Reasons For Not Working

From Torsten Sløk:

When discussing whether the current uptrend in wages will continue, it is important to look at the group of people who are not working and whether individuals in this group will be coming back to the labor market and hold wages down. The first chart below shows that a significant part of the young people who are not working are in school. For the older age categories, a significant number of individuals are retired. It is also noteworthy that a significant amount of people in their 40s and 50s are not working because they are disabled or ill or taking care of their family. From a Fed perspective, the key question is if any of the groups shown in the chart will be coming back to the labor market and thereby hold down the uptrend we currently are seeing in wages. Young people who are studying will obviously enter the labor market eventually but for the other groups the propensity to return to employment is more uncertain. The bottom line is that wages are already trending higher and the unemployment rate is relatively low at 5.0%, so if these groups wanted to come back then we should already have seen a solid increase in labor force participation. Given this has not happened, the conclusion is that the economy is probably closer to full employment than rates markets seem to believe.

But wages are not consumer prices. So what is the broader evidence that the economy is getting closer to full capacity? If you remove the more volatile components of inflation (gas prices, food prices, other commodity prices) then we are currently seeing a solid uptrend in underlying inflation in the economy, see the second chart. This suggests that the economy is not only close to full employment but it is also close to full capacity. For more discussion, see also this Fed paper “Are Some Prices in the CPI More Forward Looking than Others? We Think So”.

Source: Torsten Sløk, Ph.D., Deutsche Bank Securities

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  1. b_thunder commented on Nov 24

    Nobody who became “disabled” shortly after they lost their high-paying white-collar jobs and just as their unemployment benefits were about to expire will ever admit that they could actually do the same work as they did before, but that job is no longer available. And they’d rather get disability+medicaid+food stamps+housing assistance+other benefits than working for $7, or $10, or even $15/hour.

    By the way, how do we know that in general the respondents to the survey gave honest answers? “I’m in school” or “taking care of family” are typical answers of those who are either ashamed or just can’t bring themselves to realization that they simply can’t get a job that, in their opinion, pays enough to get off the couch.

    The bottom line for me is that regardless why they’re not employed, they do not pay into the “system” (FICO tax) while the system is on an unsustainable path, with Disability Fund already out of money. If we stop focusing on the next (and for the 50th time in a row “the most important ever”) Fed meeting and, as any good chess player would, look a few moves ahead, we might see that while the Fed has one perspective, the long-term **real-life** perspective is very different.

  2. rd commented on Nov 24

    Many of the businesses complaining the loudest about the lack of qualified workers have also complained loudly about health and safety regulations over the past several decades. Many of the disabilities and illnesses that are causing a significant number of people in their 40s and 50s to drop out of the workforce are related to poor workplace conditions that cause people to undergo physical deterioration over the years. Short-term cost savings on improving workplace conditions can have long term costs as this graph shows. Lack of universal health care will also play a role. As a result, these businesses can end up with the double whammy of reduced labor force participation and increased insurance and tax costs to cover the long-term disability. The tragedy of the commons can play out in many ways and circumstances.

  3. DeDude commented on Nov 24

    A lot of the “Disabled/ill” people are in the 46-65 age group. Those are people that may or may not be tempted to reenter the labor force (part- or full-time) if conditions improve to the point where employers would offer them a job (given their age and not having worked for some time). Before declaring that group “gone for good” it may be an idea to compare the number of “Disabled/ill” in that age group now vs last time we had 5% U3 unemployment.

    • constantnormal commented on Nov 24

      I suspect that the primary thing keeping those in the “disabled/ill” category away from employment is the absence of ANY jobs with health care benefits. A few decades ago, health insurance was a “standard” part of the Bananamerican employment picture, along with pensions (of varying quality) … but no longer, both decent (defined benefit) pensions and comprehensive health care are things of the past, along with any shreds of trust between employer and employee.

      I have no clue how the trust that must be present for a mutually profitable economic transaction can be restored.

  4. willid3 commented on Nov 24

    maybe its been a long time since wages have shown much in the way of growth, and thats why we are afraid of it? course without any wage growth, you end up with a very lackluster economy, thats goes no where without a bubble and or easy credit, or both. and since we have a consumer based economy, there is no real way to avoid wage growth or stagnation without it.

  5. Mr Reality commented on Nov 24

    I wonder how many of the “retired”s just check that off because It’s easier to explain than “no one will hire me”. No one likes to lose face. I know numbers don’t lie; but sometimes they don’t tell the whole story either.

    If the job market was really robust You’d probably see an up tic of unemployed and looking, and a down tick of of discouraged and “retired”.

  6. VennData commented on Nov 24

    What’s the Republican Congress’s excuse?

  7. formerlawyer commented on Nov 24

    I heard a recent statistic that 33% of adults will become disabled @ some time during their working lives (from an Insurance Company Council e.g. the point is that in the past prudent persons would build a savings nest egg. Now, with declining real earnings/interest rates/benfits, two income families and medical expenses – families are closer to bankruptcy if they lose even one income. IIRC it used to be 1 year for an average family with a loss of income, now its down to 3 months or less.

    Lesson: before life insurance, get a good disability insurance policy, preferably an own occupation policy, on your employment income.

  8. kaleberg commented on Nov 25

    I don’t doubt people in their late 40s and beyond who have to go out on disability. If you have a desk job, odds are good you will be up to the physical demands of your job for decades, but if you have to haul stuff, lift stuff, operate heavy machinery, lug heavy tools and so on, your body is going to give out as you approach 50. This isn’t new. You can live well past 50, but you can’t do your old job anymore. A lot of these people are in chronic pain. Some don’t have health care, so they self medicate. The ones that do have health care are often not given proper pain relief. Doctors have desk jobs so they don’t always get it. Even if they do get proper pain relief, the damage rules out the old job and the pain relief rules out a desk job.

  9. GeorgeBurnsWasRight commented on Nov 25

    I suspect that a significant part of the reason why the number of people on disability is increasing is because of the rapid increase in the number of Americans who are obese.

    While this is partially offset by the decrease in the number of people who smoke, smoking tends to disable/kill people who are mostly 60-plus, while it looks to me like obesity causes significant health problems by the time people are in their 50s, or even younger in extreme cases.

    Working in, and being active in, churches has let me see how people who are permanently disabled live, which is generally in a state of permanent poverty. They’re not extremely poor, like people who are homeless, but it is a level of poverty that few find appealing. IMO few people prefer to be disabled rather than work, and most of the ones who do are people who were stuck in low-paying jobs most of their lives, and thus were already used to being poor.

    I haven’t seen numbers, but I also wonder whether there’s a measurable increase in the number of disabled people from the Iraq and Afghanistan wars. They have produced a greater percentage of wounded people vs. deaths than previous wars.

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