On Wall Street and in some parts of Washington these days, one hears that America has gotten back to “near full employment.” For Americans outside the bubble, such talk must seem nonsensical. It is true that the oft-cited “civilian unemployment rate” looked pretty good by the end of the Obama era—in December 2016, it was down to 4.7 percent, about the same as it had been back in 1965, at a time of genuine full employment. The problem here is that the unemployment rate only tracks joblessness for those still in the labor force; it takes no account of workforce dropouts. Alas, the exodus out of the workforce has been the big labor-market story for America’s new century. (At this writing, for every unemployed American man between 25 and 55 years of age, there are another three who are neither working nor looking for work.) Thus the “unemployment rate” increasingly looks like an antique index devised for some earlier and increasingly distant war: the economic equivalent of a musket inventory or a cavalry count. [emphasis added]
By the criterion of adult work rates, by contrast, employment conditions in America remain remarkably bleak. From late 2009 through early 2014, the country’s work rates more or less flatlined. So far as can be told, this is the only “recovery” in U.S. economic history in which that basic labor-market indicator almost completely failed to respond.
Since 2014, there has finally been a measure of improvement in the work rate—but it would be unwise to exaggerate the dimensions of that turnaround. As of late 2016, the adult work rate in America was still at its lowest level in more than 30 years. To put things another way: If our nation’s work rate today were back up to its start-of-the-century highs, well over 10 million more Americans would currently have paying jobs.
Consider the following facts. First, according to the Census Bureau, geographical mobility in America has been on the decline for three decades, and in 2016 the annual movement of households from one location to the next was reportedly at an all-time (postwar) low. Second, as a study by three Federal Reserve economists and a Notre Dame colleague demonstrated last year, “labor market fluidity”—the churning between jobs that among other things allows people to get ahead—has been on the decline in the American labor market for decades, with no sign as yet of a turnaround. Finally, and not least important, a December 2016 report by the “Equal Opportunity Project,” a team led by the formidable Stanford economist Raj Chetty, calculated that the odds of a 30-year-old’s earning more than his parents at the same age was now just 51 percent: down from 86 percent 40 years ago. Other researchers who have examined the same data argue that the odds may not be quite as low as the Chetty team concludes, but agree that the chances of surpassing one’s parents’ real income have been on the downswing and are probably lower now than ever before in postwar America.