The next time an economist on television predicts the outcome of one policy or another with absolute confidence — “ . . . 1.7 percent nominal output parity growth per capita yada yada yada . . . ” — consider this: For the past 10 years, that economist, and everyone else in the profession, watched as the number of Americans participating in the workforce dropped year by year. And they have no idea why.
Those same economists have plenty of data and plenty of theories. Suspected culprits range from the stagnant economy to aging baby boomers. But every theory has its weaknesses. Among men, for example, the drop in labor-market participation began 50 years ago and continued unabated despite the economic booms of the 1980s and ’90s. During the past decade alone, even participation during the prime working years (ages 25 to 54) dropped from 84 to 81 percent.
Not every decision to leave the workforce is driven by negative factors like discouragement or lack of skills. At least some of the drop among men from 1965 to 1990 occurred because of the dramatic and beneficial rise in numbers of working women during the same period. Since 2001, though, female participation has been falling as well.
It’s much easier for economists to agree upon what the decline means. Statistically, a drop in the number of people looking for work results in a lower unemployment rate, even if new jobs fail to materialize. In April the jobless rate fell to 7.5 percent. But if the number of people pursuing work held steady at 2008 levels, today’s rate would be well over 10 percent.
Perhaps more alarming, within the ranks of those working today there are 7.6 million part-time workers who can’t find the full-time job they desire. That brings the total number of unemployed, underemployed, and people who want to work but have stopped looking to nearly 14 percent of the workforce — nearly double the official rate of 7.5 percent.
As for the quality of jobs being created, The New York Times reports that hiring over the past four years has been concentrated in low-wage areas; and the number of restaurant and food service jobs is at an all-time high. That’s not a good sign for an economy struggling for growth, and all indications are that Obamacare will soon make the problem worse.
As employers begin to calculate the costs of the new health care law, restaurant chains, movie theaters, and parking companies have announced plans to limit many workers to 29 hours per week. At that level, they avoid the $2,000 penalty for failing to give health coverage to full-time workers. It’s a reaction that isn’t confined to corporate America: The Commonwealth of Virginia has announced a similar cap that will apply to 37,000 part-time employees.
Defenders of Obamacare are quick to cite a survey from the Minneapolis Federal Reserve showing that 89 percent of firms anticipate no workforce changes resulting from the law. Yet that leaves 11 percent of employers who intend to change the status of hourly workers to avoid the costs of Obamacare. That’s a lot of companies limiting prospects for a lot of workers. The real lesson here is that people respond to financial incentives — good and bad. The health care law’s 30-hour threshold will make the underemployment problem worse.
In Congress there will be plenty of posturing about these unintended consequences, but don’t hold your breath waiting for a rewrite. Most Democrats have no interest in reopening the law, and some are happy with the 30-hour threshold as it stands. For their part, Republicans have no interest in trying to make marginal improvements to a law they deem fundamentally flawed.
This unexpected outcome raises a broader question: To what extent does public policy exacerbate our underemployment problem? Setting aside good intentions, most economists recognize that extended unemployment insurance and Social Security disability payments can discourage people from seeking employment or returning to work. In a slow economy with few job openings, this consequence is modest. But until economists develop better tools for understanding what motivates the workforce, anemic employment numbers and the sluggish 2 percent growth of the past few years may be the new normal.
Pining for the good old days is a cliché, but when the economy underperforms as it has, nostalgia becomes bipartisan. Democrats wish for the sustained growth of the Clinton years; Republicans long to recreate the Reagan boom of the ’80s. Unfortunately, our persistent underemployment may be a sign that we can never go back to those days, at least not without a better understanding of how we got here.