The State of the U.S. Labor Market Office of Economic Policy February 3, 2015 Dr. Jennifer Hunt Deputy Assistant Secretary, Microeconomic Analysis

11 Filename/RPS Number Office of Economic Policy 1 Unemployment rate fell surprisingly fast in 2014 (5.6%)

22 Filename/RPS Number Office of Economic Policy 2 Much of the decline was in long term unemployment

33 Filename/RPS Number Office of Economic Policy 3 But broad unemployment anomalously high (11.2%)

44 Filename/RPS Number Office of Economic Policy 4 Employment rate rose in 2014, but growth anemic…

55 Filename/RPS Number Office of Economic Policy 5 … due to stagnation of labor force participation

66 Filename/RPS Number Office of Economic Policy 6 Unemployed leaving labor force falling but still high

77 Filename/RPS Number Office of Economic Policy 7 Still particular concern for long term unemployed

88 Filename/RPS Number Office of Economic Policy 8 Real hourly wage growth is near zero

99 Filename/RPS Number Office of Economic Policy 9 In fact, real wages adjusted for worker quality falling

10 Filename/RPS Number Office of Economic Policy 10 Consider remaining weaknesses in labor market  Why is part-time work for economic reasons so high? –Don’t know  Why is labor force participation falling?  What explains the types of jobs created in the recovery?

11 Filename/RPS Number Office of Economic Policy 11 Why is labor force participation falling?  About half decline since 2007 is due to baby boomers retiring  Some reflects fact that there is always a decline in the recession –Stronger GDP growth in 2014 helped slow decline  Some is unexplained –This component was growing through 2013, as GDP recovered but participation did not –Preliminary calculations suggest no longer growing

12 Filename/RPS Number Office of Economic Policy 12 Decomposition of change in participation rate

13 Filename/RPS Number Office of Economic Policy 13 Alternative scenarios for the participation rate (CEA)

14 Filename/RPS Number Office of Economic Policy 14 Future depends on future behavior of current youth  Participation rate of youth has been falling –Mainly because participation of students has fallen –Though also because enrollment has risen  So will the current youth increase their participation in their mid-20s? –Or will they have low participation their whole life?  The preliminary answer seems to be different for men/women

15 Filename/RPS Number Office of Economic Policy 15 Male youths’ participation stays low as age

16 Filename/RPS Number Office of Economic Policy 16 Female youths’ participation bounces back as age

17 Filename/RPS Number Office of Economic Policy 17 What is the significance of falling participation?  Potential GDP is lower –Matters for business: customers consume less –Matters for government: geo-political implications –Less clear matters for individuals: rather, GDP per capita and its distribution are what matters  Whether matters for individuals depends on the causes –Retirements are presumably choice of individual: leisure is good –Are there barriers to women’s work e.g. tax system? –Are men discouraged by falling wages?

18 Filename/RPS Number Office of Economic Policy 18 What policies can help…  Reduce number of workers working part-time for economic reasons –Unclear; hope continued GDP growth will help  Reduce obstacles to labor force participation  Raise wages, especially at the bottom

19 Filename/RPS Number Office of Economic Policy 19 Reducing obstacles to participation: Admin proposals  Tax credit for second earner in family –Joint income taxation implies high tax rate for secondary earner –Compared to countries with individual taxation, US is missing part- time workers, explaining low prime-age female participation  $3000 tax credit per young child  Partnering with states to adopt paid leave

20 Filename/RPS Number Office of Economic Policy 20 Raising wages: Administration proposals  With immediate effect –Raise minimum wage –Expand Earned Income Tax Credit to childless workers –Extend the coverage of the overtime premium to more workers  Longer run investments –Partnering with business: more on-the-job training, apprenticeships –Making two years of community college free –Simplified but more generous tax break for college –Universal access to high quality preschool for 4-year olds

21 Filename/RPS Number Office of Economic Policy 21 Other important Administration proposals  Invest in infrastructure  Immigration reform

Thank you!