The following originally appeared on The Washington Examiner on March 10, 2014.
With a degree of candor rare even for the Congressional Budget Office, Director Douglas Elmendorf recently testified that reduced labor force participation (the number of people either working or looking for work) was “the central factor in slowing economic growth.”
Appearing before the House Budget Committee, he further stated that “later in this decade and beyond, the principal reason why we think the economic growth will be less than it was for most of my lifetime will be a slower rate of growth by the labor force.” On our current course, Elmendorf is absolutely correct.
Both slow growth and a decline in the percentage of people working or actively looking for work condemn our youth to economic stagnation and deprive them of the opportunities that come with prosperity and a job. The Bureau of Labor Statistics defines the labor participation rate as the percentage of the population over 16, available for work and either employed or actively seeking employment. As the somewhat terrifying chart above demonstrates, labor participation has been declining at an unprecedented and precipitous rate since President Obama assumed office. For the last five months, it has been at or slightly below 63 percent, the lowest rate since April 1978 during the Carter administration.
The president’s defenders argue that this disconcerting decline is due to baby boomers retiring rather than the president’s economic policies. This argument simply misses the point.
The CBO attributes the labor force participation rate’s decline 50 percent to economics (poor job prospects in the current economy) and 50 percent to demographics (the aging of the population). Whatever the reason, the fact that we can explain the decline doesn’t mean we have to accept it. To the contrary, unless we reverse it, future generations will never experience the level of economic opportunity past generations have experienced.
We can reverse it by implementing policies that encourage private-sector job creation, which will increase the demand for labor and incentivize people to join the labor force. But Obama’s economic policies consistently limit the ability of businesses to create jobs and discourage people from working.
Entrepreneurs create jobs when they’re able to expand or create businesses. They do so when they can develop business models that show a profit. It’s difficult to develop profitable business models when government policies keep increasing costs.
By increasing marginal tax rates on high-income earners, the president has decreased the profits small business owners can invest in growth, as most are organized as sole proprietor or S corporations. Navigating the increasingly complex government regulatory maze has forced businesses to spend money they could otherwise have invested in growth. Fighting a war on carbon fuels has increased energy costs, further decreasing growth.
Even anticipated costs affect business models that, by definition, forecast the future. Despite promises to the contrary, Obamacare is increasing medical insurance expense and labor costs. The Obama administration’s questionable delays and amendments to Obamacare’s employer mandate have given businesses a reprieve. But entrepreneurs know these delays are politically motivated and temporary — they know Obamacare’s increased costs are coming and they must factor such costs into their business models.
Now the president is advocating a significant federal minimum-wage increase that would further increase labor costs. As anticipated labor costs increase, businesses decrease labor, favoring reduced hours or automation as an alternative. If you increase the cost of something, businesses will use less of it. If you decrease the cost of something, businesses will use more of it. The CBO recently reported that the president’s proposed increase would result in a loss of 500,000 jobs by the middle of 2016.
It’s easy to attack businesses when they employ these cost-cutting measures. But unlike government, businesses must generate profits to grow. Businesses that consistently fail to make a profit go bankrupt. Even more disturbing, businesses that are unable to forecast a profit never open.
As the costs of doing business rise, profits supporting investment and growth become more difficult to model. Businesses can only absorb so many costs and consumers can only absorb so many price increases. At some point, business models no longer work, and growth stagnates or ceases. Absent investment and growth, there is diminished job creation and the labor participation rate declines or stagnates. It’s really that simple.
Businesses have been warning that the president’s policies are placing our economic future at serious risk. The CBO recently revealed the other side of that coin. It reported that over the next 10 years, Obamacare will cause our economy to lose the equivalent of about 2.5 million full-time jobs because Obamacare encourages people to voluntarily lower their incomes or stop working to be eligible for increased government health insurance subsidies. Testifying in front of the House Budget Committee, Elmendorf stated that “by providing heavily subsidized health insurance to people with very low income and then withdrawing those subsidies as income rises, the act creates a disincentive for people to work — relative to what would have been the case in the absence of [Obamacare].” To the extent these individuals stop working, they reduce our labor force.
As the chart at the beginning of this article clearly shows, you can’t increase labor force participation when your economic policies discourage entrepreneurs from creating jobs and your social programs discourage Americans from working.
The solution to declining labor force participation is to reduce the burdens government has placed on growth and release America’s job creating entrepreneurial energy. America’s private sector is ready, willing and able to create jobs for those still seeking the dignity, self-respect and experience that come with a job. But government must get out of the way.
More government is not the answer to a declining labor force. As history demonstrates, too much government is the problem.
The following originally appeared in the Orange County Register on February 23, 2014.
There are few tasks more difficult than convincing those who believe they are doing something generous and compassionate that they are, in reality, inflicting harm and injustice. The debate over the Affordable Care Act is a prime example of this struggle. We are all sympathetic to the plight of those who are unable to obtain adequate medical care. It’s difficult to imagine a class of people more in need of our sympathy and support. These were the individuals we were told Obamacare would benefit.
For many, this was sufficient justification to create a massive government run health insurance system regardless of the actual content of the law or the political means employed to guarantee its passage. In fact, our elected representatives responsible for Obamacare’s passage admittedly never read it and clearly had little understanding of what was in it. Health insurance reform was more about passing this seemingly compassionate law than knowing what it was going to accomplish or how.
The result was a truly terrible piece of legislation that is incomprehensively complex making it impossible to implement as written and requiring repeated amendments by questionable executive fiat. Its provisions were deceptively timed and have been repeatedly delayed so that it’s most burdensome provisions would have the least negative political impact on the party that passed it. While intended to help the American people, Obamacare is proving to be more damaging than helpful with its only remaining defense being that things should improve sometime in the future; a promise made with its most onerous and questionable provisions yet to take effect.
For months, businesses have been warning that Obamacare is discouraging full-time employment and economic growth by materially increasing the cost of employees who work more than 30 hours per week. Last week, the nonpartisan Congressional Budget Office revealed the other side of that coin. In a report to Congress, the CBO projected that, over the next 10 years, Obamacare will cause our economy to lose the equivalent of 2.5 million full time jobs as people will voluntarily lower their incomes or stop working altogether so as to be eligible for increased government health insurance subsidies.
Testifying to the House Budget Committee, CBO Director Douglas Elmendorf stated that “by providing heavily subsidized health insurance to people with very low income and then withdrawing those subsidies as income rises, the act creates a disincentive for people to work – relative to what would have been the case in the absence of [Obamacare].”
The individuals Obamacare is disincentivizing are not the helpless and underprivileged individuals whose plight the Democrats used in their effort to sell health insurance reform. These are people with both jobs and health insurance who will choose to reduce their hours or leave their jobs so they can retire or pursue other interests, such as their hobbies or, as House Democratic leader Nancy Pelosi stated, they can become a “photographer,” a “writer,” a “musician” – or “whatever.”
Arguing that people should be freed from the obligation to have a job ignores as much about economics as it does about human nature. First, to the extent some will be better off without having to work, there will be those working to support their families who would prefer to keep what they earn as opposed to subsidizing those who can work but choose not to.
We’re going to lose income and payroll tax revenue equivalent to what 2.5 million employed individuals would have paid over a 10-year period; tax revenue we could have used to cover the expense of providing health insurance for those who are actually unable to get it. In addition, we’re going to provide these formerly insured individuals with government subsidized health insurance, increasing the tax burden on those who continue working in our now depleted labor force. This burden will inevitably fall on the middle class that Obamacare’s supporters so vigorously claim to be protecting. There is real injustice in requiring that people with jobs subsidize those who choose to be unemployed.
Perhaps more importantly, while those who Obamacare encourages not to work are arguably better off in terms of what they pay for health insurance, are they truly better off without the independence, dignity and self-respect that comes with a job? Is it better to take from them the opportunity to succeed, raise their incomes and join the middle class? Is it better to put them in a position where they can only improve their lives by voting for those who will continue to increase their government benefits funded by the efforts of others?
I’ve watched young men and women enter the labor force in our restaurants. I’ve seen the pride and determination that leads to success in both their careers and their lives. Some stay, moving up to managerial positions. Others move on to other jobs and challenges, equipped with the experience you can only get from a paying job. There is a hunger for these opportunities that is dying as fewer and fewer full or part-time jobs are available. It is impossible to create jobs when the government discourages businesses from hiring and incentives people not to work.
As is clear to anyone paying attention, this is exactly what Obamacare is doing. It’s time to stop defending and lawlessly amending this poorly structured law and come up with a bipartisan solution that might actually work. More broadly, as Americans we need to decide what kind of country we want – one that incentivizes work and initiative or one that doesn’t.
Neil Cavuto and I discuss the past weeks newest revelations about Obamacare.
On Fox Business, Charles Payne and I discuss how government policies hurt business and what needs to happen in order for businesses to grow and create jobs.
The following originally appeared on Investor’s Business Daily on January 29, 2014
Rep. George Miller, D-Calif., and Sen. Tom Harkin, D-Iowa, have introduced a bill in the House and Senate that would raise the federal minimum wage by 39% over the next two years to $10.10 per hour from today’s $7.25 and then index that wage to consumer prices.
No sooner said than done, the Economic Policy Institute released a letter of support signed by 75 economists, seven of whom are Nobel laureates.
We’re once again reminded of Philip Ball’s quote that “there is no scientific idea so absurd that you cannot find someone with a Ph.D. (indeed, often with a Nobel Prize) to support it.”
Conceptually, of course, there is no question that raising the minimum wage will cost some people their jobs. It will also reduce the hours worked for others, raise the prices of products made by minimum-wage employees and incentivize businesses over the long run to automate and thus eliminate minimum-wage workers.
Most of all, it will reduce economic growth, the only real long-run hope for alleviating poverty.
Raising the minimum wage will also raise the wage rate for a number of current minimum-wage employees and perhaps even boost the wages of some employees working just above the minimum wage. What is missed by this factual but dry response is the human tragedy and political hypocrisy contained therein.
Worst Jobs Recovery Ever
To understand why this topic is now front and center, you need to know that the U.S. has had the single worst recovery in employment ever.
It is as far below the next worst recovery as the next worst recovery is below the best recovery ever. U.S. employment as a share of population has dropped from a smidgen under 65% in April 2000 to between 58% and 59% for nigh on five years. There is no jobs recovery.
Adjusting the actual jobless rate for the decline in the labor force participation rate shows that every person removed from the unemployment rolls has been offset 100% by someone leaving the labor force. Save for overall population growth, there have been no jobs created.
And the pain among various segments of the adult population has not been evenly distributed.
As of today, employment as a share of population for all Americans is 58.6% (down 9.4% from its high in 2000), while for all African-Americans it’s 53% (down 14%), teenagers 27% (down 42%) and black teenagers 17.7% (down 43%).
These employment numbers closely correspond to the unemployment figures. The current jobless rate for all Americans is 6.7%, black Americans 11.9%, teenagers 20.2% and black teenagers 35.5%.
One Wage Doesn’t Fit All
Raising the minimum wage for everybody everywhere will have a disproportionately damaging impact on the poor, minorities, youth and the disadvantaged.
What’s needed now is a pro-growth jobs program directed at changing bad policies, not a palliative for the unemployment consequences of those bad policies. Going through the whole rigmarole of another contentious partisan political battle in Washington, D.C., isn’t going to make anyone better off.
And the minimum wage should be set by individual states, not by the federal government. A federal minimum wage ignores the huge cost-of-living differences across the depth and breadth of America. The most recent cost-of-living index puts New Yorkers at 136, Californians at 124, Floridians at 97, Texans at 92 and Tennesseans at 90.
In cost-of-living terms, an $8 per hour minimum wage is worth 50% less in New York than in Texas. Or, if you prefer, from an employer’s standpoint in purchasing power terms, it costs almost 50% more to hire a minimum-wage worker in Texas than it does in New York.
If the purpose of a minimum wage is to alleviate the hardship of making ends meet, surely the minimum wage should be adjusted for cost-of-living differences by state.
Adding to the case for separate state minimum wages is the point made by the aforementioned economists’ letter that “persistent high unemployment is putting enormous downward pres sure on wages.”
Again, unemployment is far from evenly spread across the nation. North Dakota’s jobless rate is 2.6% while Rhode Island’s is 9% and all the rest interspersed between. One-size-fits-all makes no sense.
Proponents of a higher minimum wage correctly point out that, at the minimum wage, a single-earner family will have to live below the poverty level. This depressing fact often is true. And putting yourself in these workers’ shoes would chill any normal person to the bone.
Not only do minimum-wage workers have to work very hard indeed — and probably not at the most exciting job — but they get paid very little. It’s totally unfair.
But if you think the plight of minimum-wage workers and their families, let alone the hardship faced by those who are unemployed, is a consequence of unfair employers, you are sorely mistaken. Employers, like everyone else in this dismal economy, do the best they can for themselves.
Scrutinizing the situation carefully places the cause of our malaise squarely at the feet of government policies. You can’t raise taxes on people who work, increase the payouts to people who don’t work and expect more people to work. That’s not the way the world works.
Raising the minimum wage is the wrong policy applied to the wrong people at the wrong time.
The following originally appeared in The Daily Caller on December 23, 2013.
On December 18th, the Federal Reserve’s Open Market Committee announced its decision to “modestly reduce the pace” of its asset purchasing program from $85 billion to $75 billion per month. Indicating just how modest this reduction was, the Dow Jones Industrial Average surged by nearly 300 points closing at a record high. As justification for this modest reduction, the FOMC noted a number of factors indicating that “economic activity is expanding at a moderate pace,” including the fact that “the unemployment rate has declined.” Yet, the FOMC’s enthusiasm about the labor market was tepid at best.
While the official unemployment rate declined to 7 percent in November, the lowest it’s been since 2008, the FOMC noted that it “remains elevated.” Boston Fed President Eric S. Rosengren voted against the modest reduction believing that it was premature “with unemployment still elevated.” On the day the Bureau of Labor Statistics released the November unemployment numbers, Chicago Fed President Charles Evans stated that “[t]he unemployment rate [drop] probably overstates the improvement in the economy.” Fed Chairman Bernanke similarly noted in early November that “the unemployment rate probably understates the degree of slack in the labor market.” Despite the FOMC’s modest reduction, both statements are unequivocally true.
At CKE Restaurants, labor market slack shows up in our applications versus hires. Year to date we’ve received nearly 200,000 applications for about 15,000 entry level part time positions, or 13 applicants per position. Higher level positions, such as field management, average 325 applicants per position. This is a lot of slack, but at least the BLS recognizes that these people exist; they show up in the labor force as either employed or unemployed. The slack that fails to show up in the official unemployment rate comes primarily from two other sources: (1) People leaving the labor force; and, (2) treating part time jobs the same as full time jobs.
The impact of people leaving the labor force, what Chairman Bernanke refers to as “important downward trends in participation,” is straightforward: As people leave the labor force, they also leave the ranks of the unemployed reducing the unemployment rate even in the absence of job creation.
November’s labor participation rate clocked in at 63 percent. With the exception of October’s participation rate (62.8 percent), this is the lowest labor participation has been since April of 1978. Between September and November, the economy added only 83,000 people to the ranks of the employed while 265,000 people left the labor force. The unemployment rate fell from 7.2 percent to 7 percent because people stopped looking for jobs and left the labor force, a seemingly positive result caused by an obviously negative trend. This downward trend during President Obama’s term, as noted in the chart below, has been consistent and disturbing.
Viewed in historical context, if the labor participation rate today were the same as it was when unemployment peaked at 10 percent in October of 2009 (65 percent), the unemployment rate would be 9.9 percent rather than 7 percent. Of the individuals BLS reports as “no longer in the labor force”, 5.8 million “want a job now.” Adding these individuals to the ranks of the unemployed would increase the unemployment rate to 10.3 percent, a clear indication of labor market slack.
The second reason the unemployment rate fails to reflect the labor market’s health involves what Chairman Bernanke has referred to as “underemployment, part-time work.” The BLS considers employees working less than 35 hours per week part time. Due to Obamacare, employers have the perverse incentive to reduce existing employees’ hours to fewer than 30 per week to avoid health insurance expense. These reductions often fail to appear in the employment data. If a business has two employees, one working 33 and the other 23 hours per week, and both making $10 per hour, one employee – the one working more than 30 hours — must be provided with the expense of health insurance.
If, on the other hand, each employee works 28 hours per week, the business still has two part time employees averaging 28 hours per week and $10 per hour, so there is no change to the BLS employment rate calculation. But the business no longer has to pay the cost of health insurance for either employee.
Unfortunately, absent the opportunity to work more hours, such employees are restricted in their ability to earn more or advance their careers unless they find an additional part time job or a full time job. As noted above, good full time jobs are hard to find. Today, 7.7 million Americans are working part time because they are unable to find a full time job.
Recent trends in the employment data suggest that the number of part time employees may continue to grow. As I noted in a previous article, during the period from January 1st through July 2nd of this year, when employers were most likely to react to Obamacare’s requirement that businesses offer health insurance coverage to their employees who work 30 or more hours per week, the economy created an astounding 833,000 part time jobs but lost 97,000 full time jobs. While these numbers appear in the employment data, the official unemployment rate fails to reflect the part time dynamic as it treats part time jobs as equal to full time jobs.
BLS calculates an unemployment rate that considers people employed part time for economic reasons and people who are unemployed but have looked for work in the past twelve months (as opposed to the past 30 days) as unemployed. This calculation sets the unemployment rate at 13.2.
Americans are aware that the seemingly positive numbers coming out of Washington bear little resemblance to their actual circumstances, creating an undercurrent of distress despite apparently good economic news. According to a recent Washington Post-Miller Center poll, 74 percent of Americans believe that over the past few years it has become harder for people like them to find a good job. By the same 74 percent margin, Americans place at least some of the blame — in fact almost half (46 percent) place “a lot” of the blame — for this increased difficulty on “high taxes and regulations on business.” Even more to the point, 62 percent worry that they will lose their jobs and nearly one in three (32 percent) worry about it “a lot.” For those who make under $35,000 per year, over half (54 percent) worry “a lot” about losing their job. And the data shows their concerns are justified
Even a modest reduction to the Fed’s massive quantitative easing program is a positive as it communicates to our politicians that they cannot perpetually rely on monetary policy to boost the economy. Yet, if we’re going to have a meaningful economic recovery, we need something beyond revisions to our monetary policies. We need to nurture and encourage private sector growth and job creation. We must incentivize employers to grow and to hire while encouraging employees to remain in the labor force. We must ask whether we’ve reached a point at which well-intentioned laws and regulations designed to protect workers have become disincentives for both workers and job creators. I’m not questioning the need for or the importance of such laws. But, it is vital that we weigh the trade-off between good intentions and creating incentives that encourage both work and hiring. If we fail to do so, a declining labor participation rate and lack of meaningful job creation will be the logical and long-term results. If government continues to restrain and inhibit this nation’s dynamic entrepreneurial energies, the official unemployment rate may well decline but for our youth and unemployed, there will be no recovery.
How bad are things getting for President Obama? There are indications that the tide of public opinion is turning very negative. According to Gallop, his approval rating has dropped to 39%. Perhaps even more disconcerting, the culture seems to be turning against him. When the culture turns against you, it’s time to worry.
At a University of Missouri football game on Saturday the largely college student crowd booed during a swearing-in ceremony for new members of the National Guard. The booing occurred when they were asked to take an oath to “obey the orders of the President of the United States.”
Jay Leno’s monologue included a bit about how President Obama was such a good speaker he even seemed to believe himself when he told supporters that he really said “you could keep your insurance if it hadn’t changed since the law had passed. And then his pants caught fire.” The audience not only laughed, it clapped.
Even Jon Stewart from The Daily Show got in on the action saying “What you said was, ‘You can keep it. Period.’ Now what you said there was, ‘You can keep your health-care plan. Ellipses. Comma, because it may no longer meet the individual requirements, or your insurance company may stop offering individual plans, or some other odd bureaucratic off-suit. Period. Emoticon depicting a combination of embarrassment and arrogance.”
Carrie Underwood and Brad Paisley did a skit at the Country Music Awards this week making fun of the ObamaCare web site and the “6 people” who have signed up. It was very well received.
Finally, the Washington Post gave President Obama three Pinocchios out of four for his claim that the health insurance policy cancellations millions of Americans are experiencing were really the insurance companies’ fault. The comments to the article are very telling about where the public currently stands on the President’s credibility. On the other hand, this was an improvement from the four Pinocchios the Washington Post gave the President last week for his pledge that “no one will take away” your health plan. The comments to this article are also very revealing.
With the results of ObamaCare’s impact on the Virginia Governor’s election now a matter of record, you have to wonder how long the Administration can allow this to continue.
On Election Night Neil Cavuto and I discussed the results and their effect on how Repbulicans can win elections. Check out the video below.
In the Washington Post this morning Jennifer Rubin did a nice job of showing that, without a doubt, the president knew all along that people were going to lose their insurance coverage. In a well written article, one liberal pundit even noted that Republicans are now looking “wise beyond their years”. My question is whether a president can misrepresent the impact of an unpopular bill to get it passed, get caught and pay no consequences. If the answer is yes, we are in trouble as a people and a nation.
