On Friday, I noted that Goldman wants to know why Trump voters are so damn upset.
Clearly, the title was a bit tongue-in-cheek. Essentially, the bank – which now counts multiple
former employees as members of the new President’s inner circle – sought to explain the discrepancy between a below-NAIRU labor market and an electorate that’s so disaffected they felt like they needed to install a reality TV show host in the US presidency.
In that post, I argued that the diatribes you’ll read on alt-Right websites pushing the “if only you’d look at these numbers, everything is going to sh*t” narrative, can be safely written off as click bait, propaganda, or both.
That said, I also acknowledged that depending on what metrics one looks at, the headline numbers touted by those claiming that the US economy is on sound footing may indeed be deceptive.
Finally, I conceded that I have been guilty on more than one occasion of cherry picking data intentionally to paint a grim picture of the labor market.
One of the data points I’ve often cherry picked with ill intent is the labor force participation rate which, as you’re probably aware, is hovering near multi-decade lows. There’s been no shortage of attempts to explain this and indeed, some of the factors that likely contributed to Trump’s ascension have been cited as possible proximate causes.
Well, in a new note, Goldman says that in fact it is not trade or technology that’s causing weak participation by prime-age workers. Rather, it’s the fact that a whole lot of people are addicted to Oxy and a whole lot of other people are in jail.
The US labor force participation rate is over 3pp below its pre-recession level, and even the prime-age rate remains 1.5pp lower. But at this point, the decline is mostly accounted for by people who report that they are not interested in working. Recently we have therefore taken the view that while past economic weakness likely led some workers to exit the labor force, the underlying causes of non-participation now appear deep-rooted and the odds of a large rebound are low.
A potential challenge to this view is that the US prime-age participation rate fell more after the recession and is now lower than in most other advanced economies. After all, many structural factors thought to have depressed US participation, such as the impact of trade and technology on demand for less-educated workers, should have affected other advanced economies too.
To dig deeper on the causes of weaker US prime-age participation, we compare the US with other advanced economies along a number of dimensions. We find that the US does not look particularly unique in its exposure to trade and technology, which has reduced demand for routine, manual labor and less-educated workers across advanced economies.
Instead, the US mainly stands out along three other dimensions. First, higher rates of painkiller use and middle-age mortality suggest that more severe health and drug-related problems have contributed to lower US participation.
Second, the US incarcerates a much larger share of its population, and the challenges in finding employment faced by people with criminal records also likely contributed.
Third, while exposure to trade and technology was likely similar, a weaker US policy response—namely, less supportive retraining and job-search assistance—might have made the impact on participation more costly.
While the gap between the US prime-age participation rate and the advanced economy average appears to suggest room for a US rebound at first glance, a more detailed global look at the likely drivers inspires less confidence. Raising US labor force participation substantially and sustainably would likely require major policy interventions, not just a very strong job market.
So much for “they’re stealing our jobs!”
On the bright side for Trump, he can still blame Mexicans for “bringing drugs” and making them “cheaper than candy bars”…