U.S. economy

When It Costs Too Much to Work


When It Costs Too Much to Work

There are fewer discouraged people in the U.S. This time last year there were 780,000 of them, according to the Bureau of Labor and Statistics. Now there are only 697,000. This is good news. The way the bureau defines them, “discouraged” people haven’t looked for work in the last month because they don’t think a job is available to match their age, experience, or training.

The discouraged are only one part of a larger group—what economists call the “marginally attached.” These are people who have worked in the last year but not looked for work in the last month. The discouraged total slightly less than half of this larger group. The rest haven’t looked for work for other reasons. Small numbers of them are sick, have family to take care of, or have returned to school.

Then there’s a category—also slightly less than half of the marginally attached: other. That number has risen since last year, from 684,000 to 728,000. Last week, Dave Altig, head of research for the Atlanta Federal Reserve, wrote a blog post pointing out two things: First, many people confuse discouraged workers with the rest of the marginally attached. Second, that may not matter. All the people who’ve had a job this year but haven’t looked recently tend to move back into the workforce at the same rate, whether they’re discouraged or not.

Altig, in his position at the Atlanta Fed, is thinking about things that monetary policy can change. Central banks wield blunt instruments that can have an effect only on broad populations. ”We’re trying to distinguish those things that we think monetary policy might react to,” he says, “and those things that are outside of our portfolio.” So if two groups of people who want to work—”discouraged” and “other”—follow the same broad trend, a central bank can treat them as synonymous. Janet Yellen hinted at this in her March press conference, when she said that she “of course” watches discouraged and marginally attached workers.

But the two aren’t the same. Yolanda Kodryzcki of the Boston Fed, who looked at the marginally attached (PDF) in 2000, points to a footnote in the BLS breakdown of the marginally attached. “Other” includes people who had given up looking work because of “child-care and transportation problems.” Some people don’t just need to find a job, says Kodryzcki. “You need to find a job that allows you to pay for child care, say. Or you need to find a job that pays you enough to pay the subway fare, or the train fare, or that pays well enough for you to pay for gas.”

Discouraged workers have stopped looking because they aren’t trained, aren’t the right age, or aren’t in the right place for the jobs that exist. “Other” is a way of describing all the people who want a job—and can find one—but can’t pay for the expenses they incur when working. Altig says he’s heard anecdotal evidence that points to these costs as a “significant” reason for joining or leaving the workforce. Atlanta Fed contacts in manufacturing, he says, “can discern people leaving employment or being less likely to take employment when the price of gasoline goes up.”

“Discouraged” and “other” are completely different populations. It makes sense for the Atlanta Fed and Janet Yellen to treat them the same way because monetary policy doesn’t do a good job of making distinctions among different groups of people. Fiscal policy does, however. Affordable child care or cheaper public transportation might get more people who want to work back to work. But there has been no real fiscal policy in the U.S. since 2010, other than a de facto austerity borne of political stasis. As in Europe, we can use only the shotgun of monetary policy. It’s the only policy we have.

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Greeley is a staff writer for Bloomberg Businessweek in New York.

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