Government benefits have grown so generous these days that unemployed Americans lack the incentive to look for work, said Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.
The U.S. economy added a net 146,000 nonfarm payrolls in November, well above expectations for around 80,000 new jobs.
The unemployment rate fell to 7.7 percent in November from 7.9 percent in October, the lowest since December of 2008, though a shrinking labor force continues to keep the headline rate low.
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The headline unemployment rate measures the percentage of the labor force that is out of work.
However, unemployed Americans who are not actively seeking work aren’t counted as part of the labor force.
Factor back in those discouraged workers — fed up with fruitless job searches over the years — and the unemployment rate would be much higher.
But many opt to remain out of the labor force.
“Despite gains in employment and a drop in the jobless rate in November, the labor force data released Friday were disturbing. They showed a drop of 350,000 in the number of people in the labor force, a big decline for one month and an extension of a troubling trend,” Furchtgott-Roth wrote in a column appearing on RealClearMarkets.com.
“Here is the bigger picture: the proportion of working-age Americans who have jobs or who are looking for them has been falling, even though employment has been expanding, albeit fitfully and at a sluggish pace.”
Generous government benefits are making it too easy for unemployed Americans to put off searching for work, something a country like the United States cannot afford due to the size of its debts and the width of its budget deficits.
“It is understandable that people drop out of the labor force — stop looking for work — when unemployment is rising and they have become discouraged. But, since the employment rebound from the 2007-2009 recession began in March 2010, the labor-force participation rate has fallen for both men and women,” Furchtgott-Roth wrote.
“My belief is that one reason for this trend, which appears to be continuing, is the panoply of government benefits, including unemployment insurance, now available up to 63 or 73 weeks, depending on the state. Other elements of the federal safety net include food stamps, mortgage relief and Temporary Assistance to Needy Families.”
President Barack Obama’s Affordable Care Act will only increase societal costs.
Tax burdens will rise as well.
“What is troubling is that as the economy gradually improves, the labor force as a percent of the population is shrinking,” she said.
“With the population aging and a smaller share of younger workers, this trend will lead to steadily higher federal and state tax burdens on the young, even if Congress reduces taxes and modifies Social Security and Medicare benefits for future retirees.”
Fiscal reforms are taking center stage as the White House and Congressional Republicans negotiate a way to avoid the fiscal cliff, a combination of tax hikes and spending cuts due to take effect simultaneously at the end of the year, potentially contracting the economy in 2013.
The White House insists it won’t accept any deal that doesn’t allow tax breaks to expire on top earners, something that Republicans have warmed up to as long as entitlement reform and spending cuts follow suit.
“Right now there is no question in my mind the president has the slight upper hand in the negotiations,” Sen. Bob Corker, R-Tenn., told CNBC.
“If you did it this week [agree to raising tax rates on the richest] you’d have the rest of this month to have the focus totally on entitlements,” Corker added.
Editor's Note: How to Pay Zero Taxes . . . Legally
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