As new economic data comes ticking in, it becomes increasingly obvious that the Biden economy has gotten stuck. In fact, it even looks like the V-shaped recovery that President Trump foresaw in the spring, and which materialized over the fall, is now slowly eroding.
Before we get to those details, let us first take a quick look at three key labor market variables and how they have evolved over the several years. Figure 1 reports workforce participation and employment, both as share of total population (aged 18 and older), and unemployment as share of the workforce.
Starting with the last variable, after its peak in early 2010 it trends steadily downward through 2019. The other two variables do not show the same trend – in fact, for the first few years of the last decade, workforce participation actually trends downward. During the same period of time the employment rate is stalled around 60 percent:
Starting in 2015, the decline in workforce participation is replaced with a stagnant rate around 64 percent. At the same time, the employment rate starts ticking – slowly, for sure, but it does tick up. This trend shift is interesting, especially in the context of the steady decline in unemployment. It means that from 2010 through 2014, unemployment was falling primarily because people withdrew from the workforce; starting in 2015, unemployment fell because people got jobs instead.
The positive trend in employment is accompanied by a small but visible increase in the workforce participation rate in the Trump economy. In 2019 that rate is close to 65 percent and the employment rate hovers between 62 and 63 percent.
Then comes the 2020 artificial economic shutdown:
After the V-shaped recovery from May through October, both the employment rate and the workforce participation rate have declined again. The drop is small, but it is clearly visible. This shift from a recovery to a mild decline coincides with the November 3 election of President Biden. It is therefore valid to at least hypothesize that employers are reluctant to invest in a growing workforce because of uncertainty as to what the Biden administration will do with President Trump’s business-friendly deregulations and what the Democrat-controlled Congress will do with taxes.
The numbers on employment and workforce participation are very important in the context of the steadily rising inflation pressure in our economy. For more on this, subscribe to our weekly economic newsletter: only $2.99/month!