Thursday, January 23, 2014

Our Economy has been Deconstructed

The employment-population ratio in now at a 30 year low; and the labor force participation rate is now at a 35 year low—and both have been in a steady decline since peaking in April of 2000. The first Baby Boomer (who born in 1946) didn't retire until 2008 when she turned 62 (she would have been eligible in 2011 to retire at the age of 65).

So it's not middle-aged people (who are retiring early) that has been driving a shrinking work force for the past 14 years. Over the past 40 years offshoring and automation has contributed to a glut of discouraged prime-aged workers. And the Bureau of Labor Statistics predicts a continuing decline going forward into 2022.

But by 2025 robots with artificial intelligence will be capable of doing almost everything humans can do—and employers will need even fewer workers in a growing population.

There is currently a record high 93.2 million Americans NOT in the labor force—and of those, about 48 million are unemployed (and 6 million of those are called "missing workers"), but would like a full-time job. America can not revert back to a nation of self-sufficient farmers or hunter-gathers. So what will society do for those who can't find jobs so that they can have a means of providing for themselves?

Should those, who are putting people out of work, be taxed to support the unemployed with a basic income? Maybe with a "human tax" on their capital gains to compensate the loss of human capital? After all, they aren't doing anything else with their hoarded wealth. (See these links below.)

Robots taking human jobs

Brandeis University's Lisa Lynch at PBS: "Not all of this decrease in the unemployment rate came about because of people moving into employment. A large part of the decrease was driven by people dropping out of the labor market completely. Over the past year, the labor force participation rate fell from 63.6 percent to 62.8 percent. If the labor force participation rate had not fallen at all over the past year, we would have had 2 million more people in the labor force today. Some of that decrease in labor force participation may include more young people delaying entry into the labor market and staying on in school. Some of the decrease reflects the fact that with an aging population, a greater share of the working-age population is over the age of 65 and is retiring.

But there is a worrying trend in the labor force participation rate for "prime-aged" (those 25-54 years of age) workers. Hundreds of thousands of prime-aged workers have dropped out of the labor market in spite of job growth and a falling unemployment rate. Many of these workers have become discouraged; they want and are available to work, and have looked for work over the past 12 months, but have currently stopped looking because they believe no jobs are available or there are none for which they are qualified.

The Economic Policy Institute's Heidi Shierholz: "The [last] jobs report shows a very weak labor market, and the continued fleeing of workers from the labor force because job opportunities are weak. The unemployment rate dropped from 7.0 percent to 6.7 percent in December, but as has been a constant refrain throughout this recovery, the improvement was not for "good" reasons.

The share of the working-age population with a job did not increase in December, and the labor force participation rate dropped back down to its lowest point in 35 years. The number of "missing workers" increased from 5.6 million to 6 million. (Missing workers are jobless workers who are "discouraged workers" who would be either employed or looking for work if jobs were available.) If these workers were in the labor force looking for work, the unemployment rate would be 10.2 percent instead of 6.7 percent.

In recent weeks, much has been made of the supposed acceleration in labor market strength, but it doesn't appear to be happening. At the average growth rate of the last three months, it will take nearly six more years for the labor market to regain pre-recession labor market conditions.

With job opportunities so weak for so long, workers have gotten stuck in unemployment for record lengths of time. Last month, the extensions of unemployment insurance benefits were allowed to expire -- an unprecedented move given the weak state of the labor market. The share of the workforce that is long-term unemployed (i.e., jobless for more than six months) is nearly twice as high today as it was in any other period when we allowed an extended benefits program to expire following earlier recessions.

American Enterprise Institute's Michael Strain: "Unemployment in 2013 looks good on the surface. The unemployment rate fell by over a point last year, and will almost surely continue to fall in 2014. That indicator gets a great deal of attention, but going beneath the surface and digging deeper into the labor market statistics tells a different story. A falling unemployment rate is good if the unemployed are transitioning into employment. A falling unemployment rate is not good if the unemployed are losing hope and giving up their job search entirely. Getting more people -- especially the long-term unemployed -- into jobs should be the major focus of federal economic policy in 2014. Of course, that was true for 2013, too.

The Heritage Foundation's James Sherk: "The job market had another anemic year in 2013. Unemployment dropped by 1.2 percentage points, but only because millions of Americans stopped looking for work. The labor force participation rate continued to decline and hit its lowest level since 1978. The proportion of the adult population with jobs remained unchanged. Some analysts blame falling labor force participation on retiring baby boomers, but the same pattern holds when looking at prime-aged workers (25-54 year olds).

Prime age men make the largest share of discouraged workers

Blogster-at-Large, Bud Meyers: "Some sections of our society (such as corporate CEOs), which unfortunately wield disproportionate political influence, regard high unemployment as a "good thing" because it minimizes their labor costs, and keeps their employees "in their place." Overlapping this group is a conservative sector that believes that the poor are causing their own problems, therefore do not merit anything better than what they get.

But one reason that the labor force participation rate is low, and going lower (and will keep going lower as projected by the Bureau of Labor Statistics), is that robots are slowly replacing all possible human labor. People can't compete with a robot forever. By 2025 they will be as smart as an average human. Two years later they'll be smarter.

What seemed like a description of a distant future in Martin Ford's The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, is already manifesting all around us. Ford's book examines the impact of rapidly advancing technology on the jobs done by humans, particularly the rank and file, and the impending moment when our digital devices become smarter than the people who operate them.

As it is now, it might be too late to insource factories back into the U.S. -- Google is going to build Google Glass in a U.S. factory and is expected to employ 16 "robot-tenders". By comparison, the first Ford factory in 1914 employed 1,000 times as many people.

Automation is an increasingly important factor. This should be a heads up for, not only the owners of production, but also the government policy makers and politicians—because under the present wage labor economy, if there are no (or too few) employees due to automation, very few people will be able to purchase the goods produced, rendering the huge investment in automated factories and the development of advanced products to the value of scrap metal.

President Obama was recently in North Carolina touting a resurgence of manufacturing (while behind the scenes, he has been pushing to fast track another trade agreement). But as Annie Lowrey at the New York Times writes: "North Carolina still has nearly 350,000 listed as officially unemployed, and many more, including those living in depressed rural areas, have given up even looking for a job. For them, the safety net is gone, and largely out of sight, countless families have slipped deeper into poverty."

The Republicans argue that what they see as overly generous government support with unemployment benefits only encourages dependency, and that a thinner safety net would actually be more effective, pointing to North Carolina’s falling jobless rate as prime evidence.

North Carolina Governor Pat McCrory: "Employers were telling me they had vacant jobs, but people would say, ‘Hold that job until my unemployment benefits end.' I heard that time and time again. Now, employers are telling us that people are coming in and filling out applications to accept jobs, not to meet the requirements of unemployment."

But for every worker who found a job, more than two dropped out of the labor force entirely, according to the latest survey by the Bureau of Labor Statistics. And many jobless workers are accepting jobs for far less pay than they made before, but in many communities, there are simply not enough jobs.

Michael Feroli of JPMorgan Chase has estimated that the loss of extended benefits might lead to a 0.25 to 0.5 percentage-point drop in the unemployment rate.

At a libertarian blog, Lawrence Summers wrote that government assistance increases the measure of unemployment by prompting people who are not working to claim that they are looking for work, even when they are not—and that unemployment benefits contributes to long-term unemployment by providing an incentive, and the means, not to work (and also claims unemployment insurance also extends the time a person stays off the job.)

Summers also blamed organized labor: "Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy...There is no question that some long-term unemployment is caused by government intervention and unions that interfere with the supply of labor."

But then, almost suddenly, Larry Summers starts to sound more rational:

"It is, however, a great mistake (made by some conservative economists) to attribute most unemployment to government interventions in the economy or to any lack of desire to work on the part of the unemployed. Most economists have agreed that cyclical fluctuations in unemployment are caused by changes in the demand for labor, not by changes in workers' desires to work, and that unemployment in recessions is involuntary. Even leaving aside cyclical fluctuations, a large part of unemployment is due to demand factors rather than supply. Over the longer term key variables affecting unemployment will include unemployment insurance, unionization, and the success of the economy in handling the reduced demand for unskilled workers caused by technological innovation."

But the Reverend Mac Legerton, the executive director of the Center for Community Action in Lumberton, North Carolina, may have said it best: "Our economies have been deconstructed."

Meanwhile, we know where the GOP's priorities have been. Instead of coming up with their very first "jobs bill", the Republican Party is now set to repeal a U.S. anti-tax dodging law. Evidently the GOP doesn't feel that the top one percent our job creators shouldn't have to contribute to unemployment benefits and food stamps for displaced workers.


The Federal Reserve Bank of Chicago says the labor force has been declining for a decade because boomers are aging out of the workforce. But how can that be? Boomers were born between 1946 (turning 62 in 2008) and 1964 (turning 62 in 2026). The labor force has been in decline for 14 years (see charts)

The Federal Reserve Bank of Philadelphia says: "The increase in nonparticipation due to retirement has occurred only after 2010, while nonparticipation due to disability has been steadily increasing over the last 13 years, except for the last few years...The decline in the participation rate since the first quarter of 2012 is entirely accounted for by increases in nonparticipation due to retirement....This implies that the decline in the unemployment rate since 2012 is not due to more discouraged workers dropping out of the labor force."

Look at the data for yourself: From 2000 to 2014 (the time period the Fed refers to) and you will see the U.S. had 37.6 million high school graduates and 14 million additional retirees and disabled people on Social Security. The U.S. (with a growing population) has had far more "non-starters" in the labor force than Baby Boomers who were forced into taking an early retirement at 62—or people gaming the system to collect a disability check.

The Fed wants the unemployment rate reported lower (saying we have "full employment") to further taper quantitative easing (near 0% interest for money to the commercial banks.)


  1. Shake my head. Property prices in Yangon Myanmar has now risen higher than NYC. Myanmar has one of the lowest employee wages in the world. I guess multi-national companies are looking to mine the next lode of cheap labor, and this is a gold rush for them. Meanwhile China falters and stock market has a steep drop.

  2. UPDATE Dec. 28, 2015

    The A.I. anxiety

    "We live in an age in which machine intelligence has become a part of daily life. Computers fly planes and soon will drive cars. Computer algorithms anticipate our needs and decide which advertisements to show us. Machines create news stories without human intervention. Machines can recognize your face in a crowd. We don’t know how this will play out, but some of the most serious thinkers on Earth worry about potential hazards — and wonder whether we remain fully in control of our inventions.”