The president, the press, and the political pundits focus on the unemployment rate in November as it dropped to 8.6 percent of the workforce, a drop from 9.1 percent in October.
However, under-employment still remains in the 20.0 to 25.0 percent range as it has for the past several years.
Under-employment includes those people that are working part time but would like to work full-time. This component did decline by more than 4.0 percent in November from a month earlier but was down by only about 5.0 percent year-over-year.
Under-employment also considers people that are not working but say that they would like to be. This includes discouraged workers and those who cannot work for reasons like ill health. The number included in this classification increased by about 6.0 percent over the last year. Does this capture the movement from part-time employment to discouraged workers?
These figures indicate that there are long-run factors at work in the labor market that cannot just be solved by short-run fixes or election-year accusations and verbal confrontations.
My argument is, and has been, that fifty years of credit inflation has left the United States with a substantial dislocation of economic resources, like labor, and a vast redistribution of income toward the wealthy. These dislocations are not subject to the “quick fix”.
The economy is recovering, but the economic recovery is not doing much…and cannot do much…to create the restructuring that is needed. You cannot try and put an employee of the auto industry back to work in the same job he/she held for the last ten years when the industry has moved on technologically and that job no longer exists.
Another significant indicator of this is that the share of the population in the labor force has dropped to 64.0 percent, the lowest level in decades.
This drop in labor force share is being driven by people retiring early from the labor force. We see this in a lead article in the New York Times this morning, “Many Workers in Public Sector Retiring Sooner.” This is a result of the budget problems being faced by state and local governments, but it is also a result of events taking place in the private sector as well.
Further supporting information comes from the data of the manufacturing sector. Capacity utilization continues to be below the levels attained over the past fifty years.
The latest figure for capacity utilization was 77.8 percent. This is above the level capacity utilization reached in the depths of the Great Recession, 67.3 percent in June 2009, but it is only slightly higher than the level at the trough of the 2001 recession. And, the trend throughout the last fifty years has been down with capacity utilization being near 90 percent in the 1960s.
Over the past fifty years in the United States, under-employment has increased dramatically and capacity utilization has declined dramatically. Note, that this is the time period that the income distribution skewed so dramatically toward the wealthy in the United States.
The economic policies of the United States government, both Republican and Democratic, have produced this outcome over this time period. More of the same will not be helpful.
Economic growth and economic recovery will not be robust unless and until people come to understand that the economic policies of the government must change. And, these economic policies must deal with the structural dislocations that have evolved over the past fifty years as well as put the economy back on a more stable foundation with less reliance on debt and credit inflation.
Credit inflation paints a very pretty picture while it is accelerating. But, the consequences of this inflation is anything but pretty. Just ask the less wealthy, the under-employed, and the manufacturers that cannot use their full capacity.