With a degree of candor rare even for the Congressional Budget Office, Director Douglas Elmendorf recently testified that reduced labor force participation (the number of people either working or looking for work) was “the central factor in slowing economic growth.” Appearing before the House Budget Committee, he further stated that “later in this decade and beyond, the principal reason why we think the economic growth will be less than it was for most of my lifetime will be a slower rate of growth by the labor force.” On our current course, Elmendorf is absolutely correct. Both slow growth and a decline in the percentage of people working or actively looking for work condemn our youth to economic stagnation and deprive them of the opportunities that come with prosperity and a job. The Bureau of Labor Statistics defines the labor participation rate as the percentage of the population over 16, available for work and either employed or actively seeking employment. As the somewhat terrifying chart above demonstrates, labor participation has been declining at an unprecedented and precipitous rate since President Obama assumed office. For the last five months, it has been at or slightly below 63 percent, the lowest rate since April 1978 during the Carter administration. The president’s defenders argue that this disconcerting decline is due to baby boomers retiring rather than the president’s economic policies. This argument simply misses the point. The CBO attributes the labor force participation rate’s decline 50 percent to economics (poor job prospects in the current economy) and 50 percent to demographics (the aging of the population). Whatever the reason, the fact that we can explain the decline doesn’t mean we have to accept it. To the contrary, unless we reverse it, future generations will never experience the level of economic opportunity past generations have experienced. We can reverse it by implementing policies that encourage private-sector job creation, which will increase the demand for labor and incentivize people to join the labor force. But Obama’s economic policies consistently limit the ability of businesses to create jobs and discourage people from working. Entrepreneurs create jobs when they’re able to expand or create businesses. They do so when they can develop business models that show a profit. It’s difficult to develop profitable business models when government policies keep increasing costs. By increasing marginal tax rates on high-income earners, the president has decreased the profits small business owners can invest in growth, as most are organized as sole proprietor or S corporations. Navigating the increasingly complex government regulatory maze has forced businesses to spend money they could otherwise have invested in growth. Fighting a war on carbon fuels has increased energy costs, further decreasing growth. Even anticipated costs affect business models that, by definition, forecast the future. Despite promises to the contrary, Obamacare is increasing medical insurance expense and labor costs. The Obama administration’s questionable delays and amendments to Obamacare’s employer mandate have given businesses a reprieve. But entrepreneurs know these delays are politically motivated and temporary — they know Obamacare’s increased costs are coming and they must factor such costs into their business models. Now the president is advocating a significant federal minimum-wage increase that would further increase labor costs. As anticipated labor costs increase, businesses decrease labor, favoring reduced hours or automation as an alternative. If you increase the cost of something, businesses will use less of it. If you decrease the cost of something, businesses will use more of it. The CBO recently reported that the president’s proposed increase would result in a loss of 500,000 jobs by the middle of 2016. It’s easy to attack businesses when they employ these cost-cutting measures. But unlike government, businesses must generate profits to grow. Businesses that consistently fail to make a profit go bankrupt. Even more disturbing, businesses that are unable to forecast a profit never open.
