Tuesday, July 14, 2015

Perverted Work Incentives

By Lawrence Kudlow

Jeb Bush is right and Hillary Clinton is wrong. You can probably say that about a lot of things. But in this case it's about the need for more part-time American workers to work full-time in order to improve their own lots as well as the lot of the economy.

The mini spat started when Jeb Bush short-handed the point that "people should work longer hours" in a meeting with New Hampshire's Union Leader. Hillary Clinton — who doesn't say anything to anybody — then tweeted, "Anyone who believes Americans aren't working hard enough hasn't met enough American workers."

A few hours later, Bush clarified his position with his own tweet: "Anyone who discounts 6.5 million people stuck in part-time work and seeking full-time jobs hasn't listened to working Americans."

Bush is right about Americans needing to work longer hours. He's also right that there are far too many involuntary part-time workers — 6.5 million today compared to a pre-recession 4.2 million. These folks are stuck because of economic reasons, traceable in large part to a slow-walking recovery and a variety of government policies that are discouraging full-time work.

Much of this is reflected in the U-6 unemployment rate. In June it stood at 10.5 percent, nearly double the 5.3 percent U-3 unemployment rate that gets the media headlines. The unusually wide spread between these rates in part reflects discouraged people who want to work and can't find a job, and in part the people who want to work more but can't get longer hours. You have to go back about 20 years to find such a large gap between the two measures.

And Jeb Bush was probably also thinking about the low labor-force participation rate, which stands at a rock-bottom 62.6 percent compared to 66 percent in the prior cyclical peak.

Or perhaps Bush has been briefed by the Hoover Institution's Ed Lazear, the former Council of Economic Advisers chair. Lazear points out that the employment-to-population ratio stands at an unusually low 59.5 percent today. At the peak of the last economic cycle it was 63.5 percent. The difference is about 7 million or 8 million jobs. The difference in participation rates is at least 6 million jobs.

So I don't know which candidate is "closer to the people," but Bush is closer to the statistical truth — at least as registered by the Bureau of Labor Statistics. In other words, facts.

AEI columnist and TV personality Jim Pethokoukis cites this fact: Of the 6.5 million Americans who work "part time for economic reasons," about a quarter want to work full time. And that share is about double what it was before the Great Recession.

So Bush is basically saying: There are too many part-timers, they would like to work longer, and if they had that opportunity, they and their families and the economy would benefit.

I still believe these labor-market problems are deeply rooted to this slow-paced recovery. We never had the snapback that other deep recessions produced. And there are a number of ill-conceived tax, regulatory and monetary policies that have discouraged work, undermined incentives and created obstacles to the kind of 4 or 5 percent growth that should have occurred over the past six years.

For example, means-tested small entitlements — such as overextended unemployment insurance, Social Security Disability Insurance and food stamps — have clearly perverted work incentives. Eligibility has been substantially raised and time limits have been removed. So in many cases, on a net after-tax basis, it pays more not to work.

Then there's Obamacare, which throws off a million economic disincentives. But here's one that goes directly to the Jeb Bush part-time employment issue: the so-called 29ers. If an employee works 29 hours a week, the employer does not have to purchase overly expensive Obamacare. So instead of working 34.5 hours a week, the long-term trend, you now have a lot of people at 29 hours or less because of bad government health-care policy.

By the way, every one-tenth of an hour less worked costs the economy between 350,000 and 400,000 jobs. This is the damage that Bush was likely thinking about when he pointed to involuntary part-timers hurting the economy.

Larry Kudlow is CNBC's Senior Contributor and author of American Abundance: The New Economic & Moral Prosperity.

1 comment:

  1. Being a small employer myself (less than 10), there are great disincentives to me to hire full time American workers, which is why I have not done so in several years and have no plans to again anytime soon.