August jobs report is worse than it looks

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Other signs also point to a slowing labor market. Economists often look at temporary help jobs, average weekly hours, and wages as signals about future hiring. Rising wages indicate higher labor demand. Employers often hire temporary employees or give their existing workforce longer hours before hiring permanent employees. Unfortunately, none of these indicators improved. Average weekly hours were flat, while temporary employment and wages both fell slightly. The economy appears unlikely to take off any time soon.

The apparent silver lining was the drop in the unemployment rate, from 8.3 to 8.1 percent. Further inspection, however, makes this the most concerning part of the report. The unemployment rate fell only because the labor force participation rate—the proportion of adults either working or looking for work—fell by 0.2 percentage points. BLS does not count people not looking for work as unemployed. Almost 370,000 fewer Americans participated in the labor force in August than in July.

This has been a pattern throughout the recession. Labor force participation rates have fallen 2.5 percentage points, to 63.5 percent, since December 2007. That is the lowest rate since 1981—a time when far fewer women worked. The adult male labor force participation rate has hit an all-time low (72.7 percent). Demographic changes (i.e. retiring Baby Boomers) explain about one-fifth of this decrease. The poor economy has caused the rest.

The economy is not just treading water; it is struggling to keep its head above water. The last thing Congress should be considering is a massive tax increase. Yet many in Congress seriously propose allowing a $500 billion tax increases to occur at the end of the year. No school of economic thought, from Neo-classical to Neo-Keynesian, teaches that raising taxes in a recession does not hurt the economy. This jobs report should encourage Congress to step back from the fiscal cliff.

Sherk is senior policy analyst in Labor Economics at The Heritage Foundation.
 

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