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Charlie Sykes: Sykes Writes

Where Are The Missing Workers?

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A drop in the unemployment rate to 7.7% sounds like good news, until you realize that the rate drop is driven in part by the disappearance of yet more workers from the work force. In November, another 350,000 workers vanished from the labor market. This has become a familiar story.

The Wall Street Journal notes that the share of the available work force actually working has dropped from 65.7% in June 2009 (when the recession ended) to 63.3% last month -- the lowest in more than thee decades. This is a recovery?

Mull that one over: Three years into an economic expansion, the labor participation rate has fallen two full percentage points and three times this year (including November) it has reached the lowest level since 1981. This means that about three million more workers were working or looking for work in 2009 than in November. In the last year alone, the number of working age nonworkers grew to 89.2 million from 86.8 million.

But where are they going? And why? The Journal offers several including "early retirees" who can't find work and decide to live off savings. 

But there may be even unhappier reasons. Economist Casey Mulligan of the University of Chicago has documented that the huge increase in government benefits for not working—food stamps, disability payments and unemployment insurance—are increasing the incentive not to work. Welfare payments that redistribute income from workers to mostly nonworkers now exceed $1 trillion a year. 

How unexpected. A massive subsidy for not working results in the disappearance of millions from the work force. Who knew?

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Here, by the way, is what Professor Mulligan says about this:

Under the Obama administration, workers with disposable income in the neighborhood of the poverty line did not, on average, see their job losses during the recession translate into significant reductions in their disposable income....

The results suggest that the government was helping too much. ..Mr. Bernstein, one of the Obama administration advisers who designed the stimulus law and said it would quickly push the unemployment rate below 8 percent, appears to be unaware that it is possible for the government to help too much by creating the kind of situation Professor Tobin described and depress the economy in the process. ...

Erasing incentives is not the way to a civilized society but rather to an impoverished one.

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