Where Have All the Workers Gone?

The Bureau of Labor Statistics issued its jobs report for December, and the economists (including me) were dead wrong on this one. Instead of about 200,000 net new jobs, there were only 74,000 reported. While many had thought GDP would accelerate in the fourth quarter, average job growth was lower in the last quarter than the second quarter. Average weekly earnings fell in December. For the year as a whole, 7,000 fewer new jobs were created in 2013 versus 2012.

The unemployment rate fell to 6.7% from 7% in November, but this is partly due to the decline in labor force participation, reversing the bump up that occurred in November. The frequently cited U-6 unemployment rate, which includes those “marginally attached” to the labor force and those with part-time jobs that are not full-time for economic reasons, was stuck at 13.1%. Of the 246.7 million people over age 16 in the U.S., 91.8 million are not in the labor force. 

Some want to blame the cold weather of December, but that falls flat when you tease out the various categories of employment.  BLS reported that construction was down 16,000 jobs in December but average a 10,000 job monthly gain the rest of the year.  That leaves us about 100,000 jobs short of an explanation.  Retail store employment was up strongly though.  Meanwhile accounting and bookkeeping employment was down 24,900 jobs, a number that hardly could be explained by snow and cold.

More worrisome, though, is the continued decline in labor force participation, which again is unlikely to be a bad-weather phenomenon.   In 2013, the household survey says 1.372 million additional workers had jobs, yet 25-54 year olds, the prime working years, accounted for less than 30% of that gain.  Meanwhile, the growth of non-participation since the start of the Great Recession has been more for men than women.  I believe this decline in male participation is one of the great, untold stories of the last 5 years.  What are these men doing?

One explanation may be disability claims.  These rose by about half a million just in the last quarter of 2013. The share of working-age population that receives Social Security disability insurance doubled in the last 20 years.

That is only one of several government policies that could explain how people who used to work are opting out. There has been of late an increase in what economists call the “reservation wage”, the lowest wage that induces an individual to give up an hour of leisure (economist speak for what people do when they are not making money) for an hour of work. 

Extended unemployment insurance and the subsidization of health insurance (and the reduced subsidy that comes from earning more income) increase the reservation wage and end up discouraging work and encouraging dependence.

The greatest resource of an economy is the creative energy of its population.  Far too many of our citizens are not using that energy to its full potential.  This is the greater concern rather than any job statistic.