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Obumbler's "Change": Redistributing the Misery

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During the Great Recession Americans saw some 40% of their wealth wiped out. The Federal Reserve conducted a study in 2012 that showed the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That put Americans roughly on par with where they were in 1992, meaning some two decades of wealth accumulation was erased in just 18 months.



The recession was especially hard on African-Americans. According to a study by Jeanette Wicks LIM, the typical black household in 2009 was left with less wealth than at any time since 1984, after correcting for inflation.

And that lost wealth is not being re-accumulated, or being re-accumulated at an agonizingly slow pace. The U.S. Census Bureau reported in September 2014 that U.S. real (inflation adjusted) median household income was $51,939 in 2013 versus $51,759 in 2012, statistically unchanged. In 2013, real median household income was 8% lower than in 2007, the year before the Great Recession.

Thus, six years after the Great Recession officially ended, for many Americans the devastation of their quality of life continues as they are unable to find work, their unemployment insurance long ago ran out and they join the ranks of government dependents or members of the shadow economy.

How can that be?



According to the front pages of the major newspapers and the lead segment on the TV news unemployment is down to 5% -- or what was considered to be near full employment before 2007.

Indeed in November, the number of “unemployed persons” was only 7.9 million, and was essentially unchanged from the month before. 

And most importantly, over the past 12 months, the unemployment rate and the number of unemployed persons are down by 0.8 percentage point and 1.1 million, respectively.

So people were finding work and the unemployment rate is going down, right?

Wrong!

The unemployment rate is going down because workers are leaving the workforce, not because they are finding jobs.
And for the over 93 million workers who have left the workforce the Great Recession is by no means over as their quality of life and wealth continue to erode.

Economist Ben Weingarten explained in “Everything You Thought You Knew About the Unemployment Rate Is Wrong” for genfkd.com there are more than one “unemployment rates” collected by the government, and while the one that hits the front pages (the U-3 rate) says unemployment is 5%, the one that Obama-friendly reporters ignore (the U-6 rate) stands at 9.9% or almost twice the more commonly reported rate.

Lost in these numbers says Weingarten is the fact that millions of people that you might otherwise think are unemployed are not counted in the unemployment equation of Unemployed ÷ (Employed + Unemployed).

“Marginally attached workers,” defined below, are excluded from the unemployment data:

Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

In other words explained Weingarten, if you haven’t identified yourself as searching for work in the four weeks prior to the government survey, you do not count as a person in the unemployment rate equation, which artificially decreases the unemployment rate.

This also means that the unemployment rate does not reflect those who have dropped out of the workforce altogether, including those who might have otherwise sought work were economic conditions stronger.

Meanwhile, says Weingarten, based on the definition above, to be “employed” by BLS standards means passing a very low bar that could include you getting paid to work one hour per week, meaning that the denominator is inflated and thereby further artificially decreasing the unemployment rate.

As the unemployment rate has fallen from its peak of the last economic cycle during the depths of the recession in 2009, the number of people defined by the BLS as “not in the labor force” (i.e. excluded from the data) has exploded Weingarten points out.

By sheer arithmetic concludes Ben Weingarten, the data would seem to indicate that the unemployment rate paints a rosier picture than the actual economic climate.

But what’s even worse for the long term economic outlook is that, according to the Congressional Budget Office, only one-third of the current non-participants in the labor force are likely to return. 

Fewer workers might mean rising wages for some, but it also means a smaller overall economy, fewer workers means that the wealth erased in the Great Recession will be re-accumulated at a much slower rate (one wage-earner in a family instead of two) and fewer workers means fewer taxpayers paying taxes to fund the government benefits such as food stamps, welfare, Social Security and other means by which many of the non-participants in the labor force survive.

What’s more the CBO sees these negative factors impacting the economy for another decade. So, if you don’t see the “Obama Recovery” and remain puzzled by the failure of Obamanomics to help those middle class families it was allegedly going to put back to work, fear not. 

The devastating effects of Obama’s policies on African-Americans, younger workers, the low-skilled and those nearing retirement age can be explained in one chart – Ben Weingarten’s unemployment vs workers out of the workforce chart.

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One of the worst of Obamacare’s ill-conceived provisions went quietly into effect on January 1. The employer mandate, previously inflicted only on businesses with 100 or more employees, will now be imposed on those with as few as 50. This mandate will prevent countless small employers from hiring workers they would otherwise have hired and incentivize many others to replace full-time employees with part-timers. It is such an obvious job killer that the Obama administration delayed enforcement until after the 2014 midterms, the liberal Urban Institute has called for its repeal, and it has even been obliquely criticized by Hillary Clinton.

The employer mandate requires all businesses with 50 or more full-time employees to provide health coverage to at least 95 percent of these employees as well as any dependents they may have under age 26 — or pay crippling fines. But not all small employers can afford to offer insurance. Those which lack the resources to do so will avoid the mandate by assuring that the number of full-time workers they employ remains below 50. And, because Obamacare has arbitrarily redefined “full-time” to mean 30 or more hours per week, the employer mandate effectively caps both the number of workers many businesses can hire and how many hours they will work.

One hardly needs to be a Nobel laureate in economics to see that this scheme will exacerbate unemployment and underemployment. This is why the Obama administration ignored the law, which required the mandate to go into effect for all employers on January 1, 2014. Hoping to avoid the wrath of the voters in that year’s midterms a group of congressional Democrats went to the White House and persuaded the President to delay its implementation. Thus, the enforcement date was pushed back to January of 2015. Six months later, he arbitrarily moved back the implementation date for employers with 50 to 99 workers until this year.

The President’s illegal revision of the health care law was not enough to save his craven congressional accomplices, but the resultant controversy did prompt the left-of-center Urban Institute to publish a report titled, “Why Not Just Eliminate the Employer Mandate?” The authors explain that the perverse incentives created by the mandate far outweigh any of its perceived benefits: “Our analyses as well as that of others find that eliminating the employer mandate will not reduce insurance coverage significantly.… Eliminating it will remove labor market distortions that have troubled employer groups and which would harm some workers.”

Which workers will incur the most harm? The authors of the report suggest that most of the pain will be felt by low income Americans. They point out that the “arbitrary thresholds” imposed by the employer mandate “will change the employment decisions of some firms.” In the vague vernacular of the think tank, this means a lot of companies will make sure they stay below the 50 employee mark. How will that cause the mandate to disproportionately harm low income workers? “Because the non-offering firms are much more likely to be firms dominated by low-wage workers, low-wage employees will bear the greatest brunt of the penalties imposed.”

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