Where the Jobs Are

Where have the jobs gone?

The latest employment report is one more in a series: moderate growth from the establishment survey; a falling unemployment rate in the household survey, but a falling labor force, or a falling labor participation rate. Indeed, the labor force participation rate is the lowest it has been since 1981. But the economy is growing. Normally, by this time in a recovery, discouraged workers start coming back into the labor force, and the unemployment rate rises, even as employment grows. Why isn’t this happening?

One answer has to do with the economics of a second income for a family. Childcare is expensive, and can easily cost $15,000. Add in a professional wardrobe and the expenses of commuting and you have another $5,000. If this is a second income, and the partner’s income is in the upper five-figures, the marginal tax on that second income is going to be 30-35%, depending on State taxes. So a second income has to equal $30 thousand just to break even.

But the option isn’t often work or not work. It’s work full-time or work part-time and do cash-based odd jobs around the margins, along with doing things around the home to save money. Put that into the equation, and you need more than $50 thousand for a second full-time job to be economically justified. Those are hard to find, so people drop out of the formal economy.

The solution is lower marginal rates and elimination of deduction phase-outs. Those really raise the marginal rate for a second income. Subsidies for childcare just get captured by the child-care providers, and do nothing for middle income folks not deemed “needy.”

If we want to put people back to work, we need to make sure working works for the whole family.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T16:01:26+00:00 May 7th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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