Monday, September 9, 2013

Participate or Perish

The headline unemployment rate has dropped to 7.3%.  There should be cheering in the streets as is the lowest it has been in almost 4-1/2 years.

However, a closer look at the numbers is cause for real concern.

I have written before that I am more focused on the labor participation rate than the unemployment rate as a gauge on our economy. The unemployment rate calculation has become too subjective. It only counts those as unemployed if they are actually looking for work. It does not count those who become discouraged and have simply quit looking. It does not count the young slacker who has dropped out of school and is living in his parent's basement playing video games. It does not count the older worker who got laid off at age 59 and "retires" because of no decent job prospects.

In the end, every American is a mouth to feed, clothe and shelter. If there are fewer people pulling the wagon and more people in the wagon, we have a fundamental problem. The money gets spread around in thinner and thinner increments. That is just basic economics.

The labor participation rate in August slumped to a 35-year low of 63.2% last month. The last time we had a lower percentage of working age Americans employed was in August, 1978. Of course, in 1978 there were many fewer women working outside the home.

Here is a chart from Zero Hedge that shows the rise and fall of the labor participation rate since 1978.

More sobering is this chart (also from Zero Hedge) that shows the number of people not in the labor force.  That number is now a record 90.5 million Americans!

Let's put that in perspective.

There were 144.2 million Americans that were employed in August.  This is 1.9 million fewer than were working in the pre-recession high over five years ago.

There were 11.3 million that were unemployed in addition to the 90.5 million that are not considered in the labor force.

Therefore, of those of working age, 101.6 million Americans are not working and 144.2 million are employed.  That means that for every 10 people that are employed, there are 7 Americans of working age that are not working.

Keep in mind that these numbers also do not take into account children and the elderly that are not of working age.  The estimated population of the United States is approximately 316 million. Considered from this perspective, every worker, on average, is supporting about 1.2 other Americans.  The wagon is indeed getting heavy.

This number makes the worker to social security ratio look like nothing.  Right now every worker is only supporting about .36 Social Security beneficiaries.

Another interesting piece of data I found in the BLS data is the labor participation rate between those foreign born and native born.  Those foreign born actually have a higher labor force participation rate (66.9) than those native born (62.8).

In fact, 78.5% of foreign born men are working compared to only 68.9% of native born men.  On the other hand, 55.7% of foreign born women are working compared to 57.5% of native born women.

What about the labor participation rate based on race?  63.4% of whites are employed, 60.8% of blacks and 66.3% of Hispanics.

The labor participation rate based on educational attainment is also telling.  Only 45.4% of those with less than a high school diploma are working.  This rises to 59.0% for high school graduates, 67.3% for those with some college and 75.4% for those with a college degree or higher.

What do I make of all this?  We need more people working.  There simply are not enough people pulling the wagon to meet the expectations and obligations that were established in past years.  We really need to get more labor participation or we will see many dreams perish.  There is simply too much on too few to keep the wagon rolling.

The roads of the Welfare State are always paved with good intentions.

Unfortunately, those good intentions often lead us on a road to ruin.  That appears to be the path we are on right now.

Where and when does it end if we do not see the labor force participation rate start to increase? 

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