What Will Get Americans Working Again?
Entrepreneur's New Year’s Guide
Where have all the workers gone?
There was a push-pull in the immediate reaction to the April employment numbers. Do you focus on the drop in the unemployment rate to 6.3 percent, from 6.7 percent in March, which would ostensibly be positive news, or do you instead cast your eye on the fall in the labor force participation rate, which dropped to 62.8 percent from 63.3 percent?
The answer is that you can't look at one without the other. And, taken together, they continue to paint a frightening picture for the psychology of our labor markets.
First, let's acknowledge some good news. The U.S. economy added 288,000 jobs in April, which was higher than economists expected. That also helped boost the longer-term trends. Employers added an average of 238,000 jobs over the past three months, up from and average of 167,000.
It's a function of the math involved in these calculations that such job growth should show a rise in the unemployment rate. As jobs become more available, more people enter the workforce to try to get them. The rising number of people looking for work tends to make the unemployment rate tick higher, at least temporarily, as people go from being discouraged about their prospects to downright eager to get their resumes out there. The jobless rate is calculated with a numerator and a denominator. You can't be counted in the workforce unless you are looking for a job. Because of that, more people looking boosts the jobless rate.
Yet, despite this strong rise in April payrolls, the unemployment rate fell sharply. Why? Because a whopping 806,000 people dropped out of the workforce. They simply stopped looking for work, even though, based on the payroll figures, there were jobs to be had. Gaining 288,000 jobs doesn't look great when 806,000 people drop off the map.
The most important metric for the health of employment right now isn't the headline payroll number, and certainly not the unemployment rate, but rather the labor force participation rate. This is a measure of all the people who could be working and are. That rate's fall was such that it hit the lowest level since 1978. Pray on that a moment: We have the lowest rate of people working since the Carter years.
In fact, had the labor force participation rate remainded steady in April from March, the headline unemployment rate would have risen to 6.9 percent. Some might have seen that as a bad sign, but it wouldn't have been. It would suggest people are out there, looking to earn a good living and contribute to our economy and labor markets.
Related: The Myth of the Have-Nots
What is happening, in William of Ockham's simplest of terms, is the American ethic to work continues its six-year erosion and is showing no signs of stabilization. People are staying out of the workforce, content, it seems, to live off savings or family help or the payments provided by the government. It is true that some of the drop in labor participation comes from demographics. As our country ages, more people retire. But the steep drop can't be explained by the graying of America alone, nor does it explain why a generation that is living longer and is healthier and can work in some capacity is choosing instead to stay home.
The truth is likely scarier. We are becoming a nation of people who want to take, not make. We are believing in the rhetoric of entitlement, where equal outcomes somehow trump equal opportunities. Why work when revenue can come without employment?
Such an attitude is contrary to the fundamental precepts of entrepreneurship, and even that is under attack nowadays. If you work hard and succeed, you are expected to dig deep to support those who don't. Own a business? You are likely to be criticized for not paying your "fair share" in taxes. Employ people? You are targeted for not paying a high enough wage. Create an innovative product or service? You will be faced with a regulatory framework that is burdensome and costly. Success, which merits nothing but praise, is met far too often with punishment.
Yet it is precisely the success of the business community that is the only clear path to getting more people back into jobs. Encouraging profit and investment fosters and environment where business leaders can add to payrolls and create attractive employment opportunities.
Instead, policymakers seem to think that extending benefits, or pushing for higher wages or increased benefits, is the right way to go. Until that changes, and the success of the unemployed isn't somehow tied to the redistribution of the profits made by American businesses of all stripes, the erosion of the American worker -- and the erosion of the American business ideals -- will continue unchecked.