Peter Morici

Friday, the Labor Department is expected to report the economy added 213,000 jobs in May. This is line with the pace so far this year and stronger than in 2013, and the Federal Reserve is likely to follow through with plans to raise interest rates.

The labor market remains slack; however, recent consumer price reports indicate inflation is picking up. The Fed will phase out purchases of Treasury and mortgage-backed securities by the end of this year, and feel considerable pressure to raise short-term interest rates in 2015.

These moves will push up rates for mortgage, auto and other consumer loans. However, upward pressure on interest rates should not be enough to derail the bull market for U.S. stocks.

The unemployment rate likely will remain close to its current 6.3 percent. Well below the 10 percent recession peak, it largely reflects a lower adult participation rate. Were the same percentage of adults working or looking for work today as before the financial crisis, the unemployment rate would be 10.4 percent.

Baby boomer retirements are not driving down adult participation—32 percent are in the labor force today, as compared to 23 percent 15 years ago. Rising life expectancies, the loss of benefits-defined pensions, and the disappointing performance of most individual investment accounts are all motivating more elderly to work.

Rather, decent employment opportunities for prime working age adults have not kept pace with population growth. The percentage of Americans ages 25 to 54 that has a job is down to 77 percent from 82 percent 15 years ago, despite a larger share of women in paid employment.

Shrinking opportunities, especially in manufacturing and the building trades, have hit men hard. One out of six between the ages of 25 and 54 is without a job, and many of them have few prospects for finding desirable employment.

Nineteen million Americans over 25 are working part-time. More elderly in the workforce supplementing retirement savings, and the structure of government benefits and regulations contribute to this phenomenon. For example, ObamaCare and the Earned Income Tax Credit (EITC) encourage low wage employees to work part-time to avoid losing benefits, and some employers are limiting workers to less than 30 hours per week to avoid tougher health insurance coverage mandates.

The loss of manufacturing and construction jobs, and growth in part-time employment reflects a broader shift in the economy to low wage jobs and lower household incomes.

Peter Morici

Professor Peter Morici is a recognized expert on economic policy and international economics. He has lectured and offered executive programs at more than 100 institutions including Columbia University, the Harvard Business School and Oxford University.