Wednesday, October 1, 2014

Taking An Exit From The Labor Force

Over the last ten years 16 million Americans have dropped 

out of the labor force

The US economy has not recovered in typical fashion. Following the Great Recession, we witnessed a large growth in those not in the labor force. Part of this has to do with an older population but that does not address the issue completely. The US has added 16 million people to the “not in the labor force” category over the last decade and this trend has also assisted in padding the unemployment numbers. How so? If you are not in the labor force, you are not counted therefore the rate miraculously drops. It would be one thing if all older Americans were entering retirement age with adequate savings. This is simply not the case. Many Americans are simply broke and their version of retirement includes working until you drop. You would think that things got better since the recession officially ended back in 2009. The opposite is true since 12 million people have dropped out of the labor force within the last five years alone. In other words, the bulk of the people dropping out of the labor force occurred during a labeled recovery.
Taking an exit from the labor force
All things in economics intersect. For example, many people losing their jobs have decided to go back to school to pursue other avenues and careers. With the high cost of college, the student debt bubble continues to expand. These people selectively remove themselves from the workforce. However, a large portion of the growth has come in the form of people losing work and simply not being able to find it again. Many find work with wages that pale in comparison to what they once earned.
A distinguishing characteristic of this recession is that many good paying jobs were lost and simply never returned. The jobs that came back for the most part were in low wage sectors. First, let us examine the growth of those not in the labor force:
not in labor force
You’ll notice over this 10 year period, those not in the labor force increased by 16 million. What is even more telling is that 12 million of that growth came in the last 5 years alone (a time of economic recovery on paper). But the recovery in many respects has come from firms cutting wages, slashing benefits, and suffocating the middle class. This has done wonders with increasing profits for Wall Street but 90 percent of stock wealth is controlled by 10 percent of the population.
Another key point to highlight is that 92 million Americans are part of the not in the labor force category. This is an enormous number. Many are older Americans with little to no savings that will be relying on Social Security and Medicare for the next couple of decades. This is going to put added pressures on younger workers and government infrastructure.
Is it a bad thing to have such a large number of Americans not working? Yes, if many are simply discouraged from working or many are dropping out of the labor force into a frugal or close to poverty base retirement. Not exactly the vision many had as they entered the golden years of their lives.
More Americans are looking for work today than at the height of the Great Recession:
want job now
Is this a recovery? It depends on who you ask. If you have a massive stock portfolio then yes, you probably are doing well. But as we mentioned, 90 percent of stock wealth is held with 10 percent of the population. Keep in mind that many of the stellar profits have come from leveraging the recession to cut wages, stifle income growth, and limit benefits.
The reason so many Americans feel the economy is not doing well is because it isn’t. Many people on Wall Street thought things were great deep into 1929 but much of America was broke and living day to day. Ultimately, the casino and reality have a meeting and this usually results in a correction. It looks like a correction is coming in large part because of the underlying fundamentals of our current economy. If you doubt this, simply look at inflation and what it has done to purchasing power. Or you can ask those not in the labor force how good things are going.