July 18, 2004

A Growing Force of Nonworkers



IF President Bush was correct when he asserted recently that the economy was strong and getting stronger, why are so many people not only out of work but also not looking for jobs?

Mr. Bush noted with evident relief that the nation had added 1.5 million jobs since last August. Senator John Kerry and his supporters complain that the country still has about a million fewer jobs than when Mr. Bush took office.

But neither statement captures properly the shortfall of jobs that has built up over the last three years. An accurate estimate is not one million but four million, and possibly higher.

Consider just one figure. Since June 2000, according to the Bureau of Labor Statistics, the number of adults considered "not in the labor force" - those who don't have jobs and are not looking for them - has grown by about 4.4 million, to 66.6 million.

The political significance is obvious: if the shortage has been formed by millions of additional discouraged job seekers, Mr. Bush will have a much harder time persuading voters that the economy is heading in the right direction.

The economic issue is important in its own right. If the United States has a huge reserve pool of workers, Alan Greenspan and the Federal Reserve may be correct in asserting that the economy has room to expand without big wage increases. That would reduce inflationary pressure and allow the Fed to raise interest rates slowly.

But if workers are being displaced by more fundamental forces, like a growing mismatch between their skills and the needs of the marketplace, the pool of untapped labor could become a cauldron of frustration and resentment.

First, the numbers. According to the Bureau of Labor Statistics, the nation added 112,000 payroll jobs in June, for a total of 131.3 million. For those watching Mr. Bush's scorecard on jobs, that total is 1.5 million higher than it was last August, and down 1.2 million from a peak in March 2001. But the recent increases greatly overstate the job growth.

The United States adult population has been growing about 1.4 million a year. Even if a third of those extra people don't want jobs - choosing, say, to be stay-at-home parents - the potential work force would still have expanded by more than three million since the start of 2001.

The unemployment rate would be much higher than the current 5.6 percent, except that millions of people have dropped out of the work force. In a downturn, it is normal for many people to become so pessimistic that they stop looking for work. It is also normal for them to jump back into the market when prospects improve.

But in this recovery, optimism remains muted. The "labor participation rate," the percentage of people who either have jobs or are looking for them, has barely begun to revive after dropping sharply since 2000.

Among adults in their prime earning years, ages 25 to 54, the work force participation rate has dropped to 82.8 percent from 83.9 percent in 2000. That may seem a minuscule decline, but it is the lowest rate since 1987, and it translates into millions of people. In June 2000, the Labor Department estimated that 62.2 million people over the age of 20 were "not in the labor force." By this June, the number had jumped to 66.6 million. The extra 4.4 million amounted to more than half of the 8.2 million people officially labeled unemployed.

Economists say the trend is beginning to reverse, as people become more optimistic about job prospects.

"It's pretty clear that employers are starting to hire again," said Jared Bernstein, senior economist at the Economic Policy Institute, a liberal research organization. "Even the most cautious employers are being forced to pull the trigger."

Even so, job creation has not come close to the pace reached in previous recoveries, including the "jobless recovery" of the early 1990's.

There is a curious countertrend to the muted picture, but it may not be encouraging: the one group that is working more than ever is people older than 60.

Because people remain healthy far later in life, it is not surprising that more are working past the traditional retirement age. According to a recent survey by AARP, 80 percent of baby boomers said they expected to work at least some after they retired.

But many older people are also working because they need the money - because their pensions are too slim, their debt loads too high or their savings too meager. Whatever the reason, older people snapped up about a third of the 1.5 million jobs created since August. About 250,000 went to people 60 to 64 years old, and about the same number to people 65 and up.

The evidence, meanwhile, suggests that the jobs being created pay less than the old jobs that were lost. Stephen S. Roach, chief economist at Morgan Stanley, estimated that 44 percent of the hiring from February to June was in lower-paying jobs and that 81 percent of total job growth over the last year had been in lower-paying occupations like retail sales and transportation.

"A likely persistence of low-quality job creation could jeopardize sustained economic recovery," Mr. Roach wrote recently. "To the extent that it legitimizes perceptions of worker angst, it could also turn into one of the biggest issues in the upcoming U.S. presidential campaign."

WHITE HOUSE officials say that there is no reliable data on whether people are getting good jobs or bad jobs. And though average wages in expanding areas like hospital care and retail sales are lower than in shrinking areas like manufacturing, real income has historically increased even as the industrial mix has changed.

The deeper question is whether American workers have the skills they need for higher-paying work.

Mr. Greenspan has repeatedly warned that the United States faces a growing mismatch between the oversupply of low-skilled workers and the unmet demand for people with specialty training. He has pleaded for big increases in spending on community colleges and vocational training schools. The Bush administration has provided some extra money, but the effort has been long on fanfare and short on cash.

If Mr. Greenspan is right, and if nothing changes, the implications could be grave. The real level of unemployment would remain elevated. Income disparities between the low skilled and the highly skilled would widen. And that reserve of workers deemed not in the labor force would remain on the outside.

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