CQ WEEKLY
Feb. 4, 2012 – 3:11 p.m.
Political Economy: The Job Isn’t Done
By John Cranford, CQ Columnist
If you blur your eyes, the January employment report looks like undeniably good news for the economy. A big jump in payrolls and a drop in the jobless rate are just what the country needs to clamber back out of the hole. Except.
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Except that there are issues buried in the data that suggest we still face a long ascent to full employment.
First of all, the hole remains very deep and is being filled at a relatively slow pace. Perhaps more critical, however, are problems in the job market for which easy fixes may not be available. The economy is changing, and the labor force is going to have to change with it. Aspects of the rough spots in that transition are evident in the employment report, even if the path forward is not.
One big concern is the size and makeup of the labor force. As a percentage of the population, the number of Americans who have a job or want one has been declining for more than a decade.
This so-called labor force participation rate peaked in April 2000 at 67.3 percent, toward the end of the longest economic expansion in American history. The economy was expanding then at 4 percent or more a year and unemployment had fallen to a three-decade low. As a result, a historic share of the population joined the work force.
For reasons that aren’t entirely clear, the participation rate began a slow decline almost a year before the economy contracted in early 2001. When the Great Recession hit in 2007, the decline accelerated. Last month, the share of the working-age civilian population in the labor force fell to a two-decade low of 63.7 percent. Participation was last that low in May 1983, when the labor force was in the middle of a rapid expansion that included a large number of women newly seeking jobs.
Economists are unsure of all of the causes of the decline in labor force participation, but this dynamic touches all age and demographic groups. One seemingly obvious explanation is that new opportunities for employment — plus an end to the old welfare system — drew in potential workers in the late 1990s, and a lack of opportunities may be pushing them away now.
But that cannot explain the decline entirely. The decline is worrisome because a shrinking work force means fewer taxpayers to support Social Security and government activities generally. And it means, potentially, there will be less income for consumption and investment. Less consumption and investment will mean generally slower economic growth in the future, a circumstance that most economic forecasters already anticipate.
Learning to live with slower growth may be necessary, and it might even be beneficial in terms of a drain on scarce resources. But it fundamentally means a smaller pie to share.
And Another Thing
The problem of a shrinking labor force is amplified by the still-high jobless rate. While unemployment is falling, it’s still far from what any economist might call optimal. The liberal Economic Policy Institute projected that, at the pace of January’s job gains, the economy would get back to full employment in about seven years.
Moreover, the current unemployment picture is skewed, with a historically large percentage of people being out of work for a very long time. A just-released study of Labor Department statistics by the Pew Charitable Trusts showed that, in the final three months of last year, almost a third of all unemployed Americans — about 4 million people — had been out of work for a year or longer. Not since the Great Depression has the problem of long-term joblessness been so severe.
Political Economy: The Job Isn’t Done
January’s employment report showed that as the jobless rate falls, the percentage of the labor force that has been out of work for a long time is little changed. First fired does not mean first re-hired.
The vast number of people who remain out of work is straining the safety net. The current debate over whether — and for how long — to renew a special system of federally paid benefits for long-term jobless workers is avoiding the very real possibility that many of these people will never go back to work. When their benefits run out, they will have less incentive to keep looking for work — generally a condition for collecting unemployment checks — and therefore many are likely to join the exodus from the labor force.
There seems to be no easy way to address this long-term unemployment problem, either. And unlike what some congressional Republicans seem to think, the lack of a high school diploma isn’t clearly contributing to the problem. It is true that the overall jobless rate is much higher for Americans who didn’t finish high school than it is for those with a diploma.
But the numbers are relatively small. More than four out of five Americans 25 and over who are out of work have a high school education or even a college degree. And the Pew study showed that people who went to college have an equal chance to be unemployed for a year or more as do those who dropped out.
The country needs jobs. But it also needs ways to bring back into the labor force those Americans who are discouraged or seemingly un-hirable. They constitute a very real future drag on the economy.