In an earlier post I argued that the decline in the labor force was mostly due to young adults not being able to find work, and that's why so many people are "not in the labor force" — and that it wasn't mostly because of retirees or disabled people leaving the work force, or because more people are going to school.
In recent testimony before the U.S. Senate Committee on Finance, Professor Robert E. Hall (Hoover Institution, Department of Economics, Stanford University) concluded that "the U.S. labor market is back to normal in terms of unemployment, job-finding and recruiting." I'm sure if Herbert Hoover were alive today, he'd be happy to hear that. And now that the Republicans control Congress, maybe they'll take full credit for all this wonderful news.
But then Professor Hall goes on to say in his testimony:
The recovery of unemployment resulted in no recovery in participation [the labor force participation rate]. Rather participation fell by about the same amount per year while unemployment was rising in 2009 and 2010 — as when it was falling in 2011 through 2014. The evidence points unambiguously toward other forces, in addition to poor availability of jobs prior to 2014. The changing composition of the working-age population is one candidate to explain the decline in participation — the entry of the baby-boom generation to years of possible retirement decreased the participation rate. But another demographic trend, toward higher education, had the opposite composition effect, and the net effect of demographic change is essentially zero.
Economists have pointed to the increasing role of the social safety net in the labor market over the years since the crisis as a source of declining participation. A bulge in the number of individuals receiving disability benefits is one aspect of this trend. The social security disability program discontinues support for claimants who start working, so those receiving benefits face a strong disincentive to join the labor force.
A much larger bulge in the fraction of families receiving food-stamp benefits is a similar source of disincentive. Both bulges have failed to dissipate despite the recovery of normal job availability.
Then he says teenagers and young adults (aged 20 through 34) had huge declines in participation; but that the participation rate remained about the same for those aged 35 through 59; while people of retirement age (60 and above) had increases in participation.
This particular paragraph, one of several in Professor Hall's report, stood out:
A single force, such as low availability of work, is an unlikely candidate to explain the changes that occurred in participation. Rather, the changes seem likely to be different for people in different situations. Most of the decline in participation occurred among teenagers and young adults. The finding that these effects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefit programs, because these programs, especially food stamps, are only available to families with incomes well below the median.
But just before that, he had said "food-stamp benefits is a similar source of disincentive [to participate in the labor force]". Did he contradict himself, or did I miss something? Or maybe, Professor Hall was just saying what other conservative economists have claimed: that food stamps causes poverty, and unemployment insurance benefits causes joblessness, and receiving disability benefits causes disabilities, and getting retirement benefits causes old people to retire after working 50 years.
So then, why don't we just raise the retirement age to 75 to drive up the labor force participation rate! The new House Budget Committee Chair (GOP Rep. Tom Price) just might to that — he is vowing to raise the age of retirement — and to allow for privatization of Social Security.
Professor Hall also notes that another survey (American Time Use Survey) showed a change in weekly hours for men and women between 2003 and 2013 in a variety of activities. He says that for men (I assume he means "young men", because previously he had said "teenagers and young adults had huge declines in participation"):
The biggest change by far is the decline of 2.5 hours per week at work, a big drop relative to a normal 40-hour work week. A small part of the decline is attributable to higher unemployment . . . For both sexes, the big increases were in personal care (including sleep) and leisure (mainly video-related activities). Essentially no change occurred in time spent in education. Women cut time spent on housework.
Question: So, was Professor Hall implying that a lot of young men, rather than looking for a job, are instead staying home to watch movies or play video games (or sleep)? I would say, that after searching for many months for work, but still not finding a job, they had nothing else to do but to stay home and watch movies (or sleep). With no job and no income, what else can they do? They can't afford college tuition either. Maybe that's why some join gangs and engage in criminal activities. (Idle hands are the Devil's tools.")
In his conclusions Professor Hall notes:
The return to essentially normal unemployment conditions is an important milestone for the U.S. labor market. The period of abnormal difficulty for new job-seekers is over, and the legacy of long-duration unemployment appears likely to work itself out soon. In that respect, the labor market is performing well, especially in comparison to the markets of many other countries. No special policies related to unemployment and job-finding are indicated at present.
The decline in labor-force participation is one of the factors contributing to the stagnation of the earnings of American families, especially those not enjoying the rising wages of the highly educated. But a study of the data on the decline does not suggest the desirability of policy changes focusing on reversing the decline. In particular, the data do not seem to support the view that the social safety net is discouraging participation [because] participation by those in low-income families has generally risen, not fallen.
But maybe this is Professor Hall's true intention for his testimony: In the very last sentence in his conclusion he says, "That said, the case for structural reform of some parts of the safety net, notably disability programs, remains strong, because reform promises payoffs apart from stimulating participation."
If millions of Americans WITHOUT any disability at all can't find work in the current job market (especially full-time jobs that pay a living wage), then what convinces Professor Hall that "reforming" disability will get more disabled people back to work?
He's only partially correct when he says "those receiving benefits face a strong disincentive to join the labor force" — because some people might work if they could (and if someone would hire them), but they don't because of the limits placed on wages.
From Disability Secrets:
The Social Security Administration (SSA) puts a limit on the amount of money that you can earn through work when you receive Social Security disability benefits, because if you can earn an income, you aren't considered disabled. Specifically, if you can engage in what the SSA calls "substantial gainful activity", you won't be eligible for benefits. A person who earns more than a certain monthly amount is considered to be engaging in SGA. Federal regulations use the national average wage index to set the income limit for determining the SGA each year. In 2015, the amount is $1,090 for disabled applicants and $1,820 for the blind.
And when he says "payoffs", was he referring to the financial funding of the disability program, and perhaps subtlety making an argument for "cuts" (like the GOP has been pushing for, like Herbert Hoover might push for if he were alive today.)
As an aside: Lanhee Chen (Mr. Romney’s top economic adviser in 2012) is now one of seven members of the independent Social Security Advisory Board, and recently wrote a Wall Street Journal op-ed calling for reforms to the disability program. In light of that WSJ op-ed, staffers for Senator Sherrod Brown (D-Ohio) noted that at Lanhee Chen's confirmation hearing last year, Senator Brown had specifically asked Chen (who like Professor Hall, is also a fellow at the conservative Hoover Institution) about writing things that wouldn't help the board reach consensus on social insurance policy. At the time, Chen had said, "I think it’s crucially important that members of the board not engage in writings that would prejudice discussions or deliberations with respect to issues pending before the board." Then he wrote the WSJ op-ed calling for reforms to the disability program.
In another report by Professor Hall titled "Changes in US Household Labor-Force Participation by Household Income" dated January 19, 2015 (same link) he notes that as the labor force participation rate steadily decreased from a high of 67 percent in the late 1990s to 64 percent in 2013, a SPII survey revealed that during that same time "individuals living in the poorest households have bucked the trend [and] their participation in the labor market rose over the same period."
So, in other words, we didn't suddenly have a lot of lazy people on the government dole ever since Obama was elected. (Holy Batman! Someone should tell Fox News!!!)
And on another note (just to clarify), the the labor force participation rate last peaked at 67.3 in April 2000, and has been in decline ever since. Currently it stands at 62.7 — and it hasn't been this low since February 1978. And it's not because disabled and old people are leaving the work force; or because a lot of people have decided to go back to school. It's because young people can't find jobs.
That's my story and I'm stickin' to it.