The State of the U.S. Labor Market Office of Economic Policy February 3, 2015 Dr. Jennifer Hunt Deputy Assistant Secretary, Microeconomic Analysis
Dec 25, 2015
The State of the U.S. Labor Market
Office of Economic PolicyFebruary 3, 2015
Dr. Jennifer HuntDeputy Assistant Secretary, Microeconomic
Analysis
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Unemployment rate fell surprisingly fast in 2014 (5.6%)
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Unemployed leaving labor force falling but still high
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In fact, real wages adjusted for worker quality falling
Mean hourly wage (2000 = 100)
All observables held constant
Education held constant
Unadjusted
96
98
100
102
104
106
2000 2002 2004 2006 2008 2010 2012 2014
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Consider remaining weaknesses in labor market
Why is part-time work for economic reasons so high?– Don’t know
Why is labor force participation falling?
What explains the types of jobs created in the recovery?
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Why is labor force participation falling?
About half decline since 2007 is due to baby boomers retiring
Some reflects fact that there is always a decline in the recession– Stronger GDP growth in 2014 helped slow decline
Some is unexplained – This component was growing through 2013, as GDP recovered but
participation did not– Preliminary calculations suggest no longer growing
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Alternative scenarios for the participation rate (CEA)
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Future depends on future behavior of current youth
Participation rate of youth 16-24 has been falling– Mainly because participation of students has fallen– Though also because enrollment has risen
So will the current youth increase their participation in their mid-20s?– Or will they have low participation their whole life?
The preliminary answer seems to be different for men/women
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Female youths’ participation bounces back as age
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What is the significance of falling participation?
Potential GDP is lower– Matters for business: customers consume less– Matters for government: geo-political implications– Less clear matters for individuals: rather, GDP per capita and its
distribution are what matters
Whether matters for individuals depends on the causes– Retirements are presumably choice of individual: leisure is good– Are there barriers to women’s work e.g. tax system?– Are men discouraged by falling wages?
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What policies can help…
Reduce number of workers working part-time for economic reasons– Unclear; hope continued GDP growth will help
Reduce obstacles to labor force participation
Raise wages, especially at the bottom
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Reducing obstacles to participation: Admin proposals
Tax credit for second earner in family– Joint income taxation implies high tax rate for secondary earner– Compared to countries with individual taxation, US is missing part-
time workers, explaining low prime-age female participation
$3000 tax credit per young child
Partnering with states to adopt paid leave
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Raising wages: Administration proposals
With immediate effect– Raise minimum wage– Expand Earned Income Tax Credit to childless workers– Extend the coverage of the overtime premium to more workers
Longer run investments– Partnering with business: more on-the-job training, apprenticeships– Making two years of community college free– Simplified but more generous tax break for college– Universal access to high quality preschool for 4-year olds
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Other important Administration proposals
Invest in infrastructure
Immigration reform