Looking at labor markets, my biggest concern is the drop in labor force participation.
And since economic output and living standards ultimately depend on thequality and quantity of labor and capital that is being productively utilized, it obviously is not good news that millions of people are no longer employed.
But if I had to identify a second-biggest concern, it would be the “Europeanization” of long-run unemployment in the United States. Specifically, we have a growing problem of too many people being unemployed for long periods.
I pontificate about this issue in a column for CNN.
…there are almost 4 million Americans who have been out of work for more than six months. That’s a big number. What’s disconcerting is that the current long-term unemployment is more serious than in previous economic downturns. Data from previous business cycles show people suffering from long-run joblessness at worst accounted for about 20% to 25% of the unemployed. In recent months, that percentage has jumped to nearly 40% — an all-time record! Indeed, America is beginning to look like Europe. It used to be that long-term unemployment in the U.S. was only a fraction of Europe’s, but the latest data from the Organization for Economic Cooperation and Development show that the United States has caught up to many of Europe’s welfare states. That’s not a race we want to be part of, much less win.
Here are some charts that illustrate the severity of the problem.
Let’s start with a look at what’s happened over time in the United States.