Some thoughts about the Employment Numbers

The Labor Department released the jobs numbers today and they suggest that for both November (revised upward) and December +200k the jobs picture is improving.   Indeed, the lead in many of the stories about the numbers was that unemployment has dropped to 8.5%.   On the other hand, labor market participation rates continue to be low by historical standards.   When the President was inaugurated the participation rates were in the mid-sixties; currently they are in the high-fifites.   Were we judging employment using the participation rates as a guide the unemployment rate would be just under 11%.

There are a couple of possible explanations for these seemingly divergent numbers.   First, the long extensions of unemployment benefits could be dampening the incentive to find a job.   In essence our generosity is depressing the real jobs picture.  Some economists actually believe that is a better alternative than instituting a less generous unemployment benefit (I am not one of those). Second, we are going through what Norbert Weiner suggested almost sixty years ago - a restructuring of the economy to prior participation rates will never be achieved again.  When you look at some of the tech startups the demand for workers is significantly smaller than for more traditional manufacturing concerns.   Indeed, traditional manufacturing concerns are hiring fewer workers to do more.   Third, some have speculated that the Boomers are beginning to retire in significant numbers and that we may be moving into a Japan of the 1990s economy where labor market participation is artificially depressed.   I am sure there are some other explanations.

The question is what do we do about this from a policy sense?   If the first explanation is correct, the easiest economic issue is to bring unemployment benefits back to a shorter duration.  (That seems, in this election year, entirely impossible politically.)   If the second explanation is correct, you might create some incentives to go into new areas where jobs would be created.  (Although the history of government programs being able to solve those problems is not at all robust.)   If the third one is true (and from my perspective it is the least credible) then you look at the Japanese example and hope that we can be more creative than they have been.

The third option also seems less credible as a result of the relative paucity of the boomer's savings.  For the most part they were not very good savers and the dips in 2008/9/10 wrote down a substantial portion of the prior retirement capital.   So if it is true, we are likely to have a very large dependent class with us for a lot of time.   I don't know what the answer is but I do believe more people should be trying to craft an answer.