Top Trump administration economist Kevin Hassett believes that the booming economy will draw millions more people back to work, defying projections for falling workforce participation, with an additional nudge from work requirements for welfare.
“It’s going to be very easy for people to convince themselves to re-enter the labor force,” Hassett, chairman of the Council of Economic Advisers, told the Washington Examiner. “The success of others is drawing more people in,” as they see neighbors or friends get jobs, he argued.
By many, if not all, measures the U.S. economy is booming. This week's latest confirmation came with this month’s job openings report, released by the Labor Department on Tuesday, which showed 7.1 million job openings — the most since the report began in 2000, a fact that President Trump quickly touted on Twitter.
The Trump administration’s ambitious economic growth projections in part rely on there being enough workers to fill the massive number of current job openings. But as the recovery stretches on, fewer people need jobs because they already have them. The Federal Reserve says that businesses across the country are complaining that it’s harder to find qualified workers to fill the record numbers of openings.
Still, Hassett doesn’t think adding workers back into the economy will be a challenge.
“Sustaining the higher labor force participation rate is easy,” said Hassett.
It's a bold prediction given that long-running demographic trends, particularly the aging of the Baby Boom generation into retirement, is expected weigh down on the number of potential workers in the months and years ahead.
The current supply of workers may, in a sense, be living on borrowed time.
“I have been surprised by how stable the labor force participation rate has been for about five years now, in the face of demographic forces that really should be lowering it,” said Jason Furman, who held the same position as Hassett under President Barack Obama and is currently a senior fellow at the Peterson Institute for International Economics.
Labor force participation, meaning the total number of people with jobs or looking for work, has remained basically flat for more than four years, at around 62.7 percent of the civilian workforce. That rate is the lowest it has been since the late 1970s, when women were still entering the workforce, but it's remained stable for the last several years despite predictions that demographics would cause a further decline.
“To absorb 200,000 net [new] jobs we need to start rising [the labor force participation rate] again,” Jeremy Siegel, an economist and professor at the University of Pennsylvania told reporters last week.
Doug Holtz-Eakin, director of the American Action Forum, a right-leaning policy think tank, agreed that by aging demographics alone labor force participation should be shrinking.
“We know the baby boomers are retiring, so just because of that we should see the labor force participation rate going down.” said Holtz-Eakin, who is also former director of the nonpartisan Congressional Budget Office. But he agreed with Hassett’s optimism about pulling previously departed workers back into the labor market. “We have pulled people out of the shadows and into jobs, remarkably successfully.”
Hassett and the Trump administration bet that their policies, especially last year’s tax reform law, will draw people who otherwise wouldn’t consider working back into jobs, or convince people on the verge of retirement to instead work longer.
“The necessity to retire at 65 has declined,” said Hassett.
Just how many people conceivably could re-enter the workforce is the subject of debate. But there’s some evidence that the low rate of unemployment is indeed coaxing some people on the margins of the job market to re-enter the workforce or stay in it longer, starting with the buoyancy of labor force participation in recent years.
Hassett sees the potential for the U.S. economy’s current unusual recovery to draw more workers in who had previously left work. Federal Reserve staff also expect the hot labor market to put "larger-than-usual upward pressure on the labor force participation rate," according to minutes from the most recent monetary policy committee meeting released on Wednesday.
Hassett and the administration have floated new work requirements for welfare programs that don’t currently require them, like Medicaid, or to tighten them for other programs, such as food and housing assistance, as a way of increasing the labor force. The Council of Economic Advisers that he chairs released a plan to do that in July.
“We argue that we need to focus more on self-sufficiency,” said Hassett, arguing that beyond decreasing federal spending on programs and adding to the economy, work gives people a deeper purpose in life. “The best welfare reform is a job, and right now jobs are plentiful.”
Holtz-Eakin agreed with the basic policy aim but didn’t see that happening anytime soon.
“The politics of work requirements...are much worse in the near-term with Democrats,” who would likely need to support any initiative in order for it to pass, said the economist.
Higher immigration levels could also help accommodate the need for more workers, but it’s unlikely to be a policy option the Trump administration embraces.
“Immigrants are more likely to participate in the workforce,” because they’re more likely to come to the U.S. for a job and be of prime working age, said Furman. “I think this will really take away from the labor force over time.”
“Some of the traditional laws of economics are not working,” with respect to labor force, inflation, and the economy, added the former Obama adviser. “I think in a lot of respects we’re in uncharted territory.”