Up and Down Wall Street

The Mystery of the Lost American Workers

Janet Yellen believes that her high-pressure economy can drive nonparticipants in the labor market to find jobs. That could be harder than she thinks.

By Randall W. Forsyth

.
Photo: Pixabay
           
 
When all you have is a hammer, it’s said that every problem looks like a nail. So it is with central bankers.

Their tool essentially is money, but it is becoming increasingly apparent that their trillions can’t solve everything.

That doesn’t stop them from trying, however. Federal Reserve Chair Janet Yellen suggests that by creating a “high-pressure economy,” some of the problems of the sluggish expansion might at least be ameliorated. Most notable among them is the unprecedented number of Americans who not only aren’t working, but aren’t in the labor force.

In a speech to a Boston Fed conference the Friday before last, Yellen posited that pushing economic growth could counter the lingering aftereffects of the Great Recession. The unspoken, but obvious, backdrop was the expectation of a second hike in the central bank’s federal-funds interest-rate target, most likely at the Dec. 13-14 meeting of the Federal Open Market Committee, around the first anniversary of the initial increase to the current 0.25%-0.5% target. At last month’s meeting, the decision to stand pat on rates drew three dissents among FOMC members who wanted to raise them. While there’s virtually no chance of a hike at the Nov. 1-2 confab, fed-funds futures put a 68% probability on a December move, according to Bloomberg.

Yellen offered an apologia for going slow on rate boosts to keep the pressure on the economy.
Stronger growth would induce businesses to invest more to expand, especially if they were more confident about the future. That could also spur more productivity-enhancing research and development, as well as faster-growing start-ups.

Most provocatively, the Fed chief suggested that a “tight labor market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could lead to more efficient—and, hence, more productive—job matches.”

Leave aside the notion that job-hopping in a hot market leads to more productivity. One could argue the opposite. (Bidding for talent takes away from management time, while workers look for new, more lucrative gigs, instead of doing their jobs. Those boom times are a distant memory now, however.) But Yellen’s more serious suggestion is that a high-pressure economy would induce those out of the labor market to look for jobs. More folks would be working, while employers would have a bigger pool of job seekers—easing one of their main complaints, the lack of qualified applicants.

A high-pressure economy could benefit lower-paid workers, as well as those who have had a tough time finding jobs, write Goldman Sachs economists David Mericle and Avisha Thakkar.

Among the latter are the less educated, some minorities, and those with criminal records, whom they note have had a much tougher time finding employment. Their plight is especially acute given that “the long-term unemployed account for about one-fourth of the total unemployed, a share almost never seen before the last recession.”

If you’re not in the labor market—that is, looking for a job—you’re not officially unemployed.

The increased number not in this market—a decline in the labor-force participation rate, in economists’ parlance—has been striking, especially in recent years. The participation rate stands at just 62.4% of the adult population, the lowest since 1978, before women were fully integrated into the workforce.

In a paper titled “Where Have All the Workers Gone?”, presented at the same Boston Fed conference where Yellen spoke, Princeton University’s Alan Krueger, the former head of President Barack Obama’s Council of Economic Advisers, notes that about four-fifths of the decline since the last recession reflected demographics. Baby boomers are entering retirement, although as noted here last week (“Many in the U.S. Have Zero Retirement Savings,” Oct. 15), the labor-force participation for those over 65 actually is rising, albeit from a lower level.

Krueger finds that there has been little improvement in the labor-force participation rate, even as the headline jobless rate has markedly declined, to 5%, in the most recent reading. In other words, he concludes that this may be as good as it gets. “The idea that many labor force dropouts are returning to the labor force is unsupported by the data,” he writes.

Depressingly, the reasons seem unrelated to economics.

Among younger men ages 21 to 30, the labor-force participation rate fell by 7.6 percentage points, to 82.3% from 89.9%, over the 10 years ended in October 2014, partly because they stayed in school, presumably gaining marketable skills. Time spent on education jumped by 5.3 hours per week, which occupied 38% of their time. But time spent playing videogames rose to 6.7 hours per week, an increase of 3.1 hours, although time watching television dipped by two hours, to a still sizable 21.7 hours per week.

As for prime-age men not in the labor force, Krueger found an astonishingly high number who reported having serious health problems and being on pain medication. Half said their health presents a serious barrier to employment, while nearly half take pain medication daily, two-thirds of which involve prescription meds. Even more distressingly, prime-age men out of the labor force report low levels of emotional well-being and say that they derive little meaning from their daily lives.

As a social scientist, economist Krueger can cite correlations, but actual causality can be open to question. In order to get disability or other benefits, a person has to declare convincingly that he or she has a health problem that precludes work. To justify writing a prescription for pain medication, a medical professional has to determine whether the patient needs it, and measuring pain is highly subjective. At the same time, opioid addiction has become a scourge across the nation.

In his current, much-discussed best-selling book, Hillbilly Elegy: A Memoir of a Family and Culture in Crisis, J.D. Vance writes of his Scots-Irish peers’ “learned helplessness.” As Joshua Rothman’s recent review in the New Yorker points out, if hard work is their tradition, why are so few of Vance’s former peers working? Those cobbling together part-time jobs to make ends meet live alongside those who game the system to become lifetime welfare recipients, according to Vance’s account.

In Middletown, Ohio, whence Vance came (and escaped from, after a life-changing service in the Marines, to Ohio State, Yale Law School, and now a San Francisco investment firm headed by Peter Thiel), the industrial jobs were hollowed out starting in the 1970s—not a new phenomenon related to the Great Recession.

In fact, these are deep-seated problems. Idle young men who spend their hours playing videogames while their older brethren are on disability and taking meds to ease their pain (physical and otherwise) are beset by woes that are not readily solved by a high-pressure economy stoked by ultralow interest rates.

NO NEWS WAS GOOD NEWS for the stock market last week, as the major averages ended on Friday a fraction of a percent higher, which was good enough to break a two-week losing streak. And like a roadside wreck that nobody can keep from slowing down to gawk at, the U.S. elections commanded an outsize portion of the markets’ attention.

Indeed, Dunkin’ Brands (ticker: DNKN) last week blamed the contentious presidential campaign for weaker-than-expected sales of doughnuts and coffee. If that’s the case, look for any number of companies to say they’ve missed their numbers because of the election, which should replace the weather as this season’s version of the all-purpose excuse.

The real problem is tepid global growth, as indicated by General Electric ’s (GE) admission on Friday that revenue, excluding results from acquisitions and divestitures, will be flat to up 2% this year, down from a previous forecast of a 2% to 4% gain. That follows a previous cut in guidance by fellow global industrial giant Honeywell (HON).

Given that, the last thing U.S. multinationals need is a renewed strengthening of the dollar. In the past month, the U.S. Dollar Index was up about 3%, roughly retracing its decline since late January. Back then, it was widely suspected that a secret deal had been worked out to corral the greenback in order to try to bolster plunging emerging market commodities.

The U.S. Dollar Index is heavily weighted to the euro, as well as the yen, an artifact of the currency world of four decades ago. Meanwhile, the Chinese yuan continues to weaken against the greenback; while that’s more important in the 21st century, China’s currency is moving in tandem with its other international counterparts versus the dollar.

That said, the robust buck is an increasingly strong head wind for U.S. companies competing in the rest of the world. Typically, that would be bad news for commodities, such as oil, but U.S. crude remains steadfastly above $50 a barrel.

The depressing effects of the previous collapse in oil prices on inflation measures, such as the consumer-price index, are beginning to wane. Barclays estimates that the year-on-year rise in the CPI will be 2.3% by December, up from the latest, 1.5% reading, just because it will be measured against the low prices of late last year.

Housing and medical costs are further lifting inflation, which the bank said should push the CPI higher through the end of 2017. All of which may make it harder for the Fed to stave off more rate hikes next year, which aren’t being discounted by the bond market. That’s something to ponder after Election Day.


0 comentarios:

Publicar un comentario en la entrada