Robert Reich, like so many economists (especially social economists) like to point to one specific issue as to why the back end of our employment numbers are so bad: low labor force participation, low wages, and all that. For Reich, the “reserve army” of a labor force is the reason why wages are low. For the neoclassical economists, it’s technology and retiring baby boomers. There’s just one problem: the data doesn’t point to any silver bullet.
Instead, the data points to an “all of the above” in the labor force for low wages. Some of them include (but not limited to):
- Student loan debt may be forcing people to take what ever they can get.
- Contrary to popular belief, baby boomers are NOT retiring, displacing other workers for a semi-fixed number of jobs.
- Household deleveraging of debt continues
- The “reserve army” of labor is actually in the part time labor force.
Yes, unemployment is low, but so is labor force participation, which will automatically make unemployment low. Part of our problem in measuring the health of the labor force is that we have never have (and neither did Keynes) defined “full employment.” The theory, the idea of full employment is that anyone who wants a job will be able to get one. What Keynes doesn’t say (because it wasn’t an issue in his time) was that there is a difference between part time and full time employment.
Milton Friedman posited the idea of a “natural rate” of unemployment, but this doesn’t really distract from the idea that anyone who wants a job should be able to get one. Is this the case? The answer is definitely “NO!” Those working part time as a ratio of the labor force because they couldn’t find anything else is at an all time high.
By the way: Janet Yellen and the Federal reserve is looking at how many people are quitting their part time jobs for full time jobs. The JOLTS Quit Rate has been stuck below 2% for a while. The Fed is looking for a consistent level of above 2%.
The United States, even when factoring in Friedman’s theory of natural unemployment, is close to full employment levels (5.6%). Supply and demand in the labor market, according to economic textbooks says that wages should be going up. But that’s not what we’re seeing. Wages took the biggest one month drop in history, and pretty stagnant for a while.
And what about all those baby boomers retiring? They’re not. Cuts to social safety nets for older people, the big 401(k) scam, and the wiping out of IRAs over time has forced those over 65 to stay in the labor force longer. The ratio of older people as a percentage of the labor force has been going up for a while.
Then there’s the student loan debt. Remember: student loans cannot be discharged in bankruptcy, so people are still on the hook for them no matter what. We can assume that at least some of those part time wages are going to pay student loans.
Just like there’s more than one way to skin a cat, there’s more than one way to look at the labor force. Yes, there is a “reserve army” of labor, but they are largely part time workers who clamor for full time jobs. Student loan debt is eating into wage drops. As a country that has historically garnered massive GDP gains on credit (for consumption), people aren’t getting credit anymore. This means that GDP is growing because of factors other than increased consumption. Lastly, older workers working longer in their lives are displacing younger workers, suggesting that the new “class” system in labor may be based on age, not socioeconomic status; or at least age becoming a part of socioeconomic status.
As long as there are policy makers looking for the silver bullet in labor force issues du jour, there will never be a solution to the macro labor force issues that effect households as a basic economic and social unit. An “all of the above” approach must be used. If the economy is going to be supported by a part time labor force, then full time wages must be paid to avoid economic catastrophe in the future. Other wise, full employment has to be defined as: all those who want full time work, ought to be able to find it.
There is no magic, silver bullet; only a magic, silver bazooka. Anything other than an “All of the Above” approach is just bad labor economics and bad labor policy. Answers are not supposed to be easy when the problem is this complicated, and crosses the lines of economics, sociology and politics.