Where have all the workers gone?
One of the most bizarre happenings in our current economic environment has been the surprising collapse of the number of people in the labor pool. This reality adds a sting to the unemployment numbers. They are falling bit by bit, but so is the total pool of people who are even part of the count. Once people drop out, they disappear economically.
The trend for men in particular goes back half a century, but for all groups, the dropout rate accelerated dramatically after 2008:
Writing in The Wall Street Journal, economist Richard Vedder makes a rather obvious point — obvious once it is stated. If people aren’t working, they aren’t producing. If they aren’t producing, the economy is not growing. For this reason, he attributes a substantial part of the slow growth to this rather plain reality: Millions of people aren’t doing anything.
“If today, the country had the same proportion of persons of working age employed as it did in 2000, the U.S. would have almost 14 million more people contributing to the economy. Even assuming that these additional workers would be 25% less productive on average than the existing labor force, U.S. gross domestic product would still be more than 5% higher ($800 billion, or about $2,600 more per person) than it actually is.”
The larger question concerns how and why this happened. I have my own theories about this, but let’s first look at the evidence that Vedder himself comes up with to show that most of this can be explained by transfer programs like food stamps, disability insurance, student subsidies, and unemployment payments.
Let’s look at each.
Food stamps were a slightly goofy subsidy to the big agriculture lobby back in the 1960s, fobbed off on the public as somehow essential to ending hunger. Today, food is cheaper and more plentiful than ever, and American waistbands reveal this fact. People talk about the plight of the hungry, but it is mostly a myth. We are the most stuffed society in the history of the world.
Yet even now, 47.5 million people are receiving food stamps, with an average benefit of $125 per month. That’s 15% of the population. That’s some pretty serious grocery purchases there. Big Ag is very happy about this. Must be nice to a have a pool of guaranteed customers who live off others.
Vedder makes the point that a major reason people work is to eat. If the eating part is guaranteed, why bother working?
With disability benefits — the government program most famous for massive fraud and abuse — it’s the same story. Back in 1990, only 3 million people took checks. Today, that number is through the roof, so much that almost 8.6 million people get checks that provide the equivalent of a full-time income. And this has happened at a time when medical technology is better than ever at dealing with real disability.
Next comes the whole student racket. Back in 2000, not even 3.9 million young people received Pell Grant awards to go to college. Today, the number is approaching 10 million. Going to school is a great way to avoid having to work. Hey, but maybe all these desk sitters are absorbing fabulous information that they will soon spring on society in the form of dazzling innovations and productivity, and we will look back and say, wow, that was worth it after all.
OK, stop laughing.
Next comes unemployment. In the past, it was never possible to stay unemployed for a full year and still receive benefits. Now it is normal. Congress just keeps extending benefits, probably out of fear that if these people are pushed into the labor market, unemployment will go up and wages will fall and there will be a revolution. It’s literally the case that government is paying millions of people to shut up and stay at home.
What are we to make of Vedder’s picture of the workforce? One gains the image of many millions of people sitting at home drawing checks, pretending to be students, stuffing their faces with tax-funded potato chips, and otherwise just living it up. If that’s really true, that’s not really suffering, is it? The data reported above indicate no real disaster, except for those of us footing the bill.
I actually don’t think this is entirely the right way to look at it. The reality is that the labor market is broken today because it is not really a market in any normal sense. Many people are shut out due to more substantial problems. People are saddled with debt, terrified to lower their wage expectations, and completely shut out of a system that doesn’t seem to accommodate the old expectations.
Think back to 100 years ago. Unemployment was practically unknown. Why? Because there was (and there still is) stuff to do and people to do it. So long as employers and employees could negotiate without a gigantic state interfering with them, everyone was happy. There was no income tax. There were no added benefits. There were no impositions on the right of association. People bounced from job to job, taking 100% of their earnings in the form of real money.
That was a great system while it lasted. It initially came about after the end of the feudal period and with the rise of the capitalist middle class. Average people actually made money for the first time in the history of the world, and it was pretty cool. There was no shortage of jobs.
That whole system came to an end during the Great Depression and World War II. It began when the government dared to decide who could and could not work and under what terms. This was the first step in what amounted to the nationalization of the labor pool. Kids could not work. No one could work apart from a government-dictated wage. The amount of time they could work would be regulated.
Then, in World War II, two additional changes came about. Taxes would be taken out of the paycheck by the government, and the taxpayer would get back later whatever the government didn’t keep. Millions of people began to think of the government as their benefactor. Wage controls then led some large companies to pay employees in benefits like health care, a practice that was later pushed more broadly.
This is not the way the free market works. Workers prefer to be paid with money, plain and simple. That’s because money is the most liquid good. It can be converted to anything else. It is what gives choice and personal empowerment.
Today, the government’s system is pretty well locked down and super sticky. The costs of bad hires are very high for employers, so they are super cautious. The clarity of the work contract is gone. The market is not being allowed to operate.
Adding to the problem is the issue of housing. Many of the millions of people who have dropped out also own homes they can’t sell at a profit, which means that they are not in a position to move. The house works as a kind of brake on personal progress.
This is a story of demoralization created not by a few government programs, but by hundreds, among which is the boom and bust cycle itself. The excluded workers are victims, and no less so because of their privilege of drinking unlimited amounts of soda at your expense.
Ending this problem is going to require doing far more than cutting food stamp allocations and cleaning up disability graft. It will require a complete dismantling of 100 years of attempts by government to do things to help American workers.
Original article posted on Laissez-Faire Today
I'm executive editor of Laissez Faire Books and the proprietor of the Laissez Faire Club. I'm the author of two books in the field of economics and one on early music. My main professional work between 1985 and 2011 was with the MIses Institute but I've also worked with the Acton Institute and Mackinac Institute, as well as written thousands of published articles. My personal twitter account @jeffreyatucker FB is @jeffrey.albert.tucker Plain old email is firstname.lastname@example.org
Are you sure the current labor situation is not a result of Al Greenspan’s productivity miracle? And that Americans are now so productive that, relatively speaking, only a handful of people are required to produce all of the goods required for the entire world? (No, I’m not serious)
Wages are so low, many people can’t afford to work
Or, as in my case, grey hair puts you out of the labor force before your time.
“Sorry old timer, we need someone who will be here for 30 years, not 5. Besides, we’re on Windows 8, not Windows 3.1 (snicker). Try being a greeter at Wal-Mart.”
“This is not the way the free market works. Workers prefer to be paid with money, plain and simple. That’s because money is the most liquid good. It can be converted to anything else. It is what gives choice and personal empowerment.”
You’re tripping over it but you don’t even know it.
Tell us Mr.Tucker, from where does this ‘plain and simple’ money come.
You could shoot every person in Congress, assassinate the POTUS and vaporize the Supreme Court. And then revoke every government program of the last 100 years and still nothing would change. And the reason is because the money is issued by the State in concert with its whore the Central Bank.
With the push of a button the digital money returns and with it the power of the State.
They’re not spending your money, they’re creating it. And through that creation you have been bought.
You will never be free until you figure out how to separate Money & State.
Hint: Intelligence and integrity. No wonder why we’re in trouble.
Jackie Chan said that Americans are not looking after Americans. This is the cause of unemployment. Imagine someone developed a fantastic gadget, where will he manufacture it? In America, he may make say $1million and only capture a small international market. If he manufacture in China, he could make many times $1million, maybe $1billion. So what chance does the Americans have to get a decent job with a decent pay. That person who developed the fantastic gadget is supposed to be indebted to America as he is the product of the country’s system like good education, good research facilities, etc. Yet he rather take his invention to another place to manufacture and give jobs to another country. This is disgraceful. It is American elites that caused the unemployed to be unemployed and he had to look for ways to survive. Do you want hungry Americans whose life had become so cheap he becomes dangerous to society? The first step to solve the problem is not to allow CEO’s pay to be more than $1million. Why should shareholders make the CEO rich? He is an employee anyway. If he thinks he is so valuable, then he should go out on his own and start up his own company and pay himself millions. I have no complains about that. As an employee, he can be paid enough to live comfortably but not to pay him to get rich.
Jackie Chan said that Americans are not looking after Americans.
Ha! Ha! May be true. But it is not the worst.
Me say Chinese step on other Chinese to get rich by any means you can or can’t imagine. For instant, there is no other race on this planet could have produced baby milk from toxic plastic addictive. The Chinese have been doing this long.
American enjoyed cheap cheap China goods in the past decades. The price is: u not only imported goods, but also imported their social system. This is the core meaning of globalization. Money will park into the richest pocket after all.
Well for me the problem is that productive (or even reasonable) land is way too expensive to start with . Ditto rents. in the past the enterprising could get a block of land and build a home and make do ……. but now there is no room for the unemployed or underemployed. Land is a premium and wages to low to save for. So many people are stuck in limbo land. BTW — $30 a week for food doesn’t quite cut it for welfare. More like emergency anti riot program.
not working……..another angle is that of the “pig in a python theory”. The baby boom years were from 1946-64. That would make the oldest boomers 62 years old in 2008. I would expect the trend to continue at least for another 5 years from now.
Given a choice, Bernanke will likely strangle the currency (your money)... in favor of “strengthening” the economy.
Eventually, economic reality and markets will collide -- unfortunately, the higher the market, the harder the fall.
How certain business practices wind up jacking up costs before sticking you with the bill.
The Japanese Nikkei fell flat on its face overnight.
While Bernanke Runs Wild, Let’s Talk Ponies