Big Smoke

'cause it's hard to see from where I'm standin'

Contingency Plans

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The jobs report came out last week. The good news: A quarter million new jobs and the unemployment rate dropped to 6.3%. The bad news: Average wages haven’t increased because during that time 800,000 people dropped out of the workforce altogether. In fact, this has been a trend for the last four years: The number of people leaving the workforce has exceeded the number of jobs the market has created.

President Obama can be credited with keeping the economy from collapsing and slowly but surely keeping things on track with anemic but positive jobs reports, but his net balance thus far since his inauguration is some 7 million jobs. During that same time, the labor force participation rate dropped from 66% to 62.8%, or approximately 7.5 million people. Being that our ‘officially’ unemployed population – those we still count as part of the workforce because they’re collecting unemployment – is 9.7 million, if the people who dropped out were still counted, we’d still be in double-digit unemployment at 10.5%, which would certainly explain why wages aren’t increasing.

Where are all these people going?

Goldman Sachs economist Jan Hatzius states that it’s largely due to worker discouragement and premature retirement – which are basically one and the same – as well as people taking advantage of federal and state programs for education and disability, which is to say they’re hiding from the problem. Joe Weisenthal at the Business Insider interpreted that to mean that this is a cyclical pattern, except labor force participation has been dropping since Clinton left office and is now matching a time when women were just entering the workforce in numbers. Similarly, downward wage pressure has been consistent since the 70s.

Both Hatzius and Weisenthal argue that the trend will reverse, but the Bureau of Labor Statistics states otherwise. While they agree that Baby Boomers are indeed reaching retirement age, they report that the labor force participation rate is dropping for all age groups except ages 55 and above: Gen Xers and Millenials aren’t matching the participation rates set by the Baby Boomers. The Fed cautions against overstating the effects of discouraged workers on the labor force participation rate but also agrees that the trend will continue for the foreseeable future.

Paul Krugman argued last December, however, that the Fed is likely understating the case about discouraged workers by pointing out how the economy looked in 1999: Simply put, it’s been a long downward spiral since then, where cyclical booms and busts have been more bust than boom. While the Great Recession prompted a lot of Boomers to retire early, Boomers have largely been hanging on long after retirement age mainly because of a paucity of retirement savings due to stagnant wages through our perennially depressed labor market. In all, the long-term problems of our consumer economy have carved deep scars in our society.

So how are these people surviving?

It’s arguable that they’re not, but James Surowiecki of the New Yorker argues that a great number of Americans are looking a lot like illegal immigrants in their home country: They exist through freelancing and taking odd jobs off the books. The “grey” or underground economy may yet account for some $2 trillion in activity, but carries with it the problems of informal work: Wages below the federal minimum, no legal recourse and no security. It’s a sad state that the American dream has reversed into something a fair bit more downwardly mobile, but without effective political recourse little can be done. That’s the problem with money dictating politics: The moment you need the government to step in to help you, you’re unable to petition the government to do so.

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