The Stagnating Labor Market

Fellows Arjun Jayadev and Mike Konczal look at the labor market and find many workers dropping out of the labor force as well as working too few hours because of a lack of aggregate demand.

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“...of all the aspects of social misery nothing is so heartbreaking as unemployment...” 

Jane Addams  (1910) 

Twenty Years at Hull-House

 

The American workforce is normally a dynamic machine for creating jobs and opportunities.   People transition from being employed to unemployed to leaving the labor force entirely many different times, and for many different reasons, throughout their lives.   Americans change jobs, take time to search for new jobs, leave the labor force to educate themselves or pursue other goals, only to return to work later.

 

But ever since the financial crisis of 2008 and the following recession the labor market has broken down.  Though tempered by the fiscal and monetary stimulus programs of the government, the waves of unemployment and exits from the labor force have shown the need for continuing and renewed support to bolster the stagnating labor market.

 

In this paper we take a macroscopic view of the labor market.  We find that, for the first time since we can find data on the topic, starting at the beginning of 2009 it is more likely that an unemployment person will drop out of the labor force rather than become employed.   We also find that ability of the growing population outside of the labor force to find employment is declining rapidly.

 

We also look at the fate of the underemployed, or people who are employed but aren’t working full time due to economic reasons.   We find that the ratio of the underemployed has skyrocketed across all sectors and across all occupations, numbers that calls for more action to increase aggregate demand rather than focus on skills and structural changes.

 

For the labor market has two problems.  As aggregate demand isn’t strong enough to keep unemployment down, the country will have a continuing problem with workers dropping out of the labor force.  As those worker’s skills and human capital deteriorate from being outside the labor force it will be harder to get back to full production and a working economy for all Americans.

 

Key Findings

  •  Although the unemployment number remains high it isn’t a full picture of the terrible situation in the labor market. The population that is out of the labor force and no longer trying to find a job is steadily increasing, and the normal mechanisms for those people to reenter employment have collapsed.

 

  • Starting at the beginning of 2009 it is now more likely that someone who is unemployed will drop out of the labor force than find a job.   This is a new problem for our economy, as this hasn’t happened as far back as data can be found (1967).  These workers need targeted intervention before they become completely lost to the normal labor market.

 

  •  Underemployment, or those employed working part-time for economic reasons, has increase greatly, often more than doubling.  This is across all analyzed sectors and occupations and is negatively correlated with capacity underutilization.  The underemployed have the skills to work the jobs they have and their incentives aren’t distorted by unemployment insurance - they point to a story of a lack of aggregate demand.

 

 

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