Thursday, October 23, 2014

The Fed's Lyin' Eyes (Labor Force Partcipation Rate)

QE = $233,000 per job

The reasons the Fed has been giving us for the falling labor force participation rate have been utterly ludicrous — "an aging work force", "retirements", "young people going to school", "those on disability" and those who choose to "stay home to take care of family or home". While these factors may contribute to the decline, they don't significantly, and they aren't the main reason. Millions of Americans already know from personal experience that it's mostly because of  "a lack of jobs" (and mainly for younger people trying to enter the labor market).

The Humphrey–Hawkins Full Employment Act of 1978 had 4 goals: full employment, growth in production, price stability, and the balance of trade and the budget. Overall, the Act sought to formalize (and to expand Congress's role in) the economic policy process, as governed by the Federal Reserve and the President.

Did quantitative easing (QE) help to create jobs? The total U.S. treasury and mortgage-backed securities held by the Federal Reserve from December 2007 to the present is 2.4 trillion — and the net new jobs created during that period of time is 10.3 million — for a cost of $233,000 per job.

Assuming all those jobs are not permanent and full-time, and they do not have a lifetime span of 44 years (from high school graduation until early Social Security retirement), but instead, those jobs only lasted 7 years (say from 2007 to 2014) — then those 10.3 million jobs would have had to pay an annual wage of $33,285 a year (or $16 an hour for a 40-hour-week). But did most of those new jobs come even close to paying that much?

And how many people got a job, then were laid off, and then got another job? (Meaning, 2 jobs were created for 1 worker.) Or how many people took a secondary job? Again, 2 jobs created for 1 worker. Currently we have 7.1 million "multiple job holders". Did 10.3 million "people" get 10.3 million "jobs"? And of those 10.3 million jobs created, how many were part-time? Currently 6.7 million people work part-time because they can't find full-time work — or because their hours were cut. (Editor's note: All the numbers were crunched with sources here.)

* BLS JOLTS: "Over the 12 months ending in August 2014, hires totaled 56.2 million and separations totaled 53.6 million, yielding a net employment gain of 2.5 million. These figures include workers who may have been hired and separated more than once during the year."

And what about "growth in production"? Real (not value-added) GDP is currently very sluggish, especially when our rate of growth for GDP is compared to China's. Since the early 1970s real GDP per capita in the US has doubled, but just since 1990, GDP per person in China has doubled and then redoubled.

China vs US GDP

And what about our "balance of trade and budget" — we still have our huge trade deficits (mostly with China). And have we really had real "price stability"? Inflation is somewhat higher since the Act was passed in 1978 (chart below), creating two generations of dual- and multiple-income households to keep up with the high cost of living.

Historical CPI

Have any of the 4 goals of the Humphrey–Hawkins Full Employment Act of 1978 ever been accomplished? And if so, compared to what other alternative?

The Big Lie: The Labor Force Participation Rate

Now the Federal Reserve has been attempting to explain away the declining labor force participation rate (sometimes, in very contradictory ways, and using "word salad" to boot.) The Atlanta Fed claimed in a recent post titled "Labor Force Participation Dynamics":

A larger share of older Americans are staying in the labor force than in the past. All else being equal, if those older than 60 were just as likely to retire as they were in 2007, the labor force participation rate would be about 1.0 percentage point lower than it is today. Other factors bringing down the overall labor force participation rate include an increased incidence of people saying they are unable to work due to disability or illness, increased school attendance among the young, and decreased participation among individuals 25 to 54—the age group with the greatest attachment to the labor force...

Some effects of the recession are clear. For example, the aging of the population will continue to put downward pressure on the overall number, even if labor force participation rates among those over 60 returns to its longer-term upward trend. The future directions of other factors are more difficult to call. Will school attendance among the young continue to rise even as the labor market recovers? To what extent has prime-age participation permanently declined? Undoubtedly, some people will enter or reenter the labor market as it strengthens further, especially those who left to undertake additional training. But for others, the prospect of not finding a satisfactory job may have caused a more permanent detachment from the labor market. For example, there is a very low probability that the individuals citing disability as their primary reason for not participating in the labor will return, even as economic conditions improve...

The Atlanta Fed makes the preposterous claim that the reasons why the labor force participation rate is in decline is because: After people graduate from high school, they go to college; then after they graduate (or drop out) from college, they stay home to take care of family or home — and they do this until they are either 50 (and then go on disability), or until they are 60 (and retire).

The Atlanta Fed claims: "Young people [18 to 25] who are not in the labor force mostly cite school as their main activity."

* Note: If everybody went to college after high school, then everybody would (sooner or later) either graduate from college or drop out of school to look for work (and don't college students also work — and especially with the high cost of tuition these days?) So after they graduate from college (or drop out), according to the Fed, the next step would put them in the "25 to 50" group (see directly below).

The Atlanta Fed claims: "Individuals 25 to 50 years old who are not in the labor force are mostly taking care of their family or home."

* Note: Oh really? The Fed is telling us that the majority of those who are not in the labor force are not those who might have once been "discouraged workers", or those who never entered the labor market for the very first time after high school or college, and are not mostly unemployed because they can't find jobs. (Who believes that fairy tale?)

The Atlanta Fed claims: "After age 50, disability or illness becomes the primary reason people do not want to work."

* Note: The number of people who were approved for disability since the end of the recession is TINY compared to those went to school or retired. And many people on disability would actually PREFER to work (rather than living on their meager monthly allotments), but they also couldn't find work (just like healthy prime-age Americans could not find jobs). And while disability "claims" may have risen (like they always have during previous recessions), actual "awards" have declined (as have "terminations" increased", resulting in a slow net increase — and only in proportion to the labor force). Attributing disabled people as a significant factor for any decline in the labor pool is a total fiction deliberately created by our central bank (and ironically, even their own data proves this claim to be a myth! So their bizarre claim can only be ideologically and/or politically motivated.)

The Atlanta Fed goes on to claim these people (if not disabled) care for family "until around age 60, when retirement begins to dominate."

* Note: Most people don't retire until they are eligible for Social Security (some early, at the age 62) and/or until they can take a pension. Because of the recession, an estimated 1.4 million were forced to take an early retirement with reduced benefits at age 62 because they couldn't find work.

So essentially, the Fed is saying that, from their parents' nest, all throughout their life until retirement age (from the age of 18 to at least 60) most people who aren't working now (those who are not in the labor force) is because they are "mostly taking care of their family or home." Now THAT is total BS!

The National Center for Education Statistics shows that we've had over 16 million high school graduates from 2009 to 2014. During that same period of time, the Social Security Administration shows we've had an additional 5.7 million retirees (as many as 1.4 million were forced into early retirement). And we've also an additional 1.4 million disabled workers in payment status for benefits. Yet, during that same time span, we've also had more than 11 million additional people "not in the labor force" — of which 6 million who are not counted in the unemployment rate (and who are "not in the labor force") also say they want a job — and many are disabled or retired (but most likely because they're over 50, employers wouldn't hire them.)

Click on the link in this page that's titled "Labor Force Participation on Age" and the Atlanta Fed says:

The rate of labor force participation had been declining among young and prime-age workers and increasing among older workers for several years leading up to the Great Recession. That trend has continued for the young and prime-aged, but the participation rate for older workers has flattened out.

* Note: AARP polls showed older workers, who were not laid off during the recession and not rejected for jobs because of age, were working longer than ever to recover losses in home equity and pension plans — thereby creating less "churn" in the labor force to make room for younger workers to enter the labor force.

On that same page, but this time, click on the link titled "Labor Force Participation Over Time" and the Atlanta Fed also says:

Participation rose rapidly during the 1970s and 1980s and peaked in the late 1990s as women became more likely to participate. But by 2007, participation had declined by about a percentage point. Since then, participation has declined even more rapidly, and by mid-2014, participation was at its lowest level since 1978.

Note: Actually, the LFPR peaked in April 2000, and has been in decline ever since (most likely because of increased offshoring). And women became more likely to participate in the labor force long before the late 1990s because since the 1970s*, we've had a great increase of dual-income households to keep up with the cost of living (see the first chart above for CPI). Yes, there was a slight "bump" in retirements and disabilities after the recession (see the first chart below), but retirements are more or less back on track with the previous trend leading up to the recession (for the reasons I mentioned: forced early retirements for lack of jobs.) And the second chart below that shows the decline in the participation rate is also back on its previous trend after the acute drop during 2009/2010 period (when the unemployment rate had peaked).

* Source: Bureau of Labor Statistics, "Dual-earner couples are swiftly replacing the traditional married-couple model of a "breadwinner" husband and "homemaker" wife. From 1970 to 1993, the proportion of dual-earner couples increased from 39 percent to 61 percent of all married couples."

Social Security receipts since the labor force participation rate began its long decline in April of 2000 (red line is trend)
Social Security receipts since 2000

The labor force participation rate since it began its long decline in April of 2000 (red line is trend)
Labor force participation rate since 2000

The Federal Reserve has mostly focused on the labor force participation rate since 2007 to try and attribute most of the decline to "an aging work force" or "retirements" or "young people going to school" or "those on disability" or because working-age Americans prefer to "stay home to take care of family or home"— but all the Fed's excuses/reasons are just pure BS (bogus sh*t). The main reason is because of a lack of jobs for younger people trying to enter the labor market. Plain and simple.

Some economists have been saying we don't have enough "churn" in the labor market (older workers leaving the labor force to make room for younger workers), which is most likely true. And a great many of those new jobs that the Fed bought for $2.2 trillion in QE aren't paying $16 an hour in full-time work, but are paying minimum wages in part-time temp jobs.

So, besides falling short at their job of achieving those 4 goals (full employment, growth in production, price stability, and balance of trade and budget), they've also been lying through their teeth. The St. Louis Fed's chart below shows the LFPR for two age groups. Notice that the Atlanta Fed said (under the section titled "Executive Summary"), "the participation rate for older workers has flattened out" — yes they have, after rising! — but the Fed had also previously said "an older work force is contributing to the decline". (That's like saying "light" contributes to the sky's color.)

The labor force participation rate by age group since it began its long decline in April of 2000
Labor force participation rate by age group

So if the Fed doesn't have Lyin Eyes, then they must be blind — meaning, if they aren't deliberately misleading us, then they must be incredibly naive. For just once, can we hear the Fed say:

"For the past 14 years the U.S. has lacked enough jobs for everyone who wants one — and that's the most significant reason why we've had a declining labor force participation rate since April of 2000 — and that was most likely caused by bad trade deals and bad tax policies — which in turn, have enabled the offshoring of so many domestic jobs. And for that, we're very sorry."

Is this the Smoking Gun? (Jobs and Participation Rate)

Using data from the Bureau Labor Statistics, they reported an additional 1,911,000 year-to-date (from Sept. 2013 to Sept. 2014) for those "not in the labor force". Now subtract 1,155,557 for retired and disabled on Social Security during that same time for a difference of 755,443. That would indicated that, out of 3,037,040 high school (and college) graduates this year, 755,443 of them dropped out of the labor force to maybe "take care of home or family" — but yet, of those, 65,000 less say they "wanted a job" compared to last year. That would indicate 2,281,597 graduates found jobs this past year (and/or no one else was hired). That is astonishing! But wait....how many jobs were created year-to-date during that time? The Bureau Labor Statistics reports 2,799,000 — for a shortfall of 517,403 jobs. The numbers don't add up, not even for government work.

And were those 2,799,000 net new jobs created for 2,799,000 different people over the last year? And how many people got a job, then were laid off, and then got another job? (Meaning, 2 jobs were created for 1 worker.) Or how many people took a secondary job? Again, 2 jobs created for 1 worker. Currently we have 7.1 million "multiple job holders". And of those 2,799,000 jobs that were created over the past year*, how many were part-time? Currently 6.7 million people work part-time because they can't find full-time work (or because their hours were cut).

* BLS JOLTS: "Over the 12 months ending in August 2014, hires totaled 56.2 million and separations totaled 53.6 million, yielding a net employment gain of 2.5 million. These figures include workers who may have been hired and separated more than once during the year."

Over the last year (year-to-date) we've had over 3 million high school and college graduates (ages 16 to 24), but the Bureau Labor Statistics reports only 810,000 of those are "not in the labor force" -- and of those, only 136,000 "want a job".

During that same time, according the the BLS, we've had an additional 227,000 people (ages 25 to 54) "not in the labor force" --- and during that time, we've also had an additional 33,043 on Social Security disability.

During that same time (year-to-date, from September 2013 to September 2014) the Bureau Labor Statistics reports an additional 1,602,000 people (ages 25 to 54) "not in the labor force" --- and during that same period of time, we've had an additional 1,122,514 retired on Social Security.

   Year-to-date: more retired ......................1,122,514
+ Year-to-date: more disabled ....................... 33,043
= Year-to-date: more "not in labor force" = 1,155,557 —  the vast majority of the additional year-to-date number of 1,911,000 that the BLS reports, implying that hi8gh school and college graduates who can't find work only make up a tiny part of the decline in the labor force participation rate.

^ This is just for the past year; but it's calculated every year by the government the same way.

Not in the labor force and not counted in the unemployment rate

YTD Sept 2013 Sept 2014 Difference Want a job Sept 2013 Sept 2014 Difference Demographics Sept 2013 Sept 2014 Difference

Total

90,632 92,543 1,911,000 5,775 6,007 232,000 - - - -
16 - 24 17,639 17,720 810,000 1,681 1,817 136,000 High School Grads* [Class of 2012/13
3,092,290]
[Class of 2013/14
3,037,040]
3,037,040

25 - 54

23,441 23,668 227,000 2,599 2,534 - 65,000 SS Disabled 8,925,372 8,958,415 33,043
55 and over 49,553 51,155 1,602,000 1,495 1,656 161,000 SS Retired 37,674,932 38,797,446 1,122,514

* As an aside: Also from the National Center for Education Statistics:

During the 2014–15 school year, colleges and universities are expected to award:

1.0 million associate’s degrees
1.8 million bachelor's degrees
821,000 master's degrees
177,500 doctor's degrees
3.8 million total degrees

In 2011–12, postsecondary institutions awarded:

1.0 million certificates below associate’s degree
1.0 million associate’s degrees
1.8 million bachelor’s degrees
754,000 master’s degrees
170,100 doctor’s degrees
4.7 million total degrees

Wage Earners from 1999 to 2014

According to new wage data for 2013 from the Social Security Administration this week (released in October 2014), the median annual wage today is $56 a year less than it was 14 years ago in 1999 (adjusted for inflation.)

Note: The decline in the labor force participation rate began in April of 2000, even though the population increased.

Also, we had 155.5 million wage earners in 2007 BEFORE the recession — but as of last year we only had 155.7 million (4 years AFTER the recession officially ended).

According to the Social Security Administration, 50 percent of all wage earners had a net compensation less than or equal to the median wage — meaning, half took home more and half took home less for each year listed below:

Year Nominal median wage for wage earners Median wage in inflation-adjusted 1999 dollars Total# of wage earners per SSA* # earning less than $20,000 a year* # in the civilian labor force per BLS* # individual Tax returns per IRS*
2013 $28,031 $20,046 155,772,341 60,821,942 154,937,000 -
2012 $27,519 $19,968 153,632,290 60,875,833 155,485,000 -
2011 $26,965 $19,971 151,380,749 60,978,000 153,927,000 -
2010 $26,363 $20,141 150,398,796 61,707,714 153,639,000 -
2009 $26,261 $20,393 150,917,733 61,895,195 153,111,000 -
2008 $26,514 $20,516 155,434,562 62,987,266 154,655,000 -
2007 $25,737 $20,679 155,570,422 64,477,278 153,918,000 -
2006 $24,891 $20,569 153,852,734 65,354,611 152,732,000 -
2005 $23,962 $20,440 151,603,359 66,275,542 150,030,000 -
2004 $23,355 $20,597 149,438,752 66,615,906 148,059,000 -
2003 $22,576 $20,441 147,722,206 67,539,573 146,729,000 -
2002 $22,152 $20,514 148,069,056 68,615,025 145,066,000 -
2001 $21,767 $20,476 148,282,344 69,580,658 144,305,000 -
2000 $20,957 $20,275 148,113,768 71,516,447 143,248,000 -
1999 $20,102 $20,102 145,060,839 72,258,638 140,177,000 -

* $20,000 a year would equate to a full-time job of 40 hours a week making $9.61 per hour before taxes.
* A "wage earner" is anyone being paid an hourly wage or a salary that is taxed for FICA on W-4 forms. A CEO with $100 million in stock option grants, but is also paid a base salary of only $1 dollar, can also be a "wage earner" — but who would only have to pay Social Security taxes on that $1 — because realized capital gains after one year are not taxed for Social Security.
* The number in the civilian labor force exceed the number of wage earners, most likely because those who are still counted as "unemployed" (but not a wage earner) are still considered part of the labor force.
* You can visit the IRS website and compare the number of individual tax returns for each year as well (to fill in the last column in the table above). There's usually a lot less than the number of actual wage earners or the number of people in the labor force (and for confusing and unexplained reasons.)

Wednesday, October 22, 2014

Social Security COLAs (1975 to 2014)

The very first Social Security check (check number 00-000-001) was issued to Ida May Fuller in the amount of $22.54 and dated January 31, 1940.

(The charts below are from the St. Louis Fed) Historical Consumer Price Index for Urban Wage Earners and Clerical Workers. As you can see, inflation really began taking off ever since the 1970s.

Historical Consumer Price Index for Urban Wage Earners and Clerical Workers

Beginning in 1975, Social Security started automatic annual cost-of-living allowances (COLAs). The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W).

The chart below shows inflation since the Great Recession started in December 2007 to the present in October 2014. The chart depicts the small red square in the chart above. The only significant drop in inflation happened during the Great Recession (when apartment rents actually went down, instead of up.)

Consumer Price Index for Urban Wage Earners and Clerical Workers

Most recent SS COLAs:

Monday, October 20, 2014

Poll: 64% of Voters think U.S. is "Out of Control"

In a recent poll by Politico, they asked "Which of the following comes closest to your own views when you think about the United States?" The number one answer to that question that made the morning headlines was: "Things in the U.S. feel like they are out of control right now.........64%

Other poll results:

Saturday, October 18, 2014

Why the US should be more like France

Not in the way we grow grapes and ferment wine in Napa valley, and not in the way we process cheese in Wisconsin, but in the way we treat our workers.

Conservatives have been well known for bad-mouthing our European ancestors — especially the French 1 — calling them "socialists" and whatever other insults they can think of to hurl at them 2. Although, "socialist" isn't even an insult, but a political terminology that's used as a scare tactic by the Republicans to invoke irrational fear — equating Socialism to Stalinism and genocide (playing on their base's ignorance).

Tuesday, October 14, 2014

Republicans now Demanding MORE Government

The Republican/conservative/tea party politicians have been ultra-critical of all "government" (even though they themselves are part of our "big government") — especially since Obama first took office. They have been demanding less government regulation — while also demanding cuts in taxes and less government spending. They've insistently pushed for cutting budgets or eliminating government agencies altogether (such as the CDC, EPA, IRS, FBI, FAA, FCC, FEC, FDA, etc.).

Sunday, October 12, 2014

Minimum Wage Updates (October 2014)

Clearly the majority of Americans IN BOTH PARTIES favor raising the federal minimum wage, as well as most of our Democratic leaders. So why won't the Republicans in Congress do the people's will?

Saturday, October 11, 2014

Why Republicans Should Vote for Democrats in 2016

Republican voters, who might earn more than $7.25 an hour, should understand that, by setting the ground floor for the lowest federally mandated minimum wage (by raising it) also puts great pressure on their employers to raise their wages as well. How can their bosses explain to a factory worker in Tennessee (or elsewhere) that McDonalds employees are earning more than they are?

Friday, October 10, 2014

Please! Send the Helicopters!

In the beginning of the Great Recession, George W. Bush responded to the early signs of economic trouble with a "helicopter drop" in the form of lump sum tax rebates to wage earners, which were provided for in the Economic Stimulus Act of 2008.