What Happened to Growth In the Labor Force
What Happened to Growth In the Labor Force
What Happened to Growth In the Labor Force - Number Three In A Four-Part Series On The Crisis In Our Economy - By 2014, the number of americans on welfare hit a historical high, and the number continued to grow. | Photo: James Faddis | Labor, Growth, Workers, Americans, Economy,
Number Three In A Four-Part Series On The Crisis In Our Economy
Published on April 29, 2018
What about growth in labor force participation?
For politicians, the disparity in wealth and wages is more of a political weapon used to rile-up the masses than it is recognition of a real problem to be solved.
The truth is, members of both political parties see wage growth and the growing labor participation rate as a sign that the economy is not just doing well, but has actually returned to full employment.
Certainly, on the plus side, data from the Bureau of Labor and Statistics shows that the country is recovering from some of the lowest labor participation rates in decades - going back to the Carter administration. Low labor participation was one of the weights (there were many others) that prevented the economy during the Obama administration from ever really feeling like it was growing in a healthy and confident way. Though the rate is still below where it was in 2007 and 2008, when a sharp decline in labor participation began, there has been a steady upward trajectory. It is this upward movement that has politicians from both sides of the aisle trying to take credit for good economic news.
However, is the news really that good? After all, if the trend has been going up - why are Americans saying that expenses are too high and salaries from work are not cutting it?
For starters, though the economy has begun to recover, it has a lot of ground to catch up in terms of income. The share of total income received by workers - as opposed to that received by business owners - declined significantly since the turn of the century. In fact, apart from a spike in the late 1990s to 2000, the percentage share of total income received by workers has been on a steady decline throughout the early 90s - and accelerated its decline over the course of 21st century. This is typically the kind of data that Democrats pounce on, and launch into more socialist and Marxist solutions to resolve income inequality.
However, there is more to this data than meets the eye.
We all recognize that the environment for wage growth depends on worker productivity rising, and a reduction in the cost for production taking place, which sets the stage for a worker to receive a consistent share of the gains they help to produce.
What changed, starting in the 1980s and expanding into the 1990s, was a combination of events that ended up freezing wages for millions of lower-wage workers, and some higher-wage workers in specialized fields, and freezing-out millions of other Americans from working.
First, poor trade agreements began to flood American markets with low-cost goods. This has been a boon for large corporations, like Wal-Mart and Amazon, but not for American manufacturing and small to mid-sized businesses. The decision by government policy-makers to emphasize consumer spending over a balanced economy has tipped the scales too far towards large corporations, and created a dependency on imported goods (See US Trade Deficit historical chart. Note: At the time of this article, the U.S. trade deficit hit a 9 1/2 year high.), and changed our culture so now we assign less value to repairing items or saving for important purchases, and instead opt for throwing away and replacing immediately with something new.
Second, though employment in manufacturing has been on the decline for many years, it dropped 31% from 2000 to about 2016. Manufacturing's share of nominal GDP should be closer to 20%, but today it is closer to 10%. The decline in employment in higher paying manufacturing jobs, especially the rapid decline at the turn of the century, pushed more American men out of the labor force.
Third, immigration - both legal and illegal - has depressed wages for millions of Americans. This has happened a few different ways.
For example, despite the U.S. graduating more STEM-related professionals and students with high-tech expertise than there are jobs, large corporations still import foreign labor and skirt U.S. laws to hire foreigners, because it is cheaper to do so. The end result is that wage growth in some high-tech fields gets slowed, and Americans with high-tech degrees need to seek employment in other fields.
Another example is that much of the new job growth that has occurred since the Great Recession has not gone to native born Americans, but to immigrants. According to the Bureau of Labor and Statistics, from 2007 to 2014, the share of employment growth for immigrants was nearly 100%. Though native-born Americans accounted for 69 percent of population growth during this time, and immigrants 31 percent, the new job gains went almost exclusively to foreign-born workers. This accounts, in part, for why wage growth and wealth share, have been relatively low during this time period.
Fourth, the growth in the number of Americans who have gone on welfare or disability, and either do not work or have lower income jobs, is staggering. From 1990 to 1996, the number of people on welfare and in need of healthcare assistance grew by 62%. From 1997 to 2007, that number had increased further - growing by 50%. By 2014, the number of Americans on welfare hit a historical high, and the number continued to grow.
Why this skews labor participation and income data is because when millions of Americans were displaced from work - they eventually sought government assistance and have not returned to work, mostly because the jobs they once had are not available.
In examining the welfare system, it has become apparent that the programs are being run ineffectively with money spent to welfare recipients distributed or applied inefficiently. For example, if converted into an hourly wage, welfare disbursements would actually create jobs above the poverty level for millions of Americans. Some estimates have put the hourly pay at over $30 per hour for a 40-hour work week. An hourly rate of $30.00 equates to a weekly pay of $1,200, monthly pay of $5,200, and an annual salary of $62,400.
And fifth, larger corporations, organizations, and government, not small businesses, have become the biggest employers in most communities. Over time, these companies have used their clout to keep wages lower. With less mobility, more and more American workers feel hesitant to ask for increases in their salary. Lower-skilled workers, fearful of being replaced and dependent on income to make ends meet, are even less likely to ask for increases in pay.
All of these factors, and others, have contributed to pushing workers out of the labor force, displacing some workers from the labor force, and placed pressure on less-skilled worker wages and some high-skilled worker wages.
One last point to keep in mind deals with what experts call the "text book" approach to dealing with wage growth, personal wealth, employment and other economic issues. There is a good chance that most policy-makers and economists need to throw away their old text books, and recognize that there is more to the low savings rate and lack of wage growth than traditional models can explain.
For politicians, the disparity in wealth and wages is more of a political weapon used to rile-up the masses than it is recognition of a real problem to be solved.
The truth is, members of both political parties see wage growth and the growing labor participation rate as a sign that the economy is not just doing well, but has actually returned to full employment.
Certainly, on the plus side, data from the Bureau of Labor and Statistics shows that the country is recovering from some of the lowest labor participation rates in decades - going back to the Carter administration. Low labor participation was one of the weights (there were many others) that prevented the economy during the Obama administration from ever really feeling like it was growing in a healthy and confident way. Though the rate is still below where it was in 2007 and 2008, when a sharp decline in labor participation began, there has been a steady upward trajectory. It is this upward movement that has politicians from both sides of the aisle trying to take credit for good economic news.
However, is the news really that good? After all, if the trend has been going up - why are Americans saying that expenses are too high and salaries from work are not cutting it?
For starters, though the economy has begun to recover, it has a lot of ground to catch up in terms of income. The share of total income received by workers - as opposed to that received by business owners - declined significantly since the turn of the century. In fact, apart from a spike in the late 1990s to 2000, the percentage share of total income received by workers has been on a steady decline throughout the early 90s - and accelerated its decline over the course of 21st century. This is typically the kind of data that Democrats pounce on, and launch into more socialist and Marxist solutions to resolve income inequality.
However, there is more to this data than meets the eye.
We all recognize that the environment for wage growth depends on worker productivity rising, and a reduction in the cost for production taking place, which sets the stage for a worker to receive a consistent share of the gains they help to produce.
What changed, starting in the 1980s and expanding into the 1990s, was a combination of events that ended up freezing wages for millions of lower-wage workers, and some higher-wage workers in specialized fields, and freezing-out millions of other Americans from working.
First, poor trade agreements began to flood American markets with low-cost goods. This has been a boon for large corporations, like Wal-Mart and Amazon, but not for American manufacturing and small to mid-sized businesses. The decision by government policy-makers to emphasize consumer spending over a balanced economy has tipped the scales too far towards large corporations, and created a dependency on imported goods (See US Trade Deficit historical chart. Note: At the time of this article, the U.S. trade deficit hit a 9 1/2 year high.), and changed our culture so now we assign less value to repairing items or saving for important purchases, and instead opt for throwing away and replacing immediately with something new.
Second, though employment in manufacturing has been on the decline for many years, it dropped 31% from 2000 to about 2016. Manufacturing's share of nominal GDP should be closer to 20%, but today it is closer to 10%. The decline in employment in higher paying manufacturing jobs, especially the rapid decline at the turn of the century, pushed more American men out of the labor force.
Third, immigration - both legal and illegal - has depressed wages for millions of Americans. This has happened a few different ways.
For example, despite the U.S. graduating more STEM-related professionals and students with high-tech expertise than there are jobs, large corporations still import foreign labor and skirt U.S. laws to hire foreigners, because it is cheaper to do so. The end result is that wage growth in some high-tech fields gets slowed, and Americans with high-tech degrees need to seek employment in other fields.
Another example is that much of the new job growth that has occurred since the Great Recession has not gone to native born Americans, but to immigrants. According to the Bureau of Labor and Statistics, from 2007 to 2014, the share of employment growth for immigrants was nearly 100%. Though native-born Americans accounted for 69 percent of population growth during this time, and immigrants 31 percent, the new job gains went almost exclusively to foreign-born workers. This accounts, in part, for why wage growth and wealth share, have been relatively low during this time period.
Fourth, the growth in the number of Americans who have gone on welfare or disability, and either do not work or have lower income jobs, is staggering. From 1990 to 1996, the number of people on welfare and in need of healthcare assistance grew by 62%. From 1997 to 2007, that number had increased further - growing by 50%. By 2014, the number of Americans on welfare hit a historical high, and the number continued to grow.
Why this skews labor participation and income data is because when millions of Americans were displaced from work - they eventually sought government assistance and have not returned to work, mostly because the jobs they once had are not available.
In examining the welfare system, it has become apparent that the programs are being run ineffectively with money spent to welfare recipients distributed or applied inefficiently. For example, if converted into an hourly wage, welfare disbursements would actually create jobs above the poverty level for millions of Americans. Some estimates have put the hourly pay at over $30 per hour for a 40-hour work week. An hourly rate of $30.00 equates to a weekly pay of $1,200, monthly pay of $5,200, and an annual salary of $62,400.
And fifth, larger corporations, organizations, and government, not small businesses, have become the biggest employers in most communities. Over time, these companies have used their clout to keep wages lower. With less mobility, more and more American workers feel hesitant to ask for increases in their salary. Lower-skilled workers, fearful of being replaced and dependent on income to make ends meet, are even less likely to ask for increases in pay.
All of these factors, and others, have contributed to pushing workers out of the labor force, displacing some workers from the labor force, and placed pressure on less-skilled worker wages and some high-skilled worker wages.
One last point to keep in mind deals with what experts call the "text book" approach to dealing with wage growth, personal wealth, employment and other economic issues. There is a good chance that most policy-makers and economists need to throw away their old text books, and recognize that there is more to the low savings rate and lack of wage growth than traditional models can explain.
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Updated Oct 3, 2018 9:36 PM EDT | More details
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