Both Sides Stretch the Truth About Obama Labor Market

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Many political and economic commentators on both sides of the political divide have provided readers and listeners with biased and cherry-picked views of the labor market under President Obama. Claims include that most of the job creation has been part-time jobs, that the unemployment rate would be much higher if so many people had not left the labor force altogether, and that job growth is lowering the unemployment rate. Only one of the above is true. As we dig through the numbers, we shall see that both sides have been stretching the truth about the U.S. labor market.

For the truth, using the actual numbers from reports of the U.S. Bureau of Labor Statistics and other official government reports, keep reading. I choose to measure the changes from February 2009 through August 2013, basically representing President Obama's tenure in office.

To begin, the civilian population of the U.S. aged sixteen and over has grown from 234.9 million people to 245.9 million. This is the universe of people that we need to follow to see what has happened in the labor market. That is, since the population of potential workers has grown by 11 million, the goal of this column is to determine where all 11 million of those people went.

Based on the national labor force participation rate, we would expect about 7.1 million of our 11 million people to join the labor force, either as employed or unemployed. Instead, the number of people in the labor force increased by only 1.3 million-from 154.2 to 155.5 million people. That is an enormous, unanticipated change in the proportion of people in the labor force. Whether the change is demographic, due to labor market conditions, or caused by government policies, something unusual is going on.

Interestingly, the number employed rose from 141.7 to 144.2 million, a gain of 2.4 million. The reason the labor force, which includes both employed and unemployed people grew by only 1.3 million while the number of employed people increased by 2.4 million is that the other 1.1 million newly employed came from the ranks of the unemployed. Due to this, the number of unemployed dropped from 12.4 to 11.3 million.

So if the working age population rose by 11 million while the number of those people participating in the labor force increased by only 1.3 million, we now need to find the other 9.8 million people who are not in the labor force. (Due to rounding, it really is 9.8 million, not 9.7 million.) The leading possibilities are disability rolls, retirement, and living rooms.

Ever since welfare reform under President Clinton, the disability rolls have been growing steadily through some combination of an aging population and people who can no longer collect welfare managing to get approved for disability payments. During the period in question, the number of people on disability rose from 7.5 to 8.9 million, an increase of 1.4 million people. That leaves 8.4 million people to track down.

Figuring out how many people have retired is complicated. Government employment reports do not track retirement numbers and people stay in the pool of possible labor force participants until they die. However, reports do include the number of people over 65 who are not in the labor force. While not everybody who retires is over 65, this is a good starting point. It certainly seems reasonable to consider everyone over 65 who leaves the labor force retired. Using this definition, the number of people in retirement rose by 4.1 million, from 31.3 to 35.4 million.

Now we are down to 4.3 million people left to find. People who would like to work but have left the labor force because they have lost all hope of finding a job are tracked by the government. They are categorized as either marginally attached or discouraged workers. The marginally attached applied for at least one job in the last year, while the discouraged workers did not. Together, these categories have risen by 400,000 people, from 2.8 to 3.2 million people.

That leaves us with 3.9 million people still unaccounted for, having left or never joined the labor force without an obvious reason.

One place the missing people are not is in college. Examining trends in college enrollment show that total enrollment has risen by only 150,000 from 2009 to 2012 and probably dropped a little in 2013. That means there are still 3.8 million people missing from the labor force.

There is no obvious, single explanation for these missing people. Early retirement by people under 65 is a possible explanation, but looking at data on labor force participants in the 55 and over category there do not appear to be lots of missing people. The trend in the labor force participation rate was down before President Obama took office, so some of the missing people are simply a continuation of this trend. Of course, that does not explain the trend; it just means President Obama is not to blame for the entire decline.

It seems to me, this detective story about the labor market has turned up some clues, solved some of the mysteries, but other mysteries remain unsolved. People who have retired, gone on disability, or become discouraged by their job prospects account for 61 percent of the people who have left the labor force under President Obama. The remaining 39 percent, 3.8 million Americans, appear to be mostly a group of people who have left the labor force for reasons unknown.

While I do not know why these people are no longer employed or looking for work, I can compute their impact on labor market statistics. If these 3.8 million people were looking for work, they would count as unemployed. These people would raise the unemployment rate by 2.2 percent, from 7.3 to 9.5 percent, if they rejoined the labor force. People leaving the labor force have lowered the unemployment rate more than people getting jobs.

Thus, the conservatives have been proved right about how the unemployment rate would be much higher if the same number of people were still in the labor force. However, there is another common claim conservatives make which is not true, that most of the jobs being created under President Obama are part-time.

When one looks at the monthly employment reports, many of the new jobs reported each month are indeed part-time. However part-time workers may become full-time workers later, plus in months where part-time job gains are not large, conservatives may stay quiet. Looking over the entire Obama presidency there has been no increase in part-time jobs; in fact, part-time employment has dropped by 2 percent, or about 230,000 people.

Overall, this look at the labor market suggests that there is no big shift to part-time employment in the American economy. There is a large decrease in labor force participation, with almost 10 million more people not in the labor force. Retirement is the biggest reason for the change, with people going on disability the second biggest explanation. Almost as many people just disappeared from the labor force as retired.

Why so many more Americans are choosing not to work, are unwilling to work, or are unable to work is an unanswered question, but an important one. If the labor force participation rate continues to decline, regardless of the reason, the remaining workers will not be able to support the current social safety net.

To pay social security, Medicare, and all the myriad welfare programs in force today, we need workers and taxpayers. According to the data reported here, the U.S. is gaining over 2 million non-workers per year, many of them probably not self-supporting. All the people collecting benefits from the government should be afraid because without workers to pay the bills, the benefits will have to stop one day, and one day may be sooner than they think.

 

Jeffrey Dorfman is a professor of economics at the University of Georgia, and the author of the e-book, Ending the Era of the Free Lunch

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