Tuesday, October 21, 2014

Worker's compensation has tracked productivity

Economic theory predicts that worker's compensation should reflect their productivity. Many charts find that this has not been the case for the last 30 years or so, but these studies are flawed. Scott Winship from Economics 21 corrects for the flaws of other studies and shows that compensation has tracked productivity quite well. A good read and very informative.

Monday, October 6, 2014

Declining unemployment rate obscures real problems

I received this sunny message from the White House yesterday glamorizing September's unemployment rate of 5.9%.

But even though the unemployment rate is falling there are still real problems in the economy. The graph below shows the year over year September unemployment rate, employment population ratio, and labor force participation rate from 2006 - 2014. (click on graphs to enlarge)

The unemployment rate is plotted on the left vertical axis and the labor force participation rate and employment/population ratio are on the right vertical axis. While it is true that the unemployment rate is down, the labor force participation rate also continues to fall, from 66.1% in 2006 to 62.7% in 2014. A lower percentage of the population is working and paying taxes than at anytime in the last 8 years and it shows no signs of recovering. I am no fan of taxes, but with the way our government spends money you would think that they would want more people to contribute. Instead people are choosing home production or are working in the underground economy. Too much regulation and uncertainty is making firms reluctant to hire and is preventing a robust recovery.

The employment/population ratio tells the same story, as it is down from 63.1% to 59%. It has leveled off and appears to be rising slightly, but there is a long way to go before it is back to its previous level. The Obama administration is doing nothing to solve these fundamental problems.

And in case someone wants to attribute the falling labor force participation rate to retiring baby boomers, the graph below shows the labor force participation rate for the same time period but for people aged 25 - 54 i.e. the prime working years.

The labor force participation rate for people in their prime working years has also been steadily declining, from 90.4% to 88%.  A lower unemployment rate in light of these numbers simply means that people are leaving the labor force, not that they are getting jobs.

The Obama administration can spin the numbers, but the fact is there are relatively less people working today than before the recession and there are no signs of a real recovery in sight.