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Saturday, November 28, 2015

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."

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