The Working Poor Confound the Experts

Source: Peter Coy, Matthew Philips, Rich Miller, Bloomberg Businessweek, January 15, 2015

The left and the right alike have pounced on the drop in Americans’ labor force participation rate to score political points. The rate tied an almost 37-year low of 62.7 percent in December, according to data released on Jan. 9 by the U.S. Bureau of Labor Statistics. And the poorest families are the least likely to be in the labor force.

So this factoid should come as a big surprise: Low-income families are the only ones whose participation rate has risen. The average for families in the lowest tenth of households by income rose by 11 percentage points over a 13-year period, to just under 44 percent. The participation rate of families in the top tenth of incomes fell by a little more than 3 percentage points, to just under 80 percent. To put it simply, the poor have been stepping forward while the rich have been stepping back.

These calculations were made by Nicolas Petrosky-Nadeau, a senior economist at the Federal Reserve Bank of San Francisco who is on leave from Carnegie Mellon University. He dug up the new data in collaboration with Robert Hall, an economist at the Hoover Institution and Stanford University. Petrosky-Nadeau says he and Hall were surprised by what they found, as are other economists who have seen the numbers. …

….The research undermines the Democratic case that rapid economic growth is essential to alleviating poverty, because it makes labor markets so tight that employers have no choice but to hire people some would prefer to avoid, such as racial minorities, the long-term jobless, the handicapped, and ex-convicts…. The research also weakens the Republican case that the welfare state keeps people from working….