Choosing Not To Work

There has been a debate of long standing between recognized economists as to whether unemployment benefits and other programs are an essential safety net or an incentive to “choose” not to work. While this remains complicated and controversial, a recent report from the CBO, Congress’s official score keeper, suggests that Obamacare will cause approximately 2.5 million Americans to choose to work less or not at all.
Over the last several years we have seen a material decrease in participation in the domestic workforce, despite an improving economy and a reduction in the unemployment rate. The reasons for this are subject to considerable disagreement.

Investors should recognize that cause and effect are not the same thing. While the causes for a declining work force, and the potential for further reductions, are controversial and subject to interpretation based on the beliefs of the observer, the effects of reduced employment are relatively clear. Less aggregate work adversely affects the economy and is likely to result in lower growth rates.

Stock market valuations are highly correlated to anticipated growth rates. Investors should give careful consideration to the potential impact of a continuing decline in the work force, no matter what the reason, in managing portfolios.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA