Debunking The Negativity of Declining Labor Participation Rates

Many have tried to dilute all the incrediblely improving US economy jobs numbers -- which now show gains of nearly 13,500,000 new private sector jobs since the great recession.  Additionally folks have tried hard to discount the unemployment rate now hovering near 5 percent.  

The only remaining negative mantra continues to be "Declining Labor Participation Rates."  The "logic" goes something like this:  even though the unemployment rate is at 5%, the reason is because many people in the jobs market have "given up hope" and stopped looking for work.  Although you can always find examples of folks who have given up looking, the broad statement does not prove out in the general population.  In fact, the main reason today that folks have stopped looking for work:  THEY FEEL SECURE ENOUGH TO RETIRE!

The labor force participation rate, as defined by the Bureau of Labor Statistics, is “the percentage of the population [16 years and older] that is either employed or unemployed (that is, either working or actively seeking work).”

As the BLS has explained well before the great recession,  Every year after 2000, the rate declined gradually, from 66.8 percent in 2001 to 66.0 percent in 2004 and 2005. According to the BLS projections, the overall participation rate will continue its gradual decrease each decade and reach 60.4 percent in 2050.  Why?  Here are the BLS reasons:

1) The aging of baby boomers. A lower percentage of older Americans choose to work than those who are middle-aged. And so as baby boomers approach retirement age, it lowers the labor force participation rate.

2) A decline in working women. The labor force participation rate for men has been declining since the 1950s. But for a couple decades, a rapid rise in working women more than offset that dip. Women’s labor force participation exploded from nearly 34 percent in 1950 to its peak of 60 percent in 1999. But since then, women’s participation rate has been “displaying a pattern of slow decline.”

3) More young people are going to college. As BLS noted, “Because students are less likely to participate in the labor force, increases in school attendance at the secondary and college levels and, especially, increases in school attendance during the summer, significantly reduce the labor force participation rate of youths.”

So no matter who is president or who controls the congress -- and independent of the health of the economy -- the BLS projected in 2006 that labor force participation rates were going to go down.

Further another report from Shigeru Fujita at the Federal Reserve Bank of Philadelphia on Feb. 6, 2014,  teases out the relative impact of various causes for the declining labor force participation rate. 

However, Fujita concluded, “Almost all of the decline (80 percent) in the participation rate since the first quarter of 2012 is accounted for by the increase in nonparticipation due to retirement. This implies that the decline in the unemployment rate since 2012 is not due to more discouraged workers dropping out of the labor force."  (See page two of the report linked above).

So in fact what has occurred is two-fold... job creation is constant and retirement conditions have improved!

Fujita further concludes:  "The significant rise in retirement in the past three years is clearly related to the retirement of baby boomers. Remember that the first cohort of baby boomers was born in 1946. Importantly, this wave of retirements could have started earlier than three years ago. However, a plausible conjecture is that the 2008 financial crisis and associated loss of wealth might have had the effect of delaying their retirement age, while the subsequent recovery of financial wealth has allowed more of them to retire in the past few years."

US Economy Adds 271,000 Jobs in October; Unemployment Rate Now at 5 Percent!

U.S. employers went on a hiring spree in October, according to government data released Friday morning, adding 271,000 jobs.

The number was far above analysts’ consensus of about 185,000 positions.  The unemployment rate fell to 5 percent, and wages rose at the fastest pace since 2009. 

The robust data provides more evidence that the job market is nearing a full recovery six years after the recession officially ended. The jobless rate peaked at 10 percent in 2009 and is now closing in on what many economists believe to be its lowest sustainable level.

October's jobs increased across a broad swath of industry segments. Administrative and support services added 46,000 workers, and the health care industry added a similar number. Retailers and restaurants added more than 40,000 positions each, while construction employment increased by 31,000.

“At this point, I see the U.S. economy as performing well,” said Fed Chair Janet Yellen on Wednesday during her testimony at the US Capitol.

Remember what we said back in 2008?  It's not so bleak after all!

59 Straight Months Of Job Gains

The job market continues to get better: After 59 straight months of job gains, this shouldn’t be a controversial statement. 

And job growth has been impressive: The U.S. economy is now adding jobs at a pace of about 3 million per year. The unemployment rate is the lowest it has been since April 2008 and broader measures of underemployment are improving as well.

The U.S. economy added 173,000 jobs in August, pretty much in line with recent trends of about 200K per month.  The unemployment rate fell to 5.1 percent, again a drop that was pretty much in line with recent trends. The rest of the monthly report from the Bureau of Labor Statistics was similar: positive.

And as we've seen before, the jobs gains are not just quantity, but quality.

Good Quality Jobs Are Back! And College Graduates Are First in Line

Georgetown University's Center on Education and the Workforce has dispelled the myth that most of the jobs of this recovery are low paying jobs... their recent study shows just the opposite:

As we all know prior conversations in the media discussed research that suggested that college graduates were stuck filling low-wage jobs. GU's latest report, Good Jobs Are Back: College Graduates Are First in Line, analyzes the growth of the U.S. jobs and wages during the recession and recovery, and shows this earlier research to be misleading. They find that since 2010, the economy has produced 6.6 million employment opportunities, 2.9 million of which are considered good jobs (a term they use for jobs in the upper-third by median wages of occupations in which they are classified). The key findings of the report reveal that 2.8 million of these good jobs went to college graduates. Some of the largest growing professions seek highly-skilled workers and offer large benefit packages. Most good jobs are full time and twice as likely to provide health insurance and retirement plans. Read the full report here to learn more about the growth of good jobs during the recovery.

If you don't have time to read the full report, here is the bottom line: "The Great Recession was a major hit to the U.S. labor market, and the slow pace of economic recovery has left many people apprehensive about embracing any positive news on the jobs front. The prevailing narrative in the early months of the recovery described young people graduating from college and being unable to find positions in their fields of study. They sometimes settled for low-paying, part-time jobs, often in retail and food services industries, because such positions were all they could find. But that is just a small part of the story. The larger picture shows that as the recovery accelerated, more high-quality, good jobs were created, and for the most part, they were filled by highly-skilled professionals with postsecondary education. A more accurate description of the common experience in this jobs recovery is of college graduates finding good jobs with benefits."

Unemployment rate remains steady at 5.3% as US economy adds 215,000 jobs

The US economy continues to add jobs... The US economy added 215,000 jobs in July, while the unemployment rate remained steady at 5.3%, meeting expectations.

So far this year, job gains have averaged 208,000 a month.  That's about 1.5 million new jobs this year thus far.

“...yet another solid employment report”, said Chris Williamson, chief economist at Markit.

Additionally last week, applications for unemployment benefits increased by a meager 3,000 to about 270,000. The four-week average dropped to 268,250, close to such low levels not seen for nearly 15 years.

Such near-historic lows point to a healthy job market, according to economists. “Initial claims for unemployment insurance have been below 300,000 for 22 straight weeks, the longest such stretch since 1973,” said Gus Faucher, senior economist at PNC Financial Services. “Claims are running at a pace consistent with monthly job growth of better than 200,000.”

This additional report of an increase of more than 200,000 jobs implies a continued downtrend in unemployment, according to Jim O’Sullivan, chief US economist at High Frequency Economics. Such a downtrend would reinforce the Fed’s assessment of the jobs market and recent employment gains as “solid” and get the unemployment rate to within the 5% to 5.2% range that most Fed officials consider to be consistent with "full employment."

source:  ycharts.com