Wall Street Journal Offers Distorted Diagnosis On Employment Picture

Wall Street Journal op-ed ignored important factors affecting the rate of participation in the American workforce to blame its decline on government programs. The op-ed by economist Richard Vedder left out the fact that the baby boomer generation is beginning to retire in large numbers, a shift that contributes to the decline in workforce participation. 

Vedder's op-ed blamed government programs that assist the unemployed and people with disabilities for the declining labor-force participation rate, alleging that fewer people are working “due mainly to a variety of public policies that have reduced the incentives to be employed.” Though Vedder lists food stamps, extended unemployment benefits, and Social Security disability payments as the primary factors driving down participation in the workforce, these programs actually have a proven stimulative effect on the economy.

Vedder wrote that “if the government provides food, then the imperative to work is severely reduced.” In reality, food stamps have been repeatedly shown to stimulate growth. Moody's Analytics Chief Economist Mark Zandi told Congress in 2008 that food stamps were “the most effective way to prime the economy's pump.” Zandi estimated every $1 spent on food stamp payments boosts gross domestic product by $1.73. Food stamp spending is also projected to fall significantly in the coming years, according to data compiled by the Center on Budget and Policy Priorities (CBPP).

Vedder then claimed that extended unemployment benefits amount to “pay[ing] people to stay at home,” though multiple studies find that unemployment benefits are stimulative, providing needed demand in the economy when growth is slow. The Congressional Budget Office in January 2010 recommended extending unemployment benefits to stimulate the economy:

Additionally, the Social Security disability payments that Vedder attacks are difficult to obtain. As Media Matters has documented, the Social Security Administration denies over half of the disability claims it receives. Moreover, the average disabled worker receiving those benefits gets less than $14,000 per year, well below the poverty line.

One of the most glaring omissions in Vedder's op-ed, however, is his failure to mention that a significant reason for the decline in the labor force participation rate is the aging and retiring population. Though the Federal Reserve Bank of Chicago wrote that “just under half” of the decline in workforce participation “can be traced to long-running demographic patterns,” Vedder chose not to include it.

The CBPP came to a similar conclusion that labor force participation was significantly impacted by baby boomers beginning to retire:

Our findings support the conclusions of the Congressional Budget Office (CBO) and analysts at the Federal Reserve banks of Chicago and Kansas City, who find that an aging population accounts for an important piece of the recent drop in labor force participation.  Those experts generally conclude that about half of the drop in labor force participation since 2007 (the start of the economic downturn), and about a third of the drop since 2000 (when the rate hit its all-time high), stems from an aging population.