Long run U.S. labor force trends suggest that robust employment growth is unlikely to return to the U.S. any time soon. Labor force participation is slowly declining and an increasing number of working people are becoming more or less permanently unemployed.
Behind these trends is a breakdown in the evolving partnership between government and the private sector in generating sufficient job growth. The federal government and the states no longer add jobs in sufficient numbers to offset the declining role of the private sector in generating domestic jobs.
Labor Force Participation in Decline
The Bureau of Labor Statistics projects that labor force participation in the U.S. will continue to decline through 2018. Wait… this is not because the baby boomers are aging out of the labor force. For workers ages 16 – 24, participation will decline from 58% to 54%. Even for workers in their prime working years, ages 25 – 54, participation is projected to decline by half a percentage point! Labor force participation for people ages 65 and over will grow from 18% to 22%, and for those 70 and over, from 12% to 15%
Long Term Unemployment Rising for Half a Century
The duration of long-term unemployment has been increasing since well before the Great Recession. The average duration of unemployment rose through the 1950s, but then declined briefly during the boom years of the 1960s. Since then, the average duration of unemployment trend-line has been upward. See New York Times chart.
In August 2011, 6.0 million people had been unemployed for 27 weeks or longer, accounting for 42.9 percent of all unemployed persons.
Insufficient Private Sector Job Creation
Private sector job growth has not kept pace with growth in the potential labor force for at least the last decade. This failure has been ameliorated by the growth of direct government employment and hidden by a substantial increase in outsourcing of government services.
According to the Bureau of Labor Statistics, the private sector only created 75% of the jobs created from January 2001 to December 2007 (before the Great Recession). Private sector job growth increased by 4.6 million persons employed from January 2001 to December 2007, while employment by all levels of government increased by 1.6 million.
But the private sector did not directly create all of those private sector jobs on its own. Government contract spending increased from about $200 billion in 2000 to $377 billion in 2005 and to well over $500 billion in 2009. Thus, some part of private sector job growth during the period from January 2001 to December 2007 was government-funded job growth disguised as private sector job growth.
If state and local governments were privatizing government services at a similar rate during that period, the private sector contribution to U.S. job growth is much smaller than most policy experts and policy makers realize.
A note. Some economists argue that reductions in taxes and government spending would have increased private sector job growth. However, with the private sector focused on investment opportunities outside the U.S., it is very unlikely that U.S. investors would have invested all or even most of more tax savings in the U.S. It is very unlikely that a new private sector job would have been created for every government job and government-funded job that would have been eliminated because of reduced government spending.