There’s something very wrong with the US jobs market, as the slide above confirms. Commentators professed to be surprised by the disappointing May report last Friday, but its hard to know why:
- The overall participation rate has been in decline since July 1997, when it reached 68%: today it is only 62.7%
- Male participation is at an all-time low of 69.1%; female participation is back at 56.8%, the 1988 level
- The total civilian population was 253m, so 172m would be working today if the participation rate was still 68%
- Instead, only 159m were working – 13m fewer people, over 5% of the civilian population
Equally worrying is that there is no sign of any improvement. If we look at data for the month of May, it shows that overall and female participation has been in steady decline since 2008, when they were 66% and 59% respectively. Every single year since then has seen a decline. Male participation has seen almost exactly the same trend, with the exception of last year – when it rose by 0.3% to 69.5%. This year, however, it fell to a new low.
The striking thing about the post-2008 downturn is that it parallels the launch of the US Federal Reserve’s major stimulus programmes. The Fed has just two targets – employment and inflation. It has boosted its balance sheet by over $4tn dollars since 2008 to try and meet these targets, and cut interest rates to near-zero. But the policies have clearly failed, given the participation rate decline and that CPI inflation is virtually half the target level at 1.1%.
One might think that policymakers would feel some embarrassment about such a very expensive failure. But it seems not:
- Instead, they prefer to avoid focusing on these key trends. Their focus is on indicators which disguise the key trends, such as the jobless rate. This is a far less reliable indicator, as it only measures people actively looking for work, not those who have given up. So it is always likely to give a more favourable view of the position. Similarly, they prefer to talk about so-called “core inflation”, rather than the CPI itself
- This self-delusion has a purpose, of course. If they focused on the key data, they would soon have to explain why they were ignoring the demographic issues that are causing the participation rate to fall, and inflation to turn to deflation. They would also be forced to have difficult discussions with the voters about the sheer unsustainability of current policies – which have failed to adapt to a world where the average 65-year old American now has 20 years’ life expectancy ahead of them
The simple fact is that an extra 13m people would be working today, if the participation rate had remained at 1997′s level. There would then have been no need for the Fed to have created today’s vast debt levels. And the whole world would be in a better state as a result.