Excerpts from Anthony Mirhaydari's excellent article:
http://money.msn.com/investing/are-american-workers-getting-lazy-mirhaydari.aspx?page=0
Labor productivity, a measure of how much work is done per hour, has plunged over the past four months while labor costs have spiked toward pre-recession highs. The unemployment rate has dropped dramatically. And yet wage growth has stalled.
You could read these data to suggest Americans are getting lazier, losing their skills or letting them fall out of date, and choosing not to take jobs they view as beneath them. Or you could fault employers for not offering enough rewards to interest even the long-term unemployed.
This laziness dynamic, to the extent it is present, seems to affect the young rather than the old, men more than women, and the uneducated more than the educated.
This isn't just older people stepping out. The numbers are particularly painful in the 16- to 24-year-old male demographic, with workforce participation falling from nearly 80% in the late 1970s to around 58% now.
In addition to the workforce churn caused by the recession, we have an underlying demographic changing of the guard. Older, highly skilled and motivated workers are leaving -- choosing retirement, having it forced on them or becoming "self-employed" or "consultants" -- often euphemisms for "laid off and can't find a job worth taking."
Even though the economy is running 5% below its potential output (a loss of nearly $1 trillion in economic activity), inflation has returned to pre-recession levels and is above the Federal Reserve's 2% target. Simply put, the economy has slipped a gear when it should be upshifting instead.
It's these retiring boomers who have been pulling down the unemployment rate so dramatically of late. If the drop were driven by new high-paying, high-quality jobs, the improvement would be showing up in growth in the gross domestic product, wages and spending, says Société Générale economist Aneta Markowska. That's not the case.
And that calls into question the validity of interpreting the recent drop in the unemployment rate as an unabashedly positive sign. In addition to some seasonal factors that may be distorting the numbers, it's masking ongoing problems.
Yes, job creation has improved. But, as Fed Chairman Ben Bernanke recently warned, the drop in the unemployment rate from 9.1% in August to 8.3% now overstates labor market strength because of people leaving the workforce. The chart above illustrates the precipitous fall in this measure -- a fall that, according to UBS economists, is well outside the realm of historical post-recession experiences.
In a traditional recovery, the participation rate increases as new jobs bring people back into the workforce. This time, the opposite is happening. That's because as older workers (with high participation rates) retire or die, the overall participation rate is pulled down as younger workers (with lower participation rates) increase as a share of the population.
UBS economist Maury Harris crunched the numbers and found that of the 5.5 million workers who left the workforce after 2006, only 20% left because they were discouraged by being unable to find a job. The rest were a result of demographics.
You could read these data to suggest Americans are getting lazier, losing their skills or letting them fall out of date, and choosing not to take jobs they view as beneath them. Or you could fault employers for not offering enough rewards to interest even the long-term unemployed.
This laziness dynamic, to the extent it is present, seems to affect the young rather than the old, men more than women, and the uneducated more than the educated.
This isn't just older people stepping out. The numbers are particularly painful in the 16- to 24-year-old male demographic, with workforce participation falling from nearly 80% in the late 1970s to around 58% now.
In addition to the workforce churn caused by the recession, we have an underlying demographic changing of the guard. Older, highly skilled and motivated workers are leaving -- choosing retirement, having it forced on them or becoming "self-employed" or "consultants" -- often euphemisms for "laid off and can't find a job worth taking."
Even though the economy is running 5% below its potential output (a loss of nearly $1 trillion in economic activity), inflation has returned to pre-recession levels and is above the Federal Reserve's 2% target. Simply put, the economy has slipped a gear when it should be upshifting instead.
It's these retiring boomers who have been pulling down the unemployment rate so dramatically of late. If the drop were driven by new high-paying, high-quality jobs, the improvement would be showing up in growth in the gross domestic product, wages and spending, says Société Générale economist Aneta Markowska. That's not the case.
And that calls into question the validity of interpreting the recent drop in the unemployment rate as an unabashedly positive sign. In addition to some seasonal factors that may be distorting the numbers, it's masking ongoing problems.
Yes, job creation has improved. But, as Fed Chairman Ben Bernanke recently warned, the drop in the unemployment rate from 9.1% in August to 8.3% now overstates labor market strength because of people leaving the workforce. The chart above illustrates the precipitous fall in this measure -- a fall that, according to UBS economists, is well outside the realm of historical post-recession experiences.
In a traditional recovery, the participation rate increases as new jobs bring people back into the workforce. This time, the opposite is happening. That's because as older workers (with high participation rates) retire or die, the overall participation rate is pulled down as younger workers (with lower participation rates) increase as a share of the population.
UBS economist Maury Harris crunched the numbers and found that of the 5.5 million workers who left the workforce after 2006, only 20% left because they were discouraged by being unable to find a job. The rest were a result of demographics.
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