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The chart shows that the labor participation rate was fairly stable between 1948 and the late 60s, hovering around 60%. Then it began a gradual and steady rise for the following 30 years until it peaked at the above-mentioned rate of 67.6% in 1997, only to fall continuously over the last 18 years. The increase in participation between the 1960s and the 90s is attributed primarily to increases in the female participation rate, as significant numbers of women joined the labor force and obtained jobs. In fact, female participation rose steadily from around 33% in 1948 to a peak of 60.4% in 1997.
But back to the 93 million. Often we read articles and hear opinions that, attempting perhaps to make a political point, imply or state directly that these 93 million are unemployed. They say that these people are not in the labor force because they have been shut-out of the market from a lack of employment opportunities. Granted, for some people that may be the case. Frustrated because they can't find employment they stop searching for a job altogether and, thus, are not counted anymore as part of the labor force. However a deeper analysis into the data shows that there are other reasons explaining why there are so many people not in the labor force and why this number will continue to increase in the foreseeable future.
Age Drives Participation in the Labor Force
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These three age groups, 45 and older, thus represent 89% of the total change in working population, while they account for just over half (52%) of the total working age population.
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But Rates Are Dropping Among Younger Population
The curious thing is that the declines in participation rates are occurring mostly among the younger population. That is, persons under 45 years of age are the ones leaving (or not joining) the labor force. We find that, over the last 30 years, the younger a person is the more likely that he or she is leaving the labor force. Thus we see that for those aged 20 to 24 years the participation rate has fallen by 8.4 percentage points since 1985.
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It is interesting to note that more people 70 years and older are joining the labor force. The participation rate for both men and women in that age group has increased by around five percentage points over the last 30 years. One would like to say that they enjoy working so much they've returned to the labor force, but it's more likely they are doing so out of sheer economic necessity. (The chart displays separately the data for men and women 70 years and older, this is because we don't have readily available the combined figure, although we know that it is around five.)
If participation rates had remained at their 1985 levels we would have today nearly 2 million fewer in the labor force- 155.7 million at the '85 rates compared to 157.5 million actual. But the mix is radically different; we would have nearly 7 million more in the labor force who are younger than 45 years and, conversely, about 8.9 million in the 45 and over age group. The more younger people are in the labor force, the greater promise of larger economic output in the future (younger people have more working years in their future naturally) and paying more to many government pension plans, such as Social Security at the Federal level, that depend on the ongoing contribution from working people to remain viable.
So the more relevant figure to discuss is 32 million, rather than the touted 93 million. Thirty two million is the number of people under 45 years of age who are not in the labor force. That is, who for one reason or another are not interested in joining the labor force and becoming productive members of the U.S. economy.
This is an issue that deserves a lot wider discussion in the public arena. Most on the left argue that as the Boomers have moved into retirement that the U6 (or stat from the BLS that counts participation) would drop. But the data that I see says the Boomers are doing two seemingly contradictory things - many are retiring early and yet their participation rates are rising.
ReplyDeleteIn order to understand the dynamics here I think you also need to see the rising effect of SSDI (the liberalized rate of Social Security Disability) and Unemployment compensation. (With the extended terms). Neither of those pay a lot of money but the evidence is that a lot of workers are simply using SSDI and UC benefits as long as they can.
The American economy is complex. Based on international comparisons - those who work tend to work longer hours compared especially to their European counterparts. At the same time an increasing percentage of workers who can opt into one of the support systems are doing that. From my perspective the number we should be tracking should be higher than your low figure (32 million) but lower than the topline number that many politicians cite. The worrisome figure for me is the declining participation rates for younger workers. (18-24, 25-34 - shown in your chart) those may be related to a lot of things but as an editorial in the WSJ by a UC Irvine economist pointed out today - increases in the minimum wage may be exacerbating the problem. There have been some studies that suggest that if you come into the labor force with diminished wages or participation the cohort never catches up - that is a real long term problem.
I agree that the decline of participation in the younger demographic is troubling. Another contributing factor for this is that many of the millennials are staying in college longer and pursuing higher degrees. This keeps them out of the labor market while also increasing their debt.
DeleteThe decline in the participation rate should be a much larger subject today and Janet Yellen calls the low participation rate "slack" in the domestic labor force. This slack will hinder the potential output of the U.S GDP.
As Jonathan brought up in his comment the amount of U.S. citizens filing for social security disability has grown dramatically. This removes people from participating in the labor market. Here is an article from Forbes from a few months ago outlining the almost doubling of disability benefits and participants from 2000 to 2013.
http://www.forbes.com/sites/neilhowe/2015/06/30/the-boom-in-disability-benefits/
Great topic Manuel. I hope this topic attracts more attention nationally as I think it impacts output significantly and has a variety of contributing factors.