The labor market is not strong. Like the economy, it is weak.

The “strong” labor market has been the excuse for the Fed to hike rates because according to their preferred model, inflation will soon pick up.

They discount the fall in the labor force appealing to demographic factors. Population growth, however, has dropped to levels seen 20 years ago, before the immigration boom of the 1990s showed up in the 10-year population growth rate.

What happened to the labor market after 2007 was not demographic, but was the result of the biggest monetary disaster in 60 years! It was following that event that American workers gave up looking for work that just was not available!

The chart illustrates. Observe that the rise in labor force growth in the 1960s and 1970s is mainly due to the rise in female participation. By the late 1990s, labor force growth had stabilized. Then, disaster happened, with the low unemployment rate at present consistent with a shrunken labor force. That is not something that can be called good, let alone “dangerous”.

Although labor force growth was stable following the 2001 recession, payroll growth came down before tanking when the monetary disaster hit. Monetary policy also played a leading role.

Observe in the chart below that NGDP growth in the 2001 recession fell significantly and remained far below trend for some time. A recovery in payroll growth was made impossible by the monetary disaster of 2008. Furthermore, nominal growth has remained subdued, constraining growth in both the labor force and payrolls.


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