Last night, President Donald Trump gave his first address to a joint session of Congress.
Note that it wasn’t technically a “State of the Union” — starting with Ronald Reagan, presidents have avoided giving an official State of the Union address for their first speech to Congress. Instead, they deliver a speech that amounts to the same thing, while avoiding taking credit (or blame) for the previous president’s actions.
Trump’s speech differed from his predecessors’ in this respect, while also touching on the usual topics for a State of the Union address, including national security, healthcare, infrastructure, and job creation. In doing so, he uttered a number of demonstrably inaccurate assertions, many of them linchpins of his campaign.
For example, he said:
Ninety-four million Americans are out of the labor force. …More than 1 in 5 people in their prime working years are not working.
This hearkens back to his claim, during the campaign, that the unemployment rate could be as high as 42 percent.
“The unemployment number, as you know, is totally fiction,” Trump said. “If you look for a job for six months and then you give up, they consider you give up [sic]. You just give up. You go home. You say, ‘Darling, I can’t get a job.’ They consider you statistically employed. It’s not the way. But don’t worry about it because it’s going to take care of itself pretty quickly.”
In fact, that’s not how the Bureau of Labor Statistics measures unemployment. As Gina Belli explained in an earlier Career News post, the only way this number could be considered close to accurate is if you consider all Americans who are not working unemployed.
The only way Trump's numbers could be considered close to accurate is if you consider all Americans who are not working unemployed.Click To Tweet
The 94 million figure includes any American age 16 and over who isn’t institutionalized and who isn’t either working or actively looking for work. In other words, the figure includes a lot of people who wouldn’t be expected to be working, or who are engaged in other worthy pursuits.
For instance, the figure includes retirees, high school students over 16, undergraduate and graduate students, stay-at-home parents, disabled people, adults who are engaged in full-time education or training, and even trust-fund kids and those wealthy enough to be living off investments. Put it all together and this is not a trivial group of people.
The Participation Decline Among Prime-Age Workers
What is true is that the labor force participation rate among prime-age workers has been in decline for some time. During Obama’s presidency, the rate declined from 65.7 percent (in 2009) to 62.7 percent (in 2016). Less certain: why exactly these workers are not participating.
Economists have posited several explanations, including:
An Aging Population … But Not the Way You Think
The baby boomers are at retirement age, but that wouldn’t explain why prime-age workers are dropping out of the labor force. However, the workforce itself may be getting older, because more workers are attending college prior to beginning their careers.
From The Washington Post:
According to a recent paper (pdf) from the Urban Institute, the rate of labor force exit is actually lower than it was in the aftermath of the 2001 recession. That is, labor force drop-outs aren’t the big story here.
Instead, the report notes, what’s happening is that workers aren’t entering the labor force at the same rates they used to. That’s especially true for women, who are much less likely to enter the labor force today than they were in 2002 and 2003. Many are deciding to stay at home to raise the kids or enrolling in school instead.
This is the factor that’s of greatest concern. It would obviously be a big problem for the economy and workers if the declining participation rate were due mostly to workers losing their jobs and then dropping out of the workforce for good.
However, research from the St. Louis Fed suggests that far from being a stable population of permanent dropouts from the labor force, discouraged workers ebb and flow: “…most discouraged workers do not stay in that category too long. That is, members of the working-age population flow in and out of the discouraged worker category rather frequently.”
“As for the reason why prime-age male participation is falling, particularly for those with no more than a high school education, [Federal Reserve Vice Chairman Stanley] Fischer said there’s a number of possibilities,” writes Steve Goldstein at MarketWatch. “He said some economists have said disability insurance and public assistance income has played a role, while others point out a decline in demand for lower-skilled labor, which is evidenced by the steep drop in wages in comparison with college graduates.”
If this is correct, technology and globalization — which displace lower skilled workers more quickly and at greater rates than higher skilled ones — would be to blame. That’s a potential opportunity for Trump, but only if his argument about the detrimental effects of trade agreements holds. If, as many economists believe, robots are replacing human workers, it will take more than rewriting NAFTA — or rolling back coal regulations — to make an impact for workers.
Tell Us What You Think
What’s your take on the declining labor force participation rate and the best way to improve it? We want to hear from you. Tell us your thoughts in the comments or join the conversation on Twitter.