Rasmus on the attack again
The irrepressible Jack Rasmus, who has never demonstrated any real understanding of how economic statistics are constructed, has a new post claiming that the “real” unemployment rate is more like 10–12% than the officially reported 3.7%. He has a point, even if it’s somewhat overstated. The government’s own broad unemployment rate, U-6, was 7.2% in August, nearly twice the headline rate, though short of the Rasmus rate. (See table A-15 here.)
One of the ways the government undercounts the unemployed, says Rasmus, is that the monthly survey “misses a lot of workers who are undocumented and others working in the underground economy in the inner cities”—but by Rasmus’s own account, these people are working, not unemployed. No doubt there are many uncounted unemployed living at the margins, but Rasmus can’t even make his own point accurately.
All that’s a topic in itself, which I’ve written about here and here. But I just want to address this claim about why the participation rate—the share of the adult population working for pay or actively looking for such work—has failed to return to pre-Great Recession levels:
Finally, there’s the corroborating evidence about what’s called the labor force participation rate. It has declined by roughly 5% since 2007. That’s 6 to 9 million workers who should have entered the labor force but haven’t. The labor force should be that much larger, but it isn’t. Where have they gone? Did they just not enter the labor force? If not, they’re likely a majority unemployed, or in the underground economy, or belong to the labor dept’s ‘missing labor force’ which should be much greater than reported. The government has no adequate explanation why the participation rate has declined so dramatically. Or where have the workers gone. If they had entered the labor force they would have been counted. And their 6 to 9 million would result in an increase in the total labor force number and therefore raise the unemployment rate.
Jack’s numbers are, as usual, a little off. The participation rate hasn’t declined by 5 percentage points since 2007. At its peak (which was in January 2008, not 2007, but let’s not quibble) it was 66.2%. In August 2019, it was 63.2%. That’s a 3-point decline, not 5. (It got as low as 62.4% in 2015, but it’s recovered some since.) But that’s beside the point I want to make now. What I want to do now is to refute the claim that “The government has no adequate explanation why the participation rate has declined so dramatically.”
Rasmus writes as if he’s the only person to ask the question. But he’s not. The Bureau of Labor Statistics (BLS) has published a good deal of material on the issue, like here, here, here, and here. Tl;dr: the baby boomers are aging and retiring or shuffling towards retirement. (I develop that point here, arguing that aging explains about half the decline between 2000 and 2017.) The BLS also has an essay here that suggests that the culprits are “less-generous maternity and child-care policies, higher incarceration rates, poorer health outcomes, and less spending on on-the-job retraining and job-search assistance programs.” Outside the BLS, Federal Reserve economists have also written on the topic, like here, where Kansas City Fed staffer Didem Tüzemen argues that job market polarization—the disappearance of middle-skill jobs and the bifurcation of the job market into high-skill and low-skill jobs—may be responsible. Outside government, the late Alan Krueger argued that chronic pain and opioid addiction accounted for a lot of the decline in participation. In other words, lots of people, including the BLS, have addressed this issue.
You can really learn a lot by reading, Jack. And if you do, you can mount a sharper and more credible critique of this wretched system than with the usual off-the-cuff bloviating.