Jobs, the rise of Trump and the dangers of fatalism

Published on Incomes and Inequality

Even for those not based in the US, it’s been hard to avoid a long weekend of an inauguration, marches, facts and alternative facts. But today Donald Trump settles into “his first business day” (for those counting there’s at least a little over 1,000 of those to come), and jobs are top of his agenda. Which is a good thing.

It is principally welcome because anxiety about the US’ employment performance stands out amongst the new President’s dystopian vision of 21st Century America as having a big grain of truth. Despite a record 75 consecutive months of jobs growth under President Obama, the US’ employment performance remains dire. Its employment rate of 69 per cent is still 3 percentage points below its pre-crisis level.

Crucially, this isn’t an issue about too many people being unemployed (unemployment actually stands at just 4.7 per cent) but instead represents something much more troubling – a large and persistent fall in the proportion of the population engaging in the labour market in the first place. Leaving aside quibbles about the definition of unemployment, this issue is presumably what the new President meant when he said:

“5.3 percent unemployment – that is the biggest joke there is in this country…The unemployment rate is probably 20 percent, but I will tell you, you have some great economists that will tell you it’s a 30, 32. And the highest I’ve heard so far is 42 per cent.”

It might not be the highest he’s heard but the real figures are bad enough – across the adult population 37.3 per cent were not participating in December 2016. While that figure includes students and pensioners, looking specifically at men aged 25-54 (the group the new President seems most focused on getting back to work) we see that the participation rate has been slowly falling for 60 years now.

To mark the President’s first day in the office we’ve published an analysis of US and UK living standards, focusing in particular on this American labour market participation challenge. You’ll be relieved to know that we’re not publishing this because we think Donald Trump will read it, let alone follow the recommendations (clue, they include a focus on maternity leave rather than on walls with neighbouring countries).

Instead the motivation is to counter some of the early signs of fatalism that have spread amongst the policy making community following unexpected election results on both signs of the Atlantic. There are two distinct elements to this fatalism, both understandable and both risky in their own way.

First, there’s policy fatalism – that we do not have the answers to the problems that face us and may not be able to find them. Understandable anxiety about what we can do to ensure globalisation’s benefits are spread more widely is the issue most likely to spark this kind of fatalism at present – see for example this piece from the excellent Gavyn Davies who worries that any policy solution to this major challenge is “embryonic at best”. The danger here is that the correct view that we do not know everything undermines the reality that we do know policies that can make a big difference to people’s lives. As a previous Donald might have said: known unknowns shouldn’t obscure the known knowns.

Second, there is trend fatalism – extrapolating worrying trends today and ascribing to them the status of long-run patterns that will continue no matter. A classic of its kind in this regard is Larry Summers, former US Treasury Secretary, writing about the falls in labour market participation experienced in the US. He draws a straight line into the future from the existing experience, adds in some further pessimism, and concludes that:

“I expect that more than one-third of all men between 25 and 54 will be out work at mid-century.“

This form of fatalism can be even more dangerous – worse than concluding we don’t yet know what to do is to simply conclude that nothing can be done. Yes some forces are out of our hands, but most are not or at least not entirely so.

The issue of labour force participation provides a good means to challenge both forms of fatalism. If trend fatalism was right then every country would be seeing the increases in worklessness seen in the US. But the UK is instead seeing the opposite, with participation at an historic high underpinning a record 74.5 per cent employment rate, albeit alongside a woefully weak recovery in wages. As the chart below shows, the prime age participation rate has risen by 2.6 percentage points in the UK over the past 15 years at the same time as it has declined by 2.2 percentage points in the US. These are big differences, with similar gaps vs the US existing in other northern European countries. Overall, if the US had UK employment levels there would be almost 11 million more people in work today.

The UK’s experience also challenges policy fatalism. The evidence is that policy rather than global forces or luck has driven this success. Improvements for specific groups – for example single parents and second earners – are a feature of policy action, and have in turn lead to reductions in inequality. Tax credits and a higher minimum wage have increased the incentive to work, while welfare policy has also increased the expectation that people do so. Advances in childcare and maternity policy have also underpinned increased prime age female participation which, incredibly, is actually falling in the US. Challenges remain, for older and disabled workers, but great strides have been made.

This highly divergent UK/US experience should remind us of some core principles that should be central to politics and policy making. Bad trends are not there to be analysed and written off as inevitable, they are there to be turned around. Gaps in our policy armoury should be highlighted, but the fact that we don’t know everything must not be used to argue that we don’t know anything. We know enough to recognise that inaction on labour market participation in the US is a choice, and the wrong one, just as inaction on vocational education here in the UK is a choice and the wrong one.

So if Donald Trump wants to live up to his humble claim to “be the greatest jobs producer that God ever created” the UK’s experience provides some practical steps to how he could get started. And for those hoping that better days for progressive policy making will come, it’s important that humility about who the world currently works for doesn’t become fatalism about the change that is possible. Our task is to challenge not condone those saying that evidence doesn’t matter, that policy doesn’t change things, and that politics has shrunk to anger not answers. Indeed if the rise of Trump teaches us anything, it’s that voters will choose bad answers over no answers at all.