Monday, January 12, 2015

Some outside-the-box thinking on US employment

Here at Humble Student of the Markets, we like to look for outside of the box thinking about the markets and the economy. In view of some of the continuing angst about last Friday's NFP report, I present some unconventional thinking about the US employment situation.

Lack of wage growth
As a single data point, I would tend to agree with Tim Duy that the -0.2% hourly wage growth reported for December was a blip. Longer term, however, Justin Lahart suggested slowing wage growth is related to the lack of aging in the average worker.

Falling labor participation rate
In addition, there has been much concern expressed over the falling labor participation rate.

David Kelly at JP Morgan Asset Management cited the usual reasons, namely aging Baby Boomers, the propensity of the younger cohort to stay in school longer, more people on disability and more discouraged workers. Then he added a unique take of his own:
The criminal record problem. A large, unexplained part of the decline in participation may stem from the growing number of Americans with a criminal record., The percentage of the U.S. population with a criminal record rose from 13% in 1991 to 22% in 2012 (2) — meaning that nearly one in four Americans has a criminal record. As many employers conduct background checks on prospective employees, the possession of a criminal record could remove many workers from the labor force, effectively permanently.
I am not necessarily endorsing any of these views, but these creative approaches are to applauded. Each of these explanations are intriguing but more work is needed to validate each of these views.

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