The Labor Force Participation Rate has fallen and it can’t get up.
The U.S. Bureau of Labor Statistics (BLS) reported this week that 90,609,000 Americans who are 16 or older are neither working nor looking for work. Only 63.2% of Americans are working or looking for work. Anyone who is unemployed who has looked for a job in the past four weeks is counted as participating in the labor force.
Add in unemployed Americans who are looking for work and the total exceeds 101 million. With a total population of about 313,914,040, nearly one American in three is 16 or older and is not working.
The Labor Force Participation Rate peaked at 67.3% in 2000 and it hovered around 66% in 2007 and 2008, when the financial crisis began. Now, after five years of stimulus spending and quantitative easing, it has dropped about 3%. In July, the number of nonparticipants climbed by more than half a million.
The BLS also reported this week that the unemployment rate fell in September from 7.3% to 7.2%, but that’s the suspect U-3 rate. The U-6 rate, which includes part-time workers and those who have given up looking for work as unemployed, fell from 13.7% to 13.6%. Further indicative of a stagnant economy, the economy added only 148,000 nonfarm jobs in September, when 180,000 jobs were expected to be added. The BLS numbers are preliminary and, as usual, may be inaccurate.
What’s Happening
So why, after trillions of dollars of deficit spending and trillions of dollars of bond buying, do employment numbers remain so dim?
- Keynesian economics does not work. If government spending stimulated the economy, the U.S. would be more prosperous than ever. Japan, Greece, Spain, France and many of the other economic basket cases around the world would be flying high. Do you know anyone who became wealthy by maxing out his or her credit cards?
- Quantitative easing isn’t working. QE was supposed to lower interest rates. It did. Lower interest rates were supposed to stimulate the economy. They didn’t. While companies took advantage of low rates to borrow more, they used the money to pay off old debt and have been sitting on cash.
- New regulations slow growth. On top of paying the highest corporate tax rate in the developed world, American businesses are dealing with complex new regulations, such as the Affordable Care Act (ACA), the Dodd–Frank Wall Street Reform and Consumer Protection Act and new carbon rules from the U.S. Environmental Protection Agency. New regulations mean more paperwork, more uncertainty and a great deal of time devoted to learning about and complying with the new regulations. As one example, employers with 50 or more employees will be subject to the ACA (aka ObamaCare) and will be required to provide health insurance to employees working 30 hours a week or more. While the employer mandate was delayed for a year, many employers cut back on hours for part-time workers and slowed their hiring. Part-time employment surged before the employer mandate was delayed.
- Uncertainty slows growth. The ongoing disputes over the federal budget and the debt ceiling leave businesses not knowing what to expect.
- Baby boomers are retiring. An estimated 10,000 Americans turn 65 each day.
Retiring baby boomers are indeed a factor in the falling labor force participation rate. Those who support President Obama’s economic policies seem to think it’s the only factor. But if the rising number of retirees and falling number of workers is having such a dramatic impact on the labor force participation rate, think about the impact it will have on the Social Security system.
Social Security is a pay-as-you go system. When Social Security was created, there were 41 workers for every retiree. With people living longer and baby boomers retiring, the Social Security Administration (SSA) projects that the ratio will drop to 2.2 workers per retiree by 2030.
As baby boomers retire, the tax base will drop, making it almost impossible to pay off the federal debt. Fewer workers will be supporting more retirees, making it more difficult to support the Social Security system.
Shouldn’t we be addressing these issues now? If stimulus spending isn’t helping the economy and is adding to the federal debt, cutting spending – or at least slowing its growth – would be a good place to start.