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Headlines; workplace participation at thirty year low

Mon, May 14th, 2012
Posted in All Commentary

There is no simple answer as to why. You would think with the recent press coverage workforce participation suddenly fell off a cliff. Not so. The participation rate peaked out around the turn of the century. There has been a gradual downward trend since then with a temporary leveling off between 2003 and 2007. This long-term trend is the real story. Those not counted in the workforce include “students, retired people, stay-at-home parents, people in prisons or similar institutions, people employed in a job or profession with unreportable income, as well as discouraged workers.” Obviously, some have become disillusioned and have simply given up and are not actively seeking employment. But, that is only part of the answer. It should be noted that the participation rate was regularly less than 60 percent for decades prior to 1970, probably largely due to one-income households.

The Bureau of Labor Statistics released a report on May 4 which pegs the participation rate at 63.6 percent, which is the lowest it has been since 1981. The unemployment rate of 8.1 percent includes those that are unemployed who are actively seeking work. The workforce includes members of the population sixteen years old and older.

The labor participation rate saw a relatively steady increase since about 1963 with a few minor drops over the decades, which coincides with the increase of women in the workforce. Why the fairly steady decline starting more than a decade ago?

First, we have an aging population resulting in an increased rate of retirements. Secondly, the participation of women in the workforce catapulted over several decades until it plateaued shortly after the turn of the century. The participation of women in the workforce has fallen off gradually since then. This may be in part due to a difficult job market and in part due to the realization that child care and other worker expenses offset the benefits of a two-income household. Thirdly, some veterans and others looking toward a new career are in the process of being retrained. And lastly, the most troubling statistic is the greater number of young working-age men who are unemployed. Could this be related to inadequate or inappropriate training?

Other Factors

Affecting Employment

A good percentage of lost jobs are lost government jobs at all levels of government. We have asked for more efficient government. Whether in business or in government, employees are a large expense. In business, manufacturing, and in government, many efficiencies are realized with improved technology requiring less people. Employment is a victim of success. Productivity has been very good. Five million fewer workers are producing the same goods and services. The need for certain jobs has been reduced or eliminated. Corporate profits are the highest they have been for decades, but this hasn’t translated into additional jobs.

Are college graduates trained to do the jobs of today? Do young people have the work ethic? We have a work force which is not entirely consistent with available skilled jobs. We need to continually encourage education in the areas where there are shortages of people with the necessary training. There seems to be a need for targeted post high school training for specific jobs needing specific technical skills, which may be more appropriate than a college education for some professions. Retraining may be required multiple times in a worker’s lifetime. Education is key to increasing income.

Some businesses are unwilling to expand and increase hiring due to uncertainty. The uncertainty that Congress and legislatures have created by being unwilling to make tough decisions. Employers don’t have the information to determine how much that extra worker will cost or if increased production will produce an increase in profits. These uncertainties pile on and create slower growth. A long term plan needs to address the nation’s investment in the areas of education, infrastructure and basic research. There is general agreement that the tax code needs reform, but little agreement as to how it can be improved.

Business Needs Predictability

Congress has failed to address entitlement reform and tax reform. On April 23, a report estimated benefits to run out for Medicare in 2024, Social Security in 2035, and Disability in 2016. Reforms need to be made to these programs to make them sustainable over the long term.

The Joint Select Committee on Deficit Reduction or “super committee” created by the Budget Control Act of 2011 failed to agree on recommendations to deal with the nation’s fiscal imbalance. They were to come up with a bipartisan recommendation to reduce the deficit by $1.5 trillion over 10 years. This could have been done with a combination of revenue increases, tax reforms and the closing of loop holes, entitlement reform and cuts in defense spending. Since they failed, a trigger was set in motion which includes a $1.2 trillion automatic spending cut evenly split between domestic and defense spending. These mandated automatic cuts are to take place in January of 2013 if Congress fails to act prior to that. The Bush tax cuts are scheduled to expire at the end of the year unless Congress acts. Together, these two substantial hits could have a dire effect on the current economy and Federal Reserve presidents have referred to the jolt both would have on the economy as a “fiscal cliff.”

Most expect that Congress will be forced to come to some sort of bipartisan agreement after the elections in November to head off the spending cuts and tax increases. The delay of long term structural reforms on the part of Congress has added to economic stagnation. Politicians like to blame the other side of the aisle for the weak economy. Both sides are the problem. Compromise to develop a real long-term plan to deal with the deficit, entitlement programs, defense spending and tax reform is necessary. This will give business the tools and information to plan for expansions and/or increased hiring. They need to know what their expenses will be before they take on the risk of expanding. A long-term plan by Congress will likely be implemented gradually so as not to provide a detrimental fiscal shock to the economy.

Healthcare is also up in the air. The Supreme Court ruling may or may not clear up this unknown. In any case, eighteen percent of the nation’s Gross Domestic Product (GDP) goes to health care, which is the highest in the world. The election this fall, no matter which party is favored, will allow businesses to have more clarity as to what numbers to plug in their business plan. The production of a long-term plan, however imperfect, would be a positive for the economy. A further delay in the production of a long term plan will increase the likelihood of a train wreck in the not-so-distant future like that being experienced in parts of Europe today.

Politicians are more concerned with getting their party’s nod for the next election and sticking it to the “enemy” than doing the job they were sent to do. The extreme polarization has made governing bodies unable to function. The two parties continue to offer us candidates that are on the outer fringe of their respective parties, therefore, unable or unwilling to find a middle ground.

We are recovering from a severe financial crisis and a deep recession. The deeper the hole that we find ourselves, the longer and more difficult it is to claw ourselves out. Growth has been anemic, but there has been growth despite all the factors working against recovery. Unfortunately, events in the rest of the world also have an effect on our ability to recover.

We need to elect people who are willing to tell us the truth. Soft pedaling the truth and an unwillingness to face tough realities will just help dig the hole deeper. Major decisions need to be made which will provide a path for our nation’s economy for years to come. This can not happen without a willingness to compromise and work together. After all, these decisions will have an effect on all of us for good or for bad.

Perhaps the headline should read: Partisan paralysis stifles job growth and cripples economy.

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