Mar
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Blog Post #10: An Unsustainable Job Market
March 24, 2015 | Leave a Comment
Reports from the Federal Reserve concerning employment rates in the past few years have consistently cited dropping unemployment rates. From 9.9% unemployment rate in 2009, the rate has slowly decreased to 5.5% this year. This 4.4% decrease is quite dramatic. Solely looking at this statistic, one can easily assume that the United States’ economy has improved as less people are unemployed. However, that is not the case. If we look at other statistics such as the labor force participation rate, the percentage of citizens participating in the labor force has dropped to 62.8%. Last year in October, the labor force participation rate dropped to 62.7%. This is the lowest participation rate since the United States’ economic malaise in the 1970s when Jimmy Carter was president. Simply by comparing the labor force participation rate to the unemployment rate, we can see that a large portion of the 4.4% decrease in unemployment rate can be contributed to the sharp decline in labor force participation rates. If more eligible workers are backing away from the job market, it is no wonder that the unemployment rate fell accordingly.
Many people attribute the decrease in unemployment rate and the labor force participation rate to the aging of the baby-boomers. The retiring of many baby-boomers may cause a slight drop in these two economic rates. However, Nelson D. Schwartz’s New York Times article also points out that we are seeing many 25-54 year old workers dropping out from the labor market. According to an analysis of the Bureau of Labor Statistics data by the Barclays Group, many young men are dropping out in large numbers. The percentage of young men in the work force has fallen from 93% in 2007 to 88.8% in 2014. Additionally, older women between the ages of 45 and 54 are beginning to withdraw from the work force as well. These workers are not considered baby-boomers. In fact, our economy depend on their participation in the labor force to cover for the payments that will be paid out to the retiring baby-boomers.
As many of these eligible workers are backing away from the work force, it is extremely difficult to bring them back in. As Robert A. Funk, the chief executive of Express Employment Professionals, mentions, out of 5000 workers reached, only 267 of them indicated any desire to return to the work force. From these 267 workers, the company was only able to place 70 of them. These numbers tell a cyclical story. There is a huge lack of job opportunities in the economy. As many workers believe they will not be able to find jobs, they back out from the labor market and subsist on government benefits. They are discouraged to find a job. From this, many critics would claim that raising the minimum wage or “living” wage will not help. However, statistics say otherwise.
According to Ben Wolcott’s article in the Center for Economic and Policy Research, 13 states that raised the minimum wage in 2014 experienced higher employment growth. This very fact contradicts that critique that raising the minimum wage will force companies to decrease the number of employees hired. In fact, according to the analysis done by Goldman Sachs, the 13 states experienced an average employment growth of approximately 0.99% while the other states had an average employment increase of 0.68%.
Ultimately, I still find myself on the fence. There are consequences in increasing the minimum wage and consequences in not increasing the minimum wage. Many of the pros and cons are not obvious and may not be predictable at all. However, it is positive that the economy will not be “recovering” until we bring back the American workers who are so crucial to our economy. If our economic situation continues to discourage workers to come back, we will end up with an easily-collapsible economy that is fragile and not sustainable to say the least.
-Amy (SiJia) You
