on. If labor force participation drops – if for whatever reason,
millions of people are no longer counted as part of the labor force, as is the
case in the US – it’s a troublesome indicator for the economy and the real
employment picture. It makes our 7.3% unemployment rate look a lot less awful: if you’re not counted in the labor force,
and you don’t have a job, you’re not counted as unemployed.

There are
millions of people in that category. And their numbers are growing, not
diminishing. The irony of the U-3 unemployment statistic is the fact that while
unemployment has gone down 30% since its 2009 peak, we have the lowest labor force participation rate in over 3 decades.

Before the financial
crisis, the unemployment rate and the labor force participation rate weren’t
correlated. Unemployment could move up and down, based on the economy, but
labor force participation moved to its own drummer. From the BLS:

The chart (from Global Financial Data)
juxtaposes the unemployment rate and the labor force participation rate since
1980. After the financial crisis, suddenly,
for the first time in history, they both started moving in lockstep. Downward.
The unemployment is the red line and is tied to the left axis, while the
participation rate is the blue line and is tied to the right axis:

This chart shows the
true crisis of employment in this country. The diminishing labor force
participation rate − the officially available labor pool, has been driving down
the unemployment rate for the first time in history.

But beneath those
overall numbers, it’s even worse. This chart by the BLS
depicts labor force participation rates by age cohort in 1992, 2002, and 2012,
with an estimate for 2022:

The young are not making it into the
labor force.
The participation rate for those 16 to 19 has plunged from 51.3% in 1992 to
34.3% in 2012. OK, the BLS explains that there has been an increase in school
attendance, and that is a good thing. But the participation rates of 25 to 54 year olds also dropped from
83.3% in 2002 to 81.4% a decade later.

Among the 18 to 34
year old “Millennials,” those who are officially counted in the labor force,
unemployment has been a nightmare, with double digit unemployment rates, still,
nearly 6 years after the financial crisis, reports
the youth advocacy group, Young Invincibles, it’s even worse for the 16 to 24
year olds, whose official unemployment
rate is still 15%!

In prior downturns,
the employment rate for young adults nearly reached pre-recession levels within
5 years. Since the start of the Great Recession, young adult employment has not
even recovered halfway by the same point. In fact, a quarter of all job losses for young adults came after the Great
Recession was officially over. The lack of jobs had driven many
discouraged young people from the labor force altogether.

A recent report by
Opportunity Nation estimates that 5.8
million young adults are neither working nor in school.

The above chart shows
that the 30% improvement in the official unemployment rate came mostly from people
54 and younger being statistically purged from the labor force.   

At a time
when most unemployed Americans are running out of coping mechanisms, the US government
talks like our long economic nightmare is behind us. But many millions of us are
still being ground down because our economy cannot produce enough jobs.

It remains
to be seen if the chickens can be kept from coming home to roost for another year.