Let’s stop pretending that economists or politicians really care about the labor force. Okay, maybe not ALL of them, but certainly the “big dogs.”
With the Federal Reserve indicating that it’s going to raise target interest rates, there’s a lot of kicking in the Econoshere that there is too much slack in the labor market in order to raise rates. Yet from the chart above, this slack in the labor market has been going on for some time, while the Econosphere has completely ignored it.
I, along with a select few others have been writing, publishing, and blogging about the slack in the labor market for years. Most of us were downright called names for suggesting that there were problems in the labor market, or that the structure of the labor force has changed. The fact is that there has been too much slack in the labor market since 2009; the so-called end of the recession. In other words, the slack in the labor market is nothing new; it was there for everyone to see. What is new is that all the traditional excuses for ignoring the labor market have disappeared from the public discourse.
So why all the hubbub now about labor market slack from the big dogs? I suspect it’s a new form of “taper tantrum.” The free and easy money is about to go away, and surly there has to be economists, bankers, and others that aren’t happy about that. It’s the equivalent of a macroeconomic temper tantrum by a bunch of MBAs and Ph.D.s
The labor market and force has been almost totally ignored by anyone influential in monetary and fiscal policy since 2009. I find it interesting that all of a sudden, on the eve of a rate hike, suddenly the labor market is front and center. This is almost synonymous with chutzpa.
Yes, raising interest will probably cause a recession, in which the Fed will just have to lower rates again. Yes, raising rates is not so good for the labor force right now. Yes, there is a fundamental problem that’s been going on for 6 years. But let’s stop pretending that anyone in any position of influence or power in economic policy has ever really cared about labor markets since 2008.
(Note: the employment-population ratio is the ratio of working age population that have jobs versus the working age populations that do not have jobs. The Labor Force Participation Rate is the ratio of working age population that are engaged in the labor market regardless of if they actually have a job).