Challenges Facing Low-Income Individuals and Families

Excerpt from testimony before the Subcommittee on Human Resources, Committee on Ways and Means, U.S. House of Representatives, February 11, 2015. Full testimony can be found here.

I will focus my remarks on long- and short-term trends in the American labor market over the past 25 years, seeking to clarify where we do and do not face challenges. I want to move beyond the conventional wisdom that most of the economy’s problems are long-term structural ones rather than temporary effects of the Great Recession. In order to do so, I will discuss trends in employment, unemployment, and labor force participation between 1989 and 2007 to show that the American labor market retains great strengths and that many of the challenges we believe to be worsening are not. I will then shift to what has happened since the onset of the Great Recession in order to clarify the severity of the departure from these longer-term trends. A series of 24 charts follows the text to graphically display the trends I discuss.

The highlights of my analyses are as follows:

• Over the last 25 years, the enduring strength of the American economy shines through. In particular, there was no increase between the business cycle peaks of 1989 and 2007 in the share of workers who were working part-time involuntarily or in the share of adults unemployed.

• The share of adults under age 25 who are employed has fallen over time, driven by a decline in the share of young adults in the labor force, working or looking for work. But the decline in labor force participation is primarily explained by rising school enrollment and entirely explained by an increase in the share of adults who do not want a job.

• The share of men between the ages of 25 and 54 who are employed has also fallen, again, driven by a fall in labor force participation. The drop in labor force participation is entirely explained by an increase in the share of adults who do not want a job and especially by an increase in men reporting they are disabled. The prevalence of self-reported disability and its rise over the past 45 years does not accord with trends in indicators of physical and mental health. While much of the increase is due to demographics, policy changes that have made it easier to qualify for federal disability benefits have likely increased the number of working-age men outside the labor force.

• Unemployment spells have grown longer over time, even though the share of adults experiencing unemployment has not risen. Because few people are unemployed and many of them are out of work for less than three months, the risk of experiencing long-term unemployment remains very small.

• The Great Recession worsened most indicators of labor market strength. Employment fell significantly and has recovered only among older adults. Unemployment remains higher than in 2007, and labor force participation remains lower among adults under age 55. Involuntary part-time work has increased as a share of all part-time work. Full-time work has declined as a share of employment among younger workers and men aged 25 to 54. The long-term unemployed grew as a fraction of the jobless, and the share of adults outside the labor force who were interested in working rose.

• The worst is behind us, however, as nearly all of these indicators began improving between 2009 and 2011. An exception is labor force non-participation among men and women aged 25 to 54, which peaked in 2013 among women and probably last year among men.

While policymakers face real economic challenges—including a secular rise in the duration of jobless spells, a recovery that until recently seemed to taunt us, poorer job prospects for workers with limited skills, and the continually expanding federal disability rolls—the ability of the U.S. economy to provide work for those who seek it has not diminished. Policies to help low-income individuals and families should not presume that the American job-creation machine is broken, or that our recent cyclical challenges portend a “new normal” in the coming decades.