Origins of job market troubles hard to pinpoint

Everyone knows that the job market collapsed with the recession.

But the U.S. employment picture actually began to crumble several years before that, according to new research suggesting that the origins of the current jobs troubles may be harder to pinpoint.

In this view, the jobs crisis began in 2000, when the proportion of U.S. residents of working age with jobs peaked after decades of rising steadily — and then began a decline.

This falloff “represents an historic turnaround in the evolution of U.S. employment,” said Robert A. Moffitt, an economics professor at Johns Hopkins University and the author of a new paper on the subject from the National Bureau of Economic Research.

The unanswered question: Why did so many people fall out of the labor force? Could it be falling wages, or the tax burden? Or is it the rising number of people with prison records?

Employment and population (The Washington Post/Source: National Bureau of Economic Statistics)

“Ultimately, it’s a bit of a puzzle,” Moffitt said.

The most commonly used measure of the nation’s jobs outlook, of course, is the unemployment rate, which measures the proportion of people who are seeking work but can’t find it.

What the unemployment rate doesn’t include, however, are those people who have just stopped looking for work, as many have during the recent downturn.

Because of this, the proportion of the working-age population that is employed, a measure economists refer to as “epop,” can be a much better reflection of what people are experiencing in the job market.

In 2000, the proportion of working-age Americans with jobs topped out at 74.1 percent, after rising for decades.

Then, despite the boom times from 2000 to 2007, the proportion slumped to 72 percent.

Then came the devastating recession. Last year, the ratio held at 66 percent.

“A tremendous decline by historical standards,” Moffitt said.

Moffitt’s paper also reviewed some of the many proposed explanations for why so many people have fallen out of the labor force.

Partly, the reason may be that wage rates dropped, making work less enticing, though by Moffitt’s calculation, that would explain only about half of the decline in epop for men and none of it for women.

Maybe it was the burden of taxes that discouraged people from getting work? The trouble with that explanation, as Moffitt noted, is that the average federal tax rate actually fell for most of the 2000s.

Maybe it was because of the growth of the food-stamp program? There should be more research on this, Moffitt said, but he is skeptical this was the cause because “that’s just not enough money to make people stop working.”

One of the leading reasons, in Moffitt’s view, may be the rise in incarceration rates in previous decades, a surge that created a group of men who are less likely to be hired. He cited research showing that the proportion of the overall population in federal or state prisons rose almost five times between 1975 and 2009.

“If you look at the numbers, they’re very dramatic,” he said. “That is a group of people who are likely to have trouble getting a job.”

Peter Whoriskey is a staff writer for The Washington Post handling investigations of financial and economic topics. You can email him at peter.whoriskey@washpost.com.
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