Dr. David Mielke is the Retired Dean of the College of Business at Eastern Michigan University.
More than 4 years after the end of the recession officially ended 11.5 million Americans are unemployed, many of them for years. Millions more have abandoned their job searches, hiding from the economic storm in school or turning to government programs for support. Do we have a permanently smaller workforce that has created a new normal? Should we be passing new legislation to promote job creation? What is the “Right Thing to do?”
Let’s look at some issues:
1. The growth of the economy over the past 4 years has been slow at best, although the economy grew 2.5% in the second quarter–the best since last fall. The long-term US growth rate has averaged nearly 3.5% a year.
2. The recovery isn’t reaching many of the most vulnerable. For those without a high school diploma, the unemployment rate in July was 11%, for African Americans 12.6%, and for teenagers 23.7%.
3. Nearly 7 million people say they want a job but aren’t actively looking for work.
4. More than 8.9 million Americans are receiving federal disability payments in August, up 1.8 million since the recession began. Some experts say many of the new recipients would have kept working in a healthier economy. Research has shown that once people begin receiving disability payments, relatively few return to work.
5. It is worrisome that there are signs of bifurcation in the labor market. For those unemployed for 6 months or less, the odds of finding a job have improved steadily over the past year. The long term unemployed have made almost no progress at all. A growing body of economic research suggests the longer people remain on the sidelines, the less likely they will work again.
6. Half of the new jobs created since the end of the recession have been part-time. Although some analysts consider this to be symptomatic of the poor recovery, a new report from the Federal Reserve of San Francisco finds that the number of part-time jobs isn’t abnormal. What is abnormal however, is the age of the workers holding those jobs. Generally, part-time jobs are mostly held by people between the ages of 16 and 24 and married women. In the current economy, these labor pools are shrinking. Some estimate that half of the part-time jobs are now held by the prime age workers—those between ages 25 and 54.
7. The US has only recovered about three fourths of the jobs lost during the economic downturn.
8. Many blame the growth of part-time jobs versus full-time on Obamacare. Companies are hiring part-time to avoid providing health care coverage starting January 1, 2015.
9. The labor participation rate, that is the percentage of the work age population that are in fact working or looking for work is at its lowest rate in almost 3 decades.
Key questions remain. How many of the labor force dropouts will return when the economy eventually rebounds more strongly? Will the part-time jobs eventually become full-time? But given the record of the past 4 years, can we expect the economy to grow at a faster rate creating more jobs and in particular more full-time jobs? If most of the dropouts are simply waiting for better times, then advocating for new government stimulus might make sense. But if most of the dropouts are gone for good, the long term unemployed are unable ever to get jobs again and if those on disability never return, then we may have a new normal—a permanently smaller workforce. If this is the case, no amount of stimulus will make a difference and only increase the deficit.
What is the “Right Thing to do?” In my opinion, we are approaching a new normal in terms of the worker participation rate. We have a new normal, lower economic growth rate and a new normal in the age of part-time workers. New stimulus programs do not make sense.