I spent most of Wednesday driving to New Jersey and back with some friends from college. After all the reminiscing and sharing of what's going on in our life, the unemployment rate came up, along with President Obama's State of the Union address. One of my friends observed that we accidentally had a serious conversation.
Purely as a joke, I made an off-the-cuff argument against using the unemployment rate, because it only counts current job seekers. It does not count, I told them in the driest tone I could muster, people who go back to school, become homemakers or just drop out of the job market. I recommended the labor force participation rate as a better figure to follow.
The words I was saying to sound far too serious accidentally came from the heart, I realized, and the conversation got me curious about what's been happening with the labor force participation rate.
What I found, sadly, was this:
President Obama started this year's State of the Union by saying unemployment is at a 5 year low. I believe him, but it appears that some of those improvements came from Americans leaving the workforce. That problem is getting worse every year.
This is not a criticism of any of the president's policies, but a crucial revision on his framing of the issue. While the unemployment rate has fallen, it hasn't fallen to an acceptable level. We also have a big problem when potential workers are left idle, even if there are less idle workers then there were before.
I do have one caveat here: My idea of an ideal future does have a lower labor force participation rate. I share John Maynard Keynes' vision of people living like lilies of the field, who toil not, neither do they spin. I want people to work few hours and retire earlier in life. However, that future comes from technological innovation, not a recession.
As it stands now, we aren't seeing a short-term drop in labor force participation because of labor-saving breakthroughs. It's because of poverty. The current course points us towards a stagnant or falling standard of living when what we want is progress and rising standards of living to occur while more people get to retire.