The Jimmy Carter Economy

Last month the Minneapolis Star Tribune conducted an opinion poll asking—among other questions—the following two,

Would you say the Minnesota economy is better than it was four years ago, worse than it was four years ago or about the same?

Is your personal financial situation better than it was four years ago, worse than it was four years ago or about the same?

More than half (54 percent) of respondents say the state’s economy is better off than it was four years ago.  But only 26 percent say that their personal situation is better.  Huh?

You would think that the state economy is merely the sum of each person’s individual economic situation.  But more is going on than that.

The public is responding Star Tribune headlines like this one from today:  “Minnesota jobless rate hits 8-year low.”

Each person is the world’s leading expert in their own economic situation.  Most people are all too aware that their own situation has not improved in the last 4 years.  Twenty percent say it’s actually gotten worse over that period.

But people respond to the daily headlines telling them that (improbably) everyone else in the state is doing better.  It turns out that you can fool most of the people most of the time.

The unemployment rate is indeed going down.  Some people are finding jobs, reducing the numerator of the equation.  But the denominator (the size of the workforce) is dropping even faster.  According to the state Department of Employment and Economic Development (DEED) the state’s workforce peaked in March at a little over 3 million.  It has been dropping since.

The state’s workforce participation rate has fallen for five months in a row.  It stands at 69.8 percent, a level not seen since September 1980.  Put another way, 3 in 10 working-age people have dropped out, neither working nor looking for work.

Put a third way, in the last 34 years, we’ve seen booms, we’ve seen busts, but we haven’t seen so many dropping out of the work force since Jimmy Carter was president.

At this point of every other economic “recovery,” the work force participation rate has risen, as more people leave the sidelines looking for one of the new jobs a growing economy is creating.  Not this time.

We are told that it’s demographics.  And yes, we have an aging population, with baby boomers retiring and few new babies being born.  But the labor force is moving in the opposite direction from expectations.

According to data at the Federal Bureau of Labor Statistics (BLS), over the past decade (2002 to 2012), more and more older workers are sticking around.  For all age groups over 55, work force participation rates are up, and expected to climb further over the next decade.  Older workers simply cannot afford to retire in this Jimmy Carter-era economy.

The BLS reports that for every age group under 55, work force participation rates have fallen, and will continue to fall for the next decade, driving the overall rate down even further.  New workers are increasingly not even bothering to look for work, because they know there are not any jobs out there.

Sorry, that’s not good news.