But there is nothing in Austrian school economics that says employment markets don't clear over the long-term. To be sure, there is significant unemployment when there is a shift from the boom part of a central bank created business cycle to the bust phase, as explained by Austrian business cycle theory. But that is not something that lingers forever. The readjustment after the boom phase can take longer because of unemployment insurance, but that is about it. Non-business cycle factors, such as minimum wage laws or the prevention of market wages to adjust to the downside to changing circumstances can also be impediments to "full" employment, but there is no Austrian theory that suggests the Fed, itself, is fighting a losing battle to prop up unemployment.
1.Because it doesn't have to have to fight such a battle for the market to return to full employment (Though it does.). Markets clear.
2. To the degree that the Fed is currently expanding the money supply, it is distorting the structure of the economy and where employment is, but it is not a case that it is somehow failing to "get the economy going." I repeat, markets clear including employment markets.
Thus, we need to look for other answers to why the participation rate is falling. Goldman Sachs and the Federal Reserve Bank of San Francisco have offered up what seem to me to be pretty reasonable theories (And please don't attack their findings by ad hominem-type attacks on the institutions. Yes, GS and the SF Fed are evil institutions, but that doesn't mean every report they put out is wrong. If you find an error in their thinking great. If you are just going to hurl ad hominems-type, you are evil.)
From a new Goldman Sachs study:
From the San Francisco Fed:What about the 3.6pp decline in the labor force participation rate since 2007? While it’s true that the unemployment rate would be much higher if participation had remained stable, we now believe most of the decline since that time should be considered structural. By far the largest contribution to the decline in participation has been an increase in retirees—mostly a natural consequence of the aging of the workforce. Rising disability rates—a trend mostly driven by demographics—and a tendency for young people to remain in school have also played a role.The remaining cyclical component is a relatively modest share of the labor force, and broadly captured by the U6 unemployment rate, in our view.
(GS and SF Fed studies via James Pethokoukis)First is the aging of the population. The baby boomers are entering retirement and people are living longer. Remember, the participation rate counts everyone over 16, so my happily retired parents count as “out of the labor force,” even though, in their 80s, few people would still be working. Second is that younger people aren’t working as much as they used to. But this is partly because many have extended their education or gone back to school, and fewer are working when they’re there. Third is an increase in people deciding they’d rather have single-income families (Bureau of Labor Statistics 2007–2014). For whatever reason, they’ve traded a second paycheck for spending more time at home, whether it’s for child care, leisure, or simply that it’s a better lifestyle fit. Each of these groups is made up of people who are not working, but doing so for personal or demographic reasons. As their numbers swell, it will, obviously, push the participation rate down.As for the area of concern, we’re emerging from the deepest, longest recession since the Great Depression. And it’s true that a lot of people did give up looking for work. A key indicator is the somewhat unfairly named “prime-age males” cohort, who are 25–54. This group has historically been a constant in the American workforce, but in the wake of the recession, its participation fell sharply. However, as the labor market has improved, that number has largely stabilized over the past two years, as has the overall participation rate.The last factor to consider is whether there are people who will reenter the labor force and pull the participation rate back up. The “marginally attached” for instance, a group made up of people who are ready and able to work and who’ve searched for jobs in the past year but who aren’t currently looking. The assumption would reasonably be that this group is poised to return to the labor force. First off, these numbers have come down a lot, falling by over 12% in the past year alone. In addition, my staff has found that, over the past few years, their reentry rate back into the labor force has actually fallen. When you combine this with the aging workforce, it looks unlikely that participation will rise. This is supported by other research from both within and outside the Fed System (Stephanie Aaronson et al. 2014 and Krueger 2015). Overall, the evidence suggests that, even with a quite strong economy, we won’t see a significant number of people come back into the fold.