Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Job Exclusion in America: What Caused Crash In the Labor Participation Rate?

Economics / Employment Jan 14, 2014 - 08:18 PM GMT

By: Washingtons_Blog

Economics

Workers May Simply Be Giving Up

Zero Hedge notes that the number of Americans in the labor force has dropped to 1978 levels:

The civilian labor force … dropped from 155.3 million to 154.9 million, which means the labor participation rate just dropped to a fresh 35 year low, hitting levels not seen since 1978, at 62.8% down from 63.0%.


And the piece de resistance: Americans not in the labor force exploded higher by 535,000 to a new all time high 91.8 million.

What’s causing the crash in labor participation?

Initially, the number of women not in the labor force climbed to a new high. This is significant because the labor force skyrocketed in the 1960s when feminism encouraged women to work outside of the home:

As the Washington post notes in a fantastic roundup on unemployment:

The Urban Institute notes [that] what’s happening is that workers aren’t entering the labor force at the same rates they used to. That’s especially true for women, who are much less likely to enter the labor force today than they were in 2002 and 2003. Many of them, the paper notes, appear to be enrolling in school instead or deciding to start families.

An aging U.S. demographic may also play some role in the decline. As the Washington Post notes:

Americans over the age of 65 are much less likely to work than prime-age Americans. And since that subset of Americans is expanding its ranks, that drives the labor-force participation rate down.

***

Economists disagree, however, on exactly how much demographics are responsible for the current fall in the participation rate. The Chicago Fed estimated in 2012 that retirements accounted for one-fourth of the drop in labor force participation since the recession began. Other analysts, including Barclays, have suggested that aging Boomers could account for a bigger slice of the drop.

Meanwhile, a recent paper by Shigeru Fujita of the Federal Reserve Bank of Philadelphia staked out a more nuanced view: Demographics, he argued, didn’t play a huge role in the labor-force drop between 2007 and 2011. But since then, retirements are responsible for basically the entire fall of the participation rate. One possible reason is that many older Americans postponed retirement immediately after the financial crisis to rebuild their battered 401(k)s. By 2012 or so, they began retiring en masse.

However, Zero Hedge and Bloomberg show that there are countervailing trends:

Most disturbingly, the Post notes that the main factor may be workers simply giving up:

The number of Americans working or actively seeking work has actually fallen faster than demographers had predicted:

And here’s another clue that this isn’t just a demographic story: The participation rate for workers between ages 25 and 54 fell sharply during the recession and still hasn’t recovered. Obviously, retirements can’t explain this:

So, what’s going on? One theory is that the weak job market is causing people to simply give up looking for work — they’re crumpling up their résumés and going home. An recent study from the Boston Fed suggested that these “non-inevitable dropouts” might even account for most of the decrease. Among other things, the authors noted that the labor-force decline has been far sharper for all age groups than simple demographics would predict.

***So, why does the size of the labor force matter? If people are leaving the labor force for economic reasons (and they’re not going back to school), it would mean that the economy is in much worse shape than the official unemployment rate suggests. The jobless rate is officially 6.7 percent, but that only counts people who are actively seeking work — not labor-force dropouts. [Remember, you have to include labor-force dropouts in order to arrive at a useful unemployment number.]

The size of the labor force also goes a long way to determining America’s growth prospects. If, say, baby boomers are retiring faster than expected, then long-run U.S. economic growth will be lower than projected.

***

It could also mean the U.S. economy will be significantly weaker in future. One recent paper from the Federal Reserve estimated that America’s economic potential is now 7 percent lower than it was before the financial crisis — in part because workers who lost their jobs during the downturn have become less-attached to the labor force. That’s a bad sign.

In other words, the crash in labor force participation rate is a very significant indication that all is not well with the economy.

Unfortunately – instead of helping to reduce unemployment – bad government policy has made it much worse. And see here and here.

http://www.washingtonsblog.com/

Washington’s Blog strives to provide real-time, well-researched and actionable information.

We at Washington’s Blog have an insatiable curiosity for new discoveries, new information and new insights.

Despite our passion for what’s new, there are themes that we keep reporting on year after year, as they reflect a bigger picture which remains fairly constant, or the root causes of our problems which have still not been addressed, or potentially powerful solutions which have still never been tried.

© 2013 Copyright washingtonsblog - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in