More than four years after 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. A growing body of economic research suggests that the longer they remain on the sidelines, the less likely they will be to work again; for many, it may already be too late.What is Happening vs. Why
The recession, for all its brutality, was comparatively egalitarian, said Gary Burtless, a Brookings Institution economist. It struck the young and old, educated and uneducated, white collar and blue collar. The recovery, by contrast, has been asymmetric: Those who held on to their jobs or quickly found new ones have made up much of the ground they lost, while the jobless continue to suffer.
"If you've made it through and you're still employed, your stock portfolio has recovered, your house price is recovering, too," Mr. Burtless said. "For the unemployed, this has been a miserable recovery compared to pretty much any of the postwar recoveries."
Recent studies in both the U.S. and overseas found employers often won't even consider the long-term jobless for openings.
Many have given up applying. Nearly seven million people say they want a job but aren't actively looking for work. The share of the population that is working or looking for work—a measure known as the participation rate—stands near a three-decade low. The rate was falling even before the recession, partly because of the aging of the baby-boom generation, but economists disagree about how much of the more recent decline is tied to the weak economy.
For economists, the key question is how many of the labor-force dropouts will return when the economy eventually rebounds more strongly.
At least some of those who have left the labor force are unlikely to return. More than 8.9 million Americans were receiving federal disability payments in August, 1.8 million more than when the recession began. Experts suspect many of the new recipients would have kept working in a healthier economy; research has found that once people begin receiving disability payments, relatively few return to work.
But other workers, especially those in their 20s and 30s, will almost certainly return.
The Wall Street Journal did a good job explaining "what" is happening. The Journal failed to explore "why" this is happening.
I will address the key question in a moment. First consider a few more charts.
Those Not In The Labor Force Who Want A Job
Those who want a job but don't have a job total 6,619,000. That is an increase of about 2.2 million from the pre-recession low.
Factor the "marginally attached" (those who want a job and do not have one, but did not look) and the unemployment rate is 8.8%.
Marginally Attached Unemployment Rate - U5
Factor in "Involuntary Part-Time employment" (U6) and the rate is 14.0%
Taking into consideration millions of additional part-time jobs created as a direct result of Obamacare lowering the number of hours part-timers worked even further, and the base unemployment rate as well as the U5 rate would both be higher. I suspect the U-5 rate would be between 9.5 and 10%.
Cyclical or Structural?
Regardless of what the unemployment rate is, here is the key question: Is the problem cyclical or structural?
The Fed thinks unemployment is a cyclical problem. I don't.
Ten Reasons the Problem is Structural
- The housing boom-bust is a once in a multi-generational phenomenon
- Demographics - The boomer boom has turned into the boomer bust
- Those graduating from college have unprecedented levels of student debt
- Fed policies bailed out the banks at the expense of everyone else (and now is payback time)
- The Fed holding rates low in conjunction with Obamacare costs has exacerbated the trend of businesses to seek new ways to eliminate employees in favor of hardware and software robots
- In general, Fed policies of holding interest rates low screwed those on fixed income, screwed the middle class, and screwed the poor, all for the benefit of the top 1% (and those policies are not likely to change)
- Housing formation by millennials is at a record low and because of student debt and a dearth of high-paying jobs is unlikely to change.
- Pension promises by cities, states, and counties cannot and will not be met. Several cities in California and Detroit Michigan are the tip of this iceberg.
- Slowdown in China, restructuring in Europe.
- Debt, Debt, Debt. A debt crisis is everywhere you look: Japan, Europe, India, China, US. Debt acts as a drag on the global economy unless it is expanding rapidly (and it cannot without creating still more problems)
It will takes years, if not a decade, to sort out those issues. In the meantime central bankers around the world further distort the global economy for the benefit of banks and those with first access to money.
Inflation Benefits Those With First Access to Money
For an explanation of how Fed policies benefit the banks and the top 1% at the expense of everyone else, please see Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else).
Compounding the problem is a massive hoard of economic illiterates who promote inflation as the answer. For a case-in-point, please see DeLong-in-Wonderland.
Mike "Mish" Shedlock