The Fed Has Whiffed Again – Massive Monetary Stimulus Has Not Helped Labor, Part 2
By Tyler Durden
Submitted by David Stockman via Contra Corner blog,
In Part 1 we established the rather obvious point that in today’s world of flexible just-in-time production, hours-based labor scheduling and gig-based employment patterns, there is really no such standardized labor unit as a “job”.
Accordingly, the headcount-centered metrics of the BLS, such as the U-3 unemployment rate and the nonfarm payroll numbers, are a relic of a half-century ago world of mines, factories, warehouses and retail shops where a 40+ hour workweek on a year round basis was the standard practice.
In that context, a simple paint-by-the-numbers exercise demonstrates the foolishness of the Fed’s obsession with hitting a quantitative “full employment” target. Since the latter entails gunning the financial markets with monetary “stimulus” until every last iota of “slack” has been drained from the labor market, the question answers itself when viewed in an hours based framework.
To wit, the US working age population between 16 and 65 totals 205 million, meaning that on a standard work year basis of 2000 hours, the potential labor force amounts to 410 billion hours. However, according to the BLS’ own data, only 230 billion labor hours are currently being utilized by the US economy from that potential hours pool.
So all things being equal the unemployment rate is actually 44%!
The point, of course, is that virtually everything which impacts the 180 billion hours gap between potential and actual hours employed is beyond the reach of monetary policy. For instance, about 18 billion hours are removed from productive employment by social security disability recipients and 40 billion potential labor hours are unavailable owing to young adults enrolled in higher education.
Yet neither of these represent unchanging “natural” rates of unavailable labor supply. In fact, they are heavily impacted by public policies originating outside of the central bank, and which can change significantly over modest periods of time.
For instance, the ratio of disabled workers to the population aged 16-65 rose from 2.82% in 2000 to 4.34% at present. That gain is primarily due to the relaxation of eligibility standards for qualification in such areas as “back pain” and bureaucratic drift toward higher rates of favorable case determinations.
Thus, at the 2000 disability ratio of 2.82% there would currently be 5.8 million workers on the rolls or 11.5 billion unavailable labor hours. That compares to the actual level of 9 million workers on disability and 18 billion unavailable hours.
Needless to say, in the scheme of things the 6.5 billion hours lost to higher disability rates is not a trivial difference. It represents the equivalent of 3.7 million nonfarm payroll jobs. That’s more new jobs than have been celebrated on Jobs Friday for the last 18 months running.
The story is similar with the 40 billion labor hours not available owing to the 20 million students enrolled in higher education. In this case, the enrollment rate for the prime student age population (18 to 24 years) has risen from 35.5% in 2000 to about 40.5% at present.
Yet it is surely the case that …read more
Source: The Fed Has Whiffed Again – Massive Monetary Stimulus Has Not Helped Labor, Part 2
