And you tell me that your job was taken away by a big ol’ greasy machine. And you tell me that you don’t collect no more pay and your belly is growing lean. Now if I had the jobs to give you know I’d give them all away. But don’t waste your breath calling out my name if you don’t have nothing to say. And you tell me that you don’t have nothing to do and you keep on wasting your time. And you say when you want to get your family some food you gotta stand in a relief line. I’m always amazed to hear Phil Ochs songs because even though they are nearly 50 years old they still ring so true.
That’s what I want to hear. I can picture the President’s political staff saying just that when the November “jobs” numbers came out last week showing that the unemployment rate in the country had fallen by a whopping 0.4 percentage points. In this instance I agree with the Administration. The American economy is gaining strength in spite of what Congress and the White House are doing. While it is likely that the recovery will slow slightly in early 2012, the President is correct to claim that the private sector has been creating jobs at a slow but steady pace for 21 months – nearly 2 years. Unfortunately, it has not been adding jobs fast enough to keep up with a growing population.
In November this job creation continued. According to the household survey about 278,000 people became employed between October and November. Another 315,000 people left the labor force. Therefore, about half of the drop in the unemployment rate was due to people dropping out of the labor force. In fact, the labor force participation rate (or the percentage of the working age population either in work or looking for work) has fallen steadily since peaking at 67.3 percent in 2000 and is now down to just 64 percent – a figure not seen since the later half of 1984. In fact, the labor force participation rate has been steadily falling since the beginning of the decade.
There are a number of reasons for this.
First, the population has been getting both older and younger as the baby-boom generation approaches retirement age, and a new baby-boomlet generation begins to grow up. The decision to drop out of the labor force is more easily made by a more marginal worker. Therefore, in a time when it is difficult to find employment and wage rates are stagnant, more marginal older and younger workers may drop out of the labor force and move into either early retirement or their parents homes.
Another reason for the decline in the labor force participation rate is the growth in the percentage of young people attending college. Many college age people would be in the labor force but for their attending school. As more financial aid and loans have become available, the percentage of young people receiving college degrees has risen steadily.
Also, labor force participation by women of childbearing age has come down fairly rapidly over the past few years as a new baby-boomlet has emerged. While a significant number of young women continue to work, the percentage stopped growing in the early part of the 21st century and has been falling since then.
Add to these demographic trends the fact that the Administration (and Congress) have made it easier to stay in the labor force but not in work– with extended unemployment benefits, medical benefits, and food assistance. Prior to the recent recession these programs lasted for only a limited period, but under both the GW Bush and Obama administrations, eligibility requirements have been loosened and the time period for benefits lengthened.
Finally, the recent recession resulted in sizable losses of employment opportunities for the most marginal workers as retailers, hospitality establishment and construction firms have retrenched. It is not the highly skilled, readily employed engineers, accountants, and physicians that tend to drop out of the labor force when times are tough, but rather the least skilled – and least highly paid – portion of the population. These people have been particularly hard hit, and in many cases find that public assistance is a more profitable endeavor than the type of work currently on offer.
These 6 long- and short-term trends all have led to a reduction in the number of people in American engaged in productive activities. If these trends continue, we would see the unemployment rate continue to fall, even if few jobs are actually generated. So while we all want to hear that the unemployment rate is falling, its important that we understand the underlying statistics before we applaud too loudly.