Why personal incomes rose despite higher unemployment - Lyn Alden
While the the unemployment rate has increased this year in the wake of the recession, personal incomes, on average, rose in the U.S. as a result of fiscal stimulus, said Lyn Alden, founder of Lyn Alden Investment Strategy.
“We had a major decrease in employment. However, government transfer payments, in most cases, compensated for that unemployment loss. Many people, for example, received more income despite being unemployed than they did when they were employed,” Alden said, noting that people on the higher end of the income spectrum who lost their jobs would have experienced a net loss, while people who did not lose their jobs and still received stimulus checks saw a gain in income.
Equally concerning for economic growth is the long-term trend of the declining labor force participation rate, or the percentage of people able to work that is in the workforce or looking for employment, Alden said.
The labor force participation rate in the U.S. increased after World War 2 as a result of more women entering the work force but peaked in 2000.
“Since 2000, we’ve seen a reduction. Part of that is from ageing. But we’ve also seen, concerningly, that young people are less likely to have jobs,” she said, “partly due to trade deficits, because we’ve reduced our manufacturing base. We’ve also had more automation that rule out certain types of jobs.”
While government fiscal programs can expedite an economic recovery and bring workers back to the labor force, policy makers should avoid excess levels of intervention, Alden noted.
“The private market will sort this out over time. To the extent that we see that play out will partly depend on what we see with fiscal stimulus, so that could be the form of example, payroll tax cuts that make it more economical to open businesses or hire people, or it can take the form of infrastructure spending or something like that. There’s kind of different approaches they can do to accelerate it, but part of this just the natural credit cycle playing out,” she said. “If they try to intervene too much it will prevent the system from healing itself.”