10.23.2012 0

Obama’s missing labor force puzzle

Source: U.S. Census Bureau and the Bureau of Labor Statistics. Note: In 1948, the federal government shifted from examining the population at 14 years and older to 16 years and older.

By Robert Romano — Since Barack Obama took office, the civilian non-institutional population has increased by 8.7 million, and yet only 437,000 people have been added to the civilian labor force — i.e. those working or seeking work. That’s an awful absorption rate of new population into the workforce of just 5 percent.

This has helped to keep the unemployment rate misleadingly low at its current 7.8 percent level. If the labor force participation rate had held steady since 2009, the jobless rate today would be more like 11 percent.

This has never happened before in modern U.S. history during peacetime, according to data by the U.S. Census Bureau and the Bureau of Labor Statistics going back to 1900. Absorption of population into the labor force has historically averaged at a 59 percent rate.

At that rate, about 5 million people should have entered the labor force since the end of 2008, but have not. The question is why.

The only time population absorption by the economy contracted was from 1940 to 1944, when the population increased by 4.3 million but the civilian labor force shrank by 1 million.

But that came in World War II on the heels of 7.5 million of previously unemployed Americans — plus another 3.5 million who had other jobs — going off to fight overseas in Europe and the Pacific. They were not counted as part of the civilian labor force during those years.

But, after the war millions of servicemen left the military and were added back into the mix. Besides then, the absorption rate of new population by the labor force had never fallen below 32 percent.

Comparably, in the past four years, there was no major war to speak of that removed millions of Americans from the labor force to account for the precipitous drop in labor force participation.

While Baby Boomers retiring would be expected to lower the labor force participation rate, the population of those 65 years and older has only increased by about 4.4 million since Obama took office. So, a retirement boom alone cannot account for the anomaly.

To find the rest, one must observe the declining labor force participation particularly amongst those with some college and with college degrees, a population that grew by 9.4 million since Dec. 2008.

Since that time, the participation rate of college graduates has dropped significantly — from 77.6 percent to about 75.9 percent today. That accounts for about 1.1 million graduates who should have entered the labor force, but didn’t.

Another 1.7 million with some college or an associate’s degree should have also entered the labor force, but are nowhere to be found as the participation rate there dropped from 71.9 percent to 68.8 percent.

In addition, another 2 million or so folks lost their jobs and eventually gave up looking for another one.

All of which accounts for the 5 million individuals who should have entered the labor force in the past four years — Obama’s lost generation. It is an appalling state of affairs, and a trend that will not easily be reversed no matter who wins the White House in November.

The fact that it has never happened before in peacetime however should give particularly supporters of Obama pause. This is the worst labor market for new job seekers in modern history. And Obama has only made it worse by increasing eligibility for welfare by millions, creating a disincentive for Americans to return to the labor force.

To get back onto solid ground, the nation needs to get back to policies that will create jobs at a rate faster than the population grows. These include reducing the tax and regulatory burden on industry and strengthening the dollar to reduce the cost of doing business in the U.S., and in the meantime substantially decreasing welfare spending that discourages job-seeking.

The alternative is to continue to follow Obama down the road to serfdom we have been on for four years now. And good luck finding work there.

Robert Romano is the Senior Editor of Americans for Limited Government.

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