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Recovery Gets an "F" in Year Four

Unemployment Labor Force

Four years on, it’s time to start asking the question: Is this the rottenest economic recovery ever? GDP is steadily growing again, but the unemployment rate has been so bad that when it finally dropped below 8 percent last year it was touted as excellent news, despite coming nearly half a decade after the beginning of the recession. A year later, the recovery shows no signs of speeding up: unemployment today stands at 7.4 percent.

And even that number may not be as solid as it looks. At the New York Times’ Economix blog, David Leonhardt compares the graphs of the unemployment rate and the labor participation rate since the beginning of the recession and finds that unemployment is only going down because people are dropping out of the workforce, not because we are creating more jobs:

Yes, the unemployment rate has fallen. But almost the entire reason it has fallen is the drop in the number of people in the labor force — either working or actively looking. As Binyamin Appelbaum has noted, the share of adult Americans with jobs is essentially unchanged over the last three years.

In a brief new report from Express Employment Professionals, a staffing firm, the company’s chief executive, Bob Funk, refers to the problem as “the great shift.” This shift long predates the recent financial crisis, too. The labor force participation rate peaked more than a decade ago.

This is awful news, and there’s plenty more where it came from. The Washington Post reports that the number of families in which at one or more parent is out of work rose by 33 percent over six years, and the WSJ found that the number of young adults living with their parents is spiking, driven in large part by difficulty finding work. Years of “recovery” just doesn’t seem to be doing much to solve the biggest economic problem of all: jobs.

This needs to change. We’d like to see the President call in small business leaders and develop some strong pro-jobs policies. In the meantime, we welcome suggestions from readers about what the government can do to encourage new hiring and new jobs.

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  • Thirdsyphon

    I’ve seen this alarming Labor Force Participation Rate graph in more and more places over the past year or so, but 2008 (the start of the decline) falls exactly 62 years after 1946, making it the very first year of early Social Security eligibility for the very first cohort of the Baby Boom generation. The LFPR formula, we should bear in mind, starts counting everyone as a potential worker on the day they turn 16. . .but once it does, it never *stops* counting them until they’re deceased.

    How much of this 3% downward swing can be chalked up to the long-expected retirement of the early Baby Boomers?

    • rheddles

      “The LFPR formula, we should bear in mind, starts counting everyone as potential worker on the day they turn 16. . .but once it does, it never
      *stops counting them until they’re deceased”

      I believe this is not correct. LFPR looks at the number of people in an age cohort working or looking for work versus the total number in the cohort. The cohort for LFPR is 16-64.

      The Employment to Population Ratio includes all adults in the denominator regardless of age.

      • Thirdsyphon

        The Bureau of Labor Statistics probably *should* have an age cutoff, but it doesn’t seem to. Their Concepts and Definitions page, located at:

        Defines the Labor Force as “All persons in the civilian noninstitutional population classified as either employed or unemployed”

        The “noninstitutional population,” in turn, is defined as “Persons 16 years of age and older residing in the 50 states and the District of Columbia, who are not inmates of institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.”

        The site makes no mention of an upper age limit to compliment the lower age limit of 16.

        • rheddles

          You are correct.

          You might also be interested in this publication especially page 12.

          • Thirdsyphon

            Good stuff. Thank you!

    • f1b0nacc1

      The problem here is not that the LFPR is declining (that is a problem too, but a different discussion), but that even with a growing population AND declining LFPR, the unemployment level is pretty much stagnant. Worse still, many of the non-unemployed were once working full-time, and are now part-time, a trend only made worse by the perverse incentives built into Obamacare.
      Note, all this is happening in a RECOVERY, i.e. a time when things are supposed to be improving, even if only in relation to what happened before. What happens when the next (inevitable) slowdown hits?
      We aren’t adding useful numbers of jobs (not even keeping up with population growth), and the jobs we are adding aren’t particularly good ones (part-time vs. full-time), and we are putting into place all sorts of regulatory barriers which act to depress propensity to hire even further. Add to that external factors (globalization, automation, etc.), and the only conclusion I can come to is that things are bad, and not likely to improve unless we change what we are doing.
      With the current group of idiots in the White House, the massive dysfunction in Congress, and (quite frankly) an voting population dominated increasingly by LIVs who are being use by the Political Class to milk the rest of us, we are in big, big trouble…

      • Thirdsyphon

        We are in trouble. . and it’s even worse than you think, because the Political Class is, itself, being used by various other (and higher) groups of competing elites to further *their* interest in milking the rest of us. . . and really, the problem isn’t that ordinary people are being metaphorically milked and/or sheared by these elites (’twas ever thus), but that the milking and shearing has gotten vigorous enough, over the past few decades, to draw blood.

        I doubt there’s much of anything that public policy can do to alter this. . .but then, we’ll probably never get the chance to find that out, since almost none of our leaders seem inclined to try.

  • USNK2

    Mr. Mead thinks government needs to “…develop some strong pro-jobs policies…”?
    Intrusive government over-regulation from ACA to EPA IS the main barrier to job growth in 2013.
    But, for starters, do NOT nominate Larry Summers to replace Bernanke as Fed Chair.
    Any chance of economic revival always depends on confidence, not inspired by a temperamental idea bully who will never challenge the Wall Street paradigm that solely favors shareholder value at the expense of all other stakeholders.

  • Nevis07

    Well I happen to start a consulting business earlier this year in Connecticut, as the only employee. This state is a mess in so many ways (as this blog has pointed out recently), but chance happened to make this opportunity available to me.

    What would I like to see? Less red tape and lower taxes! I can barely afford to run my business given I the amount of taxes that are applied before I ever get the chance to touch the money and I honestly don’t feel that I get much in return for those taxed dollars. And as far as regulations and law goes, my head is spinning in ten directions between federal law, state law, the new health care act that is partially started and then stopped.

    Small businesses are the key to jobs! If the government really wanted to turn things around they’d 1) lower taxes for small and medium sized businesses so that large corporates don’t have ridiculous accounting/tax evasion advantages. 2) they’d pass legislation that rolls back previous laws to remove red tape. 3) At the federal level, the US should have a true industrial strategy especially to push exports. The US has made some progress on net exports, but that’s almost all because of fracking. Clive Prestowitz at Foreign Policy has a great blog pushing this theme.

  • Matt_Thullen

    I can’t say that I know what will produce jobs growth, but I suspect that a program of:

    1. Increased IRS audits of small businesses;
    2. Increased regulatory complexity;
    3. Increased litigation risks associated with employment via new laws (Lilly Ledbetter et al) and regulatory bodies (such as the NLRB and EEOC);
    4. Increased taxes via Obamacare;
    5. Increased energy costs via restrictions on new energy sources combined with increased regulatory burdens on existing sources

    Aren’t helping matters much.

    I’d suggest that as a nation we should be a bit more agnostic about the types of jobs being produced and the fields that they are being produced in–in other words, let’s not get hung up on ensuring that there are lots of programming jobs in windmill-installing companies.

    Instead, let’s make it easier to hire–and fire–employees and easier to start new businesses in general, and let the proverbial thousand flowers bloom (and wilt).

    One example–we should exempt new and small businesses from most regulatory burdens until they reach certain thresholds, such as years in business, gross sales or number of employees, and make those thresholds fairly high. This would have the added benefit of reducing the appetite of larger businesses to champion new regulatory burdens, which they (rightfully) understand as hindering the small competitors, who don’t have the benefit of large legal departments to help them navigate a constantly-changing maze of regulations.

    • Engineer25

      It seems to me that the Obama Administration is intent on outsourcing government spending by putting various regulatory mandates on business with respect to labor regulations. health care, EPA, etc. This is a drag on business. It is a windfall for the often politically connected interests that provide the mandated services.

      Temporary relief can be obtained by voting for GOP pols, but absolute power corrupts absolutely and all that so the Hastert Congress should show that simply throwing one set of rascals out for a different set of rascals is not a long term solution.

      To change the game something fundamental needs to alter. One possible solution is to reverse the Supreme Court precedent that allowed Congress to delegate substantive rule making power to the executive. Require Congress pass the final language of all federal regulations into law before they become effective, and I would expect those regulations would be substantially less burdensome to voters.

  • Jacksonian_Libertarian

    “This needs to change. We’d like to see the President call in small business leaders and develop some strong pro-jobs policies. In the meantime, we welcome suggestions from readers about what the government can do to encourage new hiring and new jobs.”

    Another Big Government jobs program, that’s what you want? When has that ever worked? How about we do what Reagan did instead, cut taxes, cut the government burden of spending, and get back to growing at 5%, 6% and 7% every year. I refer you to the Rahn Curve:

    a nation’s economic growth is maximized when the burden/spending of all Government (Federal, State, and Local) is between 15%-25% of GDP, the American average at the moment is about 45% and that is before Obamacare gets implemented.

  • wigwag

    An F is a pretty bad grade but the American economy graduates Phi Betta g-d da$&ned Kappa compared to the British economy where austerity rules the day thanks to the Prime Minister Professor Mead has assured his readers is putting the “great” back in Great Britain.

  • BrianFrankie

    A common theme through the comments so far is over-regulation in the US economy. I could not agree more – anyone who has tried to start a business or complete a project has a seemingly endless list of stories about red tape, intrusive and arbitrary government oversight, overlapping and contradictory jurisdictional requirements, and other regulatory nightmares.

    But is this just anecdote, I wondered? Lo and behold, in one of the most important papers I’ve seen this year, the evidence of regulatory strangulation is laid out in numbers:

    According to the authors, regulation has, over the long term, cut about 2%(!) from US growth rate, and there is a clear inverse correlation between rates of regulatory and economic growth.
    The most ardent conservative will concede some regulation is requried. The most ardent liberal will concede sometimes regulation goes overboard. Starting from that basis, couldn’t we figure out a more rational regulatory regime that would be conducive to growth? This is the most important task of government in 2013 in my mind, and the one with the highest payout for everyone in the country.

  • lord acton

    Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
    This is known as “bad luck.”
    -Robert Heinlen

  • Boritz

    MSM template for reporting on the economy:

    “(Insert name of month here) (insert economic metric here e.g unemployment numbers, jobs created, etc.) Unexpectedly (high, low, bad, down)”
    Repeat each month for as many years as necessary.
    March jobs numbers unexpectedly low.
    April unemployment rate unexpectedly high.
    May factory orders unexpectedly down.

  • Timbal

    “we welcome suggestions from readers about what the government can do to encourage new hiring and new jobs.”

    Laissez-nous faire, morbleu! Laissez faire!


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