{"id":3205,"date":"2014-10-08T15:53:01","date_gmt":"2014-10-08T15:53:01","guid":{"rendered":"https:\/\/journal.c2er.org\/?p=3205"},"modified":"2018-04-30T21:59:21","modified_gmt":"2018-05-01T01:59:21","slug":"quo-vadis-whither-goest-the-margins-of-our-labor-force","status":"publish","type":"post","link":"https:\/\/journal.c2er.org\/2014\/10\/quo-vadis-whither-goest-the-margins-of-our-labor-force\/","title":{"rendered":"Quo Vadis–Whither Goest the "Margins of our Labor Force"???"},"content":{"rendered":"
\"Dr.<\/a>

Dr. Alan Krueger<\/p><\/div>\n

Since the Great Recession things haven’t been the same. There is much\u00a0debate\u00a0and\u00a0considerable concern as to what may, or may not, be happening to our\u00a0workforce. How can economic and workforce developers ignore critical changes in our labor force? The labor force is what\u00a0we do for a living. Popular economic development strategies including attraction and retention, cluster development, economic gardening and innovation-knowledge-based economic development depend to a considerable degree\u00a0upon the labor force for success.\u00a0 So, let’s focus on workforce issues–specifically–what the heck is going on with our contemporary labor force!<\/p>\n

Let’s start with understanding unemployment rates, structural unemployment,\u00a0rates of inflation,\u00a0interest rates, and wage stagnation and how they are related.\u00a0Recent concern\u00a0has focused on how these factors\u00a0affect the Federal Reserve and the timing of an inevitable rise in interest rates. Our perspective is\u00a0not concerned with interest rates but is alarmed by the widespread fear that structural unemployment may be the number one problem of the American economy.\u00a0A recent article has\u00a0caused\u00a0quite a stir and its overlap with our concerns prompts this review.\u00a0That article, Alan B. Krueger, Judd Cramer and David Cho, “Are the Long-Term Unemployed on the Margins of the Labor Market<\/strong><\/em>“, Brookings Papers on Economic Activity, Spring 2014 Conference will be\u00a0reviewed\u00a0from the prism of how its findings inform us concerning recent developments with our workforce.<\/p>\n

Who is Alan Krueger–from 2011 to August 2013 he was President\u00a0Obama’s White House Chair of the Council of Economic Advisors and currently he is a\u00a0Professor of Economics and Public Policy at Princeton, Research Associate of the National Bureau of Economic Research, Founding Director of Princeton Survey Research Center, holds degrees from Cornell and Harvard, and previously he served as\u00a0Chief Economist of U.S. Department of Labor (Clinton Administration), Assistant Secretary of Commerce in Obama administration. He is ranked in the fifty highest ranked economists in the world (IDEAS\/RePEc), and author of several books.<\/p>\n

Background: hopefully helpful in\u00a0bushwacking our way\u00a0through economist jargon-definitional\u00a0jungle?<\/strong><\/p>\n

I will try to avoid jargon and speak conventionally, mostly because it will irritate economists who resent anything other than an algorithm. To be helpful at the bottom of this review I have provided definitions of the “labor force”,\u00a0“unemployed”, the civilian non-institutional population” and the “labor force participation rate”.<\/p>\n

First, some background to\u00a0better understand the unemployment rate and how it sheds light on the issue of structural unemployment and labor force composition. Total unemployment (on which\u00a0the unemployment rate is constructed) \u00a0includes three categories of unemployed individuals: frictional, cyclical and structural (the unemployment rate\u00a0does not include children, disabled, institutionalized, or retired). The first two types (frictional and cyclical)\u00a0of unemployment are “natural or normal”. Most economists agree that at any point, in any year, normal unemployment ranges from four to six per cent. Our present unemployment rate is around\u00a06.1% at time of writing (fallen noticeably since 2010, 10+%). This suggests that we are have finally attained “natural” levels.<\/p>\n

The Federal Reserve’s original unemployment\u00a0target was 6.5%; once there,\u00a0the Federal Reserve\u00a0believed it\u00a0could start the process of raising interest rates. In March 2014 the Federal Reserve, however,\u00a0set aside\u00a0its unemployment target and instead focused on attaining a 2% inflation rate target. The overall economy, they believed, was too soft at the time and it was judged that the inflation rate was a better indicator of the economy’s return to health than the unemployment rate. Why? Among other factors, it was not clear to them what the unemployment rate was really saying. Their concern was if unemployment was normal, then the threat of wage inflation was very real. If wage inflation were real, then the Federal Reserve had better start raising interest rates–wage inflation can be disastrous to the overall economy if not managed tightly.\u00a0The Federal Reserve was concerned that\u00a0the unemployment rate could not be interpreted using pre-Great Recession methodology. \u00a0Specifically, was\u00a0unemployment rate’s\u00a0traditional link with inflation still valid?<\/p>\n

That was the principal\u00a0issue Krueger, Cramer and Cho were trying to address in their article. In addressing that issue, however, they uncovered findings\u00a0which overlapped with structural unemployment. Krueger et al raised the possibility that the traditional definition and interpretation of structural unemployment might benefit from more thought. Why? Because the unemployment rate included only those folk who said they were looking for a job. Krueger’s research indicated that increasing numbers were leaving the workforce, not being counted in the unemployment rate, and that many of the those who were being counted as presently in the labor force were in process of leaving the labor force.<\/p>\n

\"US_Unemployment_1890-2009\"<\/a><\/p>\n

Implicitly, this review\u00a0asks the question if there\u00a0is a\u00a0page-turning increase in the number of\u00a0potential workers who (are)\/have left the conventionally defined labor force?\u00a0A major finding by Krueger et al. is that most of those who are currently defined as structurally unemployed (and therefore in the labor force) are, in fact, likely to be in process of leaving it.\u00a0Is there\u00a0a new group of structurally unemployed who for unknown reasons\u00a0are not interested in being in the workforce? Who are these structurally unemployed?<\/p>\n

In the past, economists tended to\u00a0define\/explain (and largely restrict) the structural unemployed\u00a0as those who “lack the skills”\u00a0to allow them to effectively compete for a job, or who possess skills that are no longer in demand. In the old paradigm most structurally unemployed were unemployed individuals who worked in an industry or sector which was in transition or fading into insignificance, and was shedding workers or were new entrants to the labor force who were not prepared to compete for jobs. These structurally unemployed needed basic skills and\/or to be retrained with new skills and repositioned into a growing occupation or industry sector. Most WIA\u00a0 (Workforce Investment Act)\u00a0programs are structured to deal within this paradigm. Essentially, Krueger et al., challenged the\u00a0 paradigm–and in so doing they indirectly suggested that a “new style” structurally unemployed\u00a0might be\u00a0uninterested in working at all. Coming from President Obama’s Chair of the White House Council of Economic Advisors, this concern had to be taken seriously. Prestigious economists such as Larry Summers, Robert Samuelson, and\u00a0Tyler Cowen\u00a0have\u00a0incorporated Krueger’s findings into their analysis. If people are dropping out of the workforce for reasons other than the\u00a0lack of suitable skills, no amount of skills training or economic stimulus is likely to have a significant effect on economic growth and if so,\u00a0an economic developer, especially a workforce developer must also take notice.<\/p>\n

The June 2014 Jobs Report (BLS) and Other Relevant Data Points<\/strong><\/p>\n

To provide a recent context we have isolated some data points which follow from the June 2014 BLS Unemployment\/Jobs Report. We have also supplemented with other data points, particularly relying upon Robert Samuelson’s June 12, 2014 article, “the Jobs Mystery”<\/strong><\/em>\u00a0in Real Clear Politics. At the beginning of this summer\u00a0the jobs situation was:<\/p>\n