A pitiful jobs report added to a persistently weak employment market this week when just 74,000 jobs were added to the December payroll – typically a strong month for job market performance driven by the holiday shopping season. Despite the weakness in jobs, the unemployment rate dropped to 6.7% (from 7%).
How could this be?
Normally a falling unemployment rate signifies a strengthening market economy. But these are not typical times. In the current environment the unemployment rate is falling because more and more people are leaving the workforce and no longer looking for jobs. Though still unemployed, the government doesn’t count the people who have capitulated on success and independence. They simply aren’t counted – which is why the unemployment rate is falling.
As reported several weeks ago, the true problem with employment can be seen through the also falling labor participation rate – now at a 40 year low (63%.) If the employment condition was truly improving like the falling unemployment rate suggests, then labor participation would by rising, not falling. Fewer workers mean less production. And that’s bad.
Make no mistake; this dysfunctional dynamic and the lackluster performance trend of employment is a direct result of schizophrenic social policy.
Gearing up for mid-term elections that will take place later this year, President Obama is building his platform on “income equality.” One of his key agenda items is to raise the minimum wage. Perhaps the president hopes that a higher minimum wage will lure surplus labor off the welfare rolls and place it back into production. But this is yet another gross misconception by him and his administration.
To substantiate that point, consider that the minimum wage is currently $8.25 per hour. Unemployment and welfare benefits, to the contrary, are much higher than that – especially in states like my home state of Connecticut where unemployment benefits are $13.87 per hour (based on a forty hour work week) and welfare is $14.23 per hour. That’s gross – and it makes raising the minimum wage merely a political talking point. To truly entice able workers off the welfare doles minimum wage would have to more than double – and that’s not going to happen.
So what’s the real problem with the employment market?
Welfare, food stamps, subsidized housing, and the promise of free healthcare have given too many people too little reason to work. So they don’t. This breeds Market mediocrity and stagnation.
According to the Department of Commerce, 13 million people are currently on welfare, 47 million are on food stamps, and 6 million are receiving unemployment benefits. And for those thinking that the welfare problem is a racial issue – think again: 40% of people receiving welfare are black and 39% are white. The welfare problem We face is an American problem – and race has nothing to do with it.
Consider that once on welfare 27% of the people receive benefits for two to five years, and a whopping 20% of the people receive benefits for more than five years. We’re not talking about the disabled here – we’re talking about able minded and bodied people. Another added benefit for welfare recipients is that they can also earn $1,000 per month income tax free.
So why would those with little ambition work hard in full-time status?
The problem with the job market is misplaced social welfare programs that are draining worth and incentive, and diminishing the spirit of independence. Little ambition must be paid poorly – much less than the minimum wage. Otherwise incentive is given to not produce and pay taxes.
This is the problem with trillion dollar central government deficits. They funnel so much money into state governments that money gets wasted, incentive gets misplaced, and independence is diminished. People receiving welfare benefits think they’re getting a good deal but they’re really not. They’re receiving money in exchange for their self respect and independence, for their freedom. And that breeds a dependent culture – so contrary to the American ideal.
This emasculates markets, investments, and prosperity. It constrains free market activity and puts forth an environment of higher taxes and paltry ROI.
Keep this in mind when rebalancing your portfolio.
Stay tuned…and let me know if you need help.