OPINION:
You may not have heard of the labor force participation rate, but in honor of this Labor Day, you should ponders its shocking decline. It’s the canary in the coal mine, warning of disaster.
The participation rate is one of several government measures of employment and unemployment. The federal Bureau of Labor Statistics issues six different unemployment rates, from U-1 to U-6. Each rate is based on different calculations that consider such factors as how long people have been jobless, when they last looked for work, and whether they want to work full-time but have had to settle for part-time.
The labor force participation rate is the feds’ estimate of the percentage of people age 16 and over who are either working or looking for work.
The “unemployment rate” most often cited in the news media is U-3. But U-3 ignores everyone who hasn’t actively looked for work within the previous four weeks. So if you can’t find a job and give up looking, you don’t count as “unemployed” in the U-3 rate.
If we calculated the illiteracy rate that way, we wouldn’t count someone as illiterate unless he had attended a reading class in the past four weeks. In other words, the U-3 figure is fake, because it ignores whether the labor force participation rate has dropped.
According to Diana Furchtgott-Roth, former chief economist at the Labor Department, if America today had as high of a labor force participation rate as we had in 2006, then “last year’s average unemployment rate would have been 11.4 percent instead of 6.2 percent.”
So the U-3 measure of unemployment creates the illusion that the economy is serving American workers roughly twice as well as it really is, when you consider all the persons who’ve given up looking for jobs.
Today’s labor force participation rate is 62.6 percent, a 38-year low. That depressed number wipes out all the gains in employment made during the Reagan era, a time when women by the tens of millions moved into the workforce.
Today, more women are on food stamps than have full-time jobs.
The current low-job economy is the foreseeable result of the policies of the Obama administration and its ideological allies. Minimum wage hikes, Obamacare, new overtime rules, restrictions on just-in-time scheduling, efforts to classify mom-and-pop franchise businesses as “co-employers” with multinational corporations — these and many other burdens on business, particularly small business, are killing job creation and economic growth.
Unless those policies are reversed, their harms will continue for decades.
The Commerce Department on Aug. 27 estimated that in the first six months of 2015, the economy grew at an annual rate of 2.1 percent. The Congressional Budget Office estimates that the economy will grow by about 2 percent this year, tick up to 3.1 and 2.7 for the next two years, then fall back to 2.2 percent growth.
By comparison, typical growth in recent decades, prior to the Great Recession, was about 3.1 percent.
A colleague of mine looks at long-term economic growth in terms of his children’s lives. When his first kid was born, he was 48. So he worries what the economy will be like when his kids are that age. If the economy grows at a “new normal” of 2.1 to 2.2 percent a year, rather than the “old normal” of 3.1 percent, the economy in 48 years, 2063, will be only about two-thirds as large as it would have been.
Think of that as an invisible 36 percent tax on everything, added on to all the other taxes, with the proceeds of the invisible tax piled up in the public square and set on fire. How big is that invisible tax? Applied to today’s economy, it would be the equivalent of taking away all the growth in gross domestic product (per capita) since 1986.
If this scenario unfolds, people in all income ranges will be dramatically poorer than they would have been, and the effect will be magnified by entitlements and other “fixed” spending. That magnification occurs because poorer people pay much less money in taxes, and they receive much more taxpayer money to pay for food, housing and health care. Meanwhile, a relatively smaller economy will mean massive defaults on taxpayer guarantees such as those backing up student loans, mortgages, too-big-to-fail banks, and both government and private-sector pensions.
Even worse: That idea of a “new normal” 2.1 to 2.2 percent annual growth rate may be overly optimistic. We have yet to see the effect of many recent and proposed anti-growth policies — for example, Obamacare, which is being phased in over a period of years, and the Environmental Protection Agency’s proposed plan, not yet final, to make the price of electricity “skyrocket.” If anti-growth policies push the economic growth rate down to around 1.6 percent a year, that’s like cutting the size of the 2063 economy in half. Long before that, government finances will collapse.
Welcome to Greece.
• Terrence Scanlon is president of the Capital Research Center.
Please read our comment policy before commenting.