What’s Driving the Labor Market Mess?

What’s Driving the Labor Market Mess?
A man walks past a "now hiring" sign posted outside of a restaurant in Arlington, Va., on June 3, 2022. (Olivier Douliery/AFP via Getty Images)
Jeffrey A. Tucker

A small business owner with whom I was speaking raised an odd point. He has many jobs open right now and advertises them. Many people apply, and he clicks through the online portal to offer interviews. Then, something odd happens. He never hears from them. Maybe they took some other position.

That’s what he believed for a while. Now, he realizes something stranger. Many of these people are applying for work with no intention of following through simply to keep their unemployment benefits rolling in.

How many people have figured out this racket? There’s no way to know, but it could account for this spooky data that hit us last week. Initial jobless claims rose to a seasonally adjusted 251,000 from 244,000 the week before. Crucially, this is above the 2019 level of 218,000.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

The four-week moving average for claims also rose. Continuing claims, which attempt to capture unemployment benefits, rose to 1.4 million.

We really shouldn't be seeing these kinds of numbers. Instead, they should be continuing to fall, as the economy recovers from the pummeling it got from governments across the country.

All of this adds to recession fears, since unemployment has long been considered a major marker of the downturn of the business cycle. This time, however, is different because unemployment itself is so very low, simply because labor force participation, in general, is dramatically down since the COVID-19 pandemic lockdowns. It’s not coming back. In fact, it's falling.

Let’s take a step back and examine this in general and select by gender. The rate itself masks a dramatic change that has taken place since the end of World War II. Male labor force participation was once nearly universal, while women displayed the pattern of not earning wages and salaries during child-bearing years but participating before and after.

This gradually changed over time because of cultural and economic shifts: After the inflation of the late 1970s, households chose two incomes over one to maintain and upgrade lifestyle choices.

As a result, drilling down just a bit reveals a huge cultural and economic shift since 1950. As women participated ever more, to a high of 57 percent from 32 percent, men’s participation fell to 67 percent from 87 percent. It appears to be a pure act of displacement, but that's likely an illusion overall. It more plausibly suggests demographic shifts among men as boomers retired while women poured in.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

Now let’s take a closer look at the dramatic shifts that took place following lockdowns and the brutal division of the entire workforce between essential and nonessential, as well as the sudden and shocking avalanche of money that poured into people’s bank accounts that they didn't earn. This act trained an entire generation in the belief that it's possible to make more money not working than working. This created a disaster for the workforce from which we haven't come close to recovering.

Not only that, but the labor force participation rate for all groups is falling steadily. Right now, the women’s labor force participation rate is as low as we’ve seen it in 35 years! I’ve yet to read any articles examining or decrying this. Presumably, at least one generation of feminists would see this as a calamity. But we’ve only heard silence concerning this trend.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

Why is this happening? So far as I can tell, these are the factors.

First, many used the lockdowns as a reason to finally retire from the workforce. It was going to happen at some point in the coming five or so years, so many just figured that this was a good time.

Second, many people younger than the age of 30 who hadn’t quite gotten their professional lives together decided to move home and downgraded their need for a constant income stream. This is likely the group that continues to game the system to maintain unemployment benefits.

Third, many people moved to other states and shifted their earning patterns from conventional jobs to one-off gigging opportunities that would cause a shift in their employment status.

Fourth, millions of women left the workforce to care for children at home. Child care shut down and so did schools. So that careful balancing act of professional life and motherhood came to be unsettled. They were forced to choose and haven't gone back to the workforce.

Fifth, there's a deeper and more spiritual problem at work here: a loss of personal ambition that came with the demoralization of lockdowns and the forced advent of sedentary living. Once the ritual of working was taken away, the expectations for what one must do to get by changed dramatically.

That final problem is the most gnarly one to solve. It affects poor societies deeply. The absence of personal ambition took centuries fully to overcome in the West, as we read from Adam Smith’s “Theory of Moral Sentiments.” The bourgeois sensibility isn't built into our natures; it must be cultivated by institutions over long periods of time. It comes with generations who expect a reward for labor and can count on a stable regime to not upend the earnings stream.

The lockdowns were catastrophic for the American work ethic. This can't and won't be fixed overnight. One big reform could help, as we learned from postwar Britain. Unemployment benefits must be curbed and dramatically time-limited. Ideally, we would get rid of them completely and see them replaced by private charity offered by institutions, as they were before the 1930s.

So long as we have systems in place that reduce or eliminate the penalty for idleness at others’ expense, we'll see low labor participation entrenched. Along with that, we'll see our standard of living continue to fall.

The labor markets are a huge mess right now. The trends in jobless claims aren't going in the direction we would see in an economic recovery from disaster. They're headed in the wrong direction. Whether this forecasts recession is a fascinating question, but regardless, it doesn't bode well for the American spirit of enterprise.

Allow me to make one final point concerning the bureaucratization of U.S. labor force management: People who have never started a business in this country have no clue about the egregious bureaucratic hurdles involved in just gaining the legal right to pay someone a salary. It's absolutely astonishing to discover the miasma of rules involved, with multiple bureaucracies in the federal government and every state government standing in the way at every step. This is enormously discouraging to job creation but also to entrepreneurship. Here again, I see very little public discussion of this problem. Getting us back on the right track will require huge reforms.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Jeffrey A. Tucker is the founder and president of the Brownstone Institute, and the author of many thousands of articles in the scholarly and popular press, as well as 10 books in five languages, most recently “Liberty or Lockdown.” He is also the editor of The Best of Mises. He writes a daily column on economics for The Epoch Times and speaks widely on the topics of economics, technology, social philosophy, and culture.