Source: Bianco Research

 

Since its NFP week, I thought it might be interesting to look at some assorted datapoints this week. Today’s focus: US Labor Force Participation Rate.

As the chart above shows, this peaked in 1999, and has been trending downwards ever since. There are several reasons why this is:

• Demographics of the aging baby boomers, whop are retiring, living longer, and impacting this ratio;

• Technology/DotCom collapse eliminated lots of malinvestment driven Tech jobs;

• Financial/Credit crash eliminated lots of malinvestment driven banking/RE jobs;

• Ongoing outsourcing, globalization, etc.

• Robotics

That last item doesn’t get discussed nearly as much as it should, but the single biggest future trend in the labor force is going to be the ongoing replacement of humans by smart machines.

Whether you are a discretionary trader, a reporter, assemble iPhones, do construction of buildings, engage in general manufacturer, drive a car, do surgery, or are simply in the world’s oldest profession (aka a sex worker), there is some combination of software + robot that will eventually start doing your job.

I cannot tell you how far in the future this becomes problematic — but its not centuries. The question is whether its decades or years . . .

Category: Data Analysis, Economy, Employment

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “US Labor Force Participation Rate”

  1. S Brennan says:

    I think the numbers outlined in the link below trump your bullet #2 by a significant degree.

    http://www.economicpopulist.org/content/congress-betrays-us-stem-worker-once-again

  2. Conan says:

    I agree with all your reason, plus.

    1) Part of the decline is a weak job market cause by the Great Recession.

    2) The growth of women in the job market has plateaued or declined in recent years. This has been a big driver in the upward slope from the 1970′s till the 2000′s.

    3) Governments, especially State and local shedding workers.

    4) Better systems, just one example besides the obvious of computers: I work with Lean Manufacturing and this has escaped the Automotive world. It is being used in banking, health care, retail, many areas to improve the efficiency of the product delivered. Thus you get more output from the same amount of people. Industries are becoming smarter, faster more efficient.

  3. rd says:

    You left out the impact of dual-income families. Their numbers started rising about the time that the particpation rate started rising in the 1970s. I believe that the two-income family numbers as a percentage of the population started to drop at bout the peak of the curve around 2000.

    Much of the extra income from the extra worker went to buying dream homes and was part of the massive home price rise that terminated several years ago several years after two-income familes started to decline.

    If a household down-sizes from a $500,000 house to a $200,000 (combination smaller and overall price level decrease) then the need for an extra income declines substantially, particularly once work expenses, including commuting, and marginal tax rates are factored in.

    Part of the labor participation curve drop may be driven by semi-permanent decline in housing and retail demand. My guess is that some of it is pro-active by the labor force wanting to get out of the rat race as much as reactive to layoffs etc.

  4. Conan says:

    5) Education and skills. So unless you are an artisan, singer or athlete, etc. The amount of education required to do a job has increased. The days of our early industrialization where you could walk off the farm and go to work as a blue collar worker are basically over. Virtually any job has true educational requirement to get it done above and beyond just the physical labor of the past. Even worse there are many over qualified people competing for jobs below their skill level. For these reasons, the least prepared to compete are being forced out on the one side by technology and new systems. Then on the other side by educational requirements and competition for jobs.

  5. constantnormal says:

    Something else that has an impact on this is the ever-shrinking lifespan of career choices/industries, combined with the ever-increasing move toward specialization. People are constantly lauded for their flexibility and adaptability, without also recognizing that expertise does not accompany those changes.

    Retraining programs have been shown to be of dubious value, producing not so much trained experts, as inept amateurs who have difficulty getting hired.

    http://thebillfold.com/2012/10/are-retraining-programs-effective-for-the-unemployed/

    The end result of this is a pushing down of formerly highly skilled employees, into things like stock clerks at Walmart and cashiers at places like 7-11 … jobs that pay a small fraction of their prior employment.

    This isn’t limited to manual labor types of jobs, people who used to perform jobs that required a high degree of knowledge and understanding about a business have been displaced by robots of another sort … back-office automation systems, extending from the front lines of a global multinational to the very top of the organization.

    And the Wall Street traders who pride themselves on their particular skill set, will get a new perspective when a software package like IBM’s Watson is trained to do everything they do (and everyone else in their office does), while interacting with HFT ‘bots, 24×7 … for an effective compensation rate far smaller than the humans pull down. And AI’s won’t initiate trillion-dollar derivatives nightmares just to impress their hooker du jours, while high on God-knows-what. Wall Streeters will be out on the Street before too very much longer.

    I’m not a Luddite pushing for a return to pencils and manual calculations, this way is clearly more effective and more efficient. But our medieval system of distribution of the fruits of the enterprises supported by a society is well past its sell-by date. The classical Pyramid of Labor desperately needs replacing, by what, I haven’t a clue. Perhaps the Dodecahedron of Learning/Leisure/?.

    We could buy time by taking a page from Henry Ford, and reduce the work week to 30 (or 20!) hours, with a higher minimum wage, and compel multinationals to pay using the same wage scale globally … a person in role X would be paid at the same hourly rate bracket, regardless of where on the planet they work. But that only buys time, and not very much.

    A better way of running capitalist economies is desperately needed.

  6. S Brennan says:

    RD, what’s going on is hardly “voluntary” in STEM jobs. Here are some comments from the above posted link by engineers [with names redacted]…and the Author. If you actually read the numbers presented, it’s pretty clear, the US Government is supplying labor to supplant US Engineers with foreign workers in a Bipartisan effort to drive the wages of Engineers to the level of Cosco clerks…without the stability.

    superb information !
    Submitted by D** L**** (not verified) on Sun, 12/02/2012 – 16:57.
    As a mechanical engineer who has spent much of his so-called career either unemployed or underemployed, I agree with everything you said.
    There is no shortage of engineers. But no matter how many engineers are willing to grovel for crummy jobs, employers believe even more groveling is needed.

    thank you
    Submitted by A***** on Sun, 12/02/2012 – 19:52.
    thank you for your work on this. As a working mechanical engineer, age 46, I’d just like to supply my personal history. I have personally seen 100′s of my fellow Americans, blue collar and of course over the past 15 years my fellow engineers outsourced mercilessly. I’m getting close to that age where the next layoff may well be my last in the field. I was lucky enough to have only been let go in the downturn of 2008 but i have no illusions about retiring from this field.

    Personally I have seen only outsourcing and have not personally experienced being displaced by a foreign guest worker but I know others who have.

    The last company that laid me off in 2008 is named Winchester Electronics. A company that at one time employed 1000+ people in the state of Connecticut. A state that in my youth was noted for manufacturing. Please google this company and just note how many Free trade adjustment assistance they have been granted. By the way, they are now owned by the Audax Co. a offshoot of Bain Capital started by former Mitt employees or co-workers.

    I’ve seen honest hard working middle class people just trying to do the right thing and pay their bills thrown under the bus. It has truly disgusted and radicalized me thank you for your good work.

    Thanks Robert
    Submitted by T****F** (not verified) on Sun, 12/02/2012 – 19:10.
    Robert, this is an excellent story. Thanks for your research and your excellent delivery. If I would have anything to add, I would discuss how the IEEE and the IEEE-USA, organizations that collect membership fees from disenfranchised US STEM workers, are leading the charge of betraying the US STEM worker.

    I am a 2002 graduate of
    Submitted by M*** (not verified) on Sun, 12/02/2012 – 20:06.
    I am a 2002 graduate of Electrical Engineering and Computer Science from a top-20 university. Completed both my degrees in 4 years in the top quartile of my class. Sent out thousands of resumes to Silicon Valley tech firms and elsewhere, only to receive almost no response, or a response claiming the job requisition had been cancelled and that I should apply for other jobs. Meanwhile, employers who didn’t need top calibre skills rejected me for being ‘overqualified’ for the few jobs they had available (not that it mattered, those jobs were receiving hundreds, sometimes thousands of resumes).

    It breaks my heart every time I hear the Silicon Valley employers are claiming a labour shortage without even bothering to open their resume queues and find them filled with folks like me. I could accept the situation if the employers interviewed me, tested me, and found I was less qualified than a competitor. That’s the merit principle in action. But to just ignore me while claiming a need for foreign guest workers strikes me as completely unnacceptable.

    to the U.S. STEM writing comments
    Submitted by R***** O** on Sun, 12/02/2012 – 20:34.
    We know your stories are true and please leave them for you matter. You might also start raising hell. Organize, go to your Congressional representatives town hall meetings, show up to their offices in person. Beyond the AFL-CIO DPE and the teamsters, believe that or not, there isn’t any real organization out there representing your labor interests. The lack of political power is precisely how and why politicians feel it’s perfectly fine to step all over you, offshore outsource your jobs, displace you with foreign guest workers, offer stipends so low you can’t even rent a shoe box while in graduate school and on and on.

    Here’s the kicker. U.S. universities are the best in the world, therefore your education is the best in the world, therefore you are the best in the world.

  7. dagmountain says:

    Bravo Barry! -

    I’ve been waiting awhile now for you to comment on robotics and automation, as it applies to the market economy. Calculated risk has a great chart showing the employment lag after recent recessions. Since the introduction of the personal computer in the eighties the lag has become longer and longer, along with the bubbles needed to create jobs, as Bill Fleckenstein says, like dogwalker, party planner, mortgage broker, etc..People talk about solutions to the clash of robotics/automation with the market system, but don’t realize that companies by law have to automate or face lawsuits from their shareholders. Thanks for this post and I hope to read more like it in the future.

  8. Mike.R says:

    Taleb has some good stuff in Antifragile related to the cognitive biases involved with predicting the the impact/role of robots and other technologies in the future. We are pretty terrible at it and tend to select the rare instances that we were sort of correct in retrospect.

    We forget about all the ways in which we are wrong.
    http://www.youtube.com/watch?v=VowfYuhx1-o

  9. Apinak says:

    Whenever we talk about robotics or outsourcing it is worth pointing out, that if economists are to be believed, these policies make the country richer, not poorer. But what happens in practice, is that the extra money is highly concentrated in making some rich people much richer. At the same time, these policies are used as an excuse for the declining wages and increasing poverty for the rest of us.

    This is a frustrating paradox, policies that make the country richer, actually make the majority of us poorer. The obvious solution is more progressive taxation and using the revenue to increase the safety net, to spread the benefits beyond the small group of rich people to the many people adversely effected by these policies. But what we have done in practice is just the opposite, made taxes less progressive and slashed the social safety net.

  10. JasonPappas says:

    Robotics? Not quite, Barry. With all due respect, this meme has been around since the beginning of the industrial revolution. Productivity and capital investment has only made labor more valuable. Of course “labor” in the future may not be physical. The knowledge-based economy will require different skills. Wants are unlimited–more will be produced. It may be informational (art, fiction, knowledge, software) but we’ll want more. Look at how many more people you reach with technology …

    ~~~

    BR: Sold to me

  11. Old Rob says:

    Can you say Smoot-Hawley??

    Our economy/government, with its out-of-control-spending requires an adiabatic system. Absent that, please stop the $$ hemorrhaging by pissing away so much.

  12. S Brennan says:

    So many people read the papers/watch-CNBC/FOX and assume it is accurate in regards to STEM workers, it’s not. Here’s a slice of Reality from an actual STEM worker…me @/from Naked Capitalism talking about actual mechanisms that deprive domestic workers an opportunity [hint: it is not skills]. People are not simply volunteering to paid crap, it is the US Government’s Policy [both parties] to have a low paid, subservient population.

    S Brennan says:
    December 1, 2012 at 11:25 pm

    Let’s also try to remember that the cost to being an engineer in the US are higher than in China…everybody knows that American Engineers have a much higher cost management structure to support, but…

    Since I am an Engineer and I work with Chinese counterparts to rectify issues with their designs I think I can shed a light one area that is not EVER talked about…SOFTWARE TOOLS….

    In Asia, but particularly China, almost all firms work with pirated software. CAD & FEA programs that cost tens of thousands upfront and many thousands per year in licensing fees are universally pirated.

    So before one cent in salary is paid either a US or Chinese Engineer, the Chinese guy is about 17,000.00 USD/year cheaper than the US Engineer who must shoulder the burden of parasitical software licensing agreements that are laughed at in Asian countries.

    This arrangement also hurts younger US Engineers when competing with H1-B’s (and an alphabet soup of other programs) for the few jobs available stateside, because the their foreign competition can work with these tools for free, while US engineers are force to pay to play (if they can), consequently, a foreign engineer can board a flight and swoop in to take a scarce job because of up to date skills garnered in ways that would be illegal in the US.

    Also there is the intern crap that is on the rise nowadays…free, or minimum wage work for highly skilled work in order to “gain experience” which is highly unfair, to a group of graduates who unlike many other degrees have marketable skills upon graduation.

    Then there is the overt age discrimination of people approaching 40 years of age. If you walk into many US Engineering firms, you will notice an absence of anybody much older than their early 30′s. In order to discriminate effectively, whith out coming right out and saying they are breaking the law, HR dept’s will ask for résumé with 3-5 or 3-7 years of experience. Do you know any other professions where the top age is so prescribed? You don’t want to be laid off for being too old after receiving a full wage for a few short years…we are talking about the top 1% scholastically…find a profession that treats it members with a modicum of respect.

    That is why as an engineer, I do my best to chase young people away from the profession…you don’t want to be working the Home Depot check-out lane because you are over the hill at the ripe age of 40…the guy who scanned my stuff today has being doing it for five years and curses the day he took up engineering….I don’t blame him.

    You are a smart woman Yves, that is why I read you, but this is area where you have to be in the game to understand how Hobsian it really is.

  13. HowardA says:

    The Labor Participation Rate (shown on the chart) represents individuals employed or actively looking for a job, divided by the total population 16 and older. It shows a decrease of about 3% from its peak. The ratio of employed divided by the population 16-65, shows a worse picture . This Employment Ratio for the under 65 group is down about 8% from 2000. In 2000 the unemployment ratio was about 5%. Given the drop in the Employment Ratio, the REAL unemployment ratio is closer to 13%. Nearly all of this increase in unemployment occurred during the years Bush was “responsible”; i.e. 2002-2009.

  14. DeDude says:

    The consumer class is not getting any more money (inflation adjusted income has been stagnant), and the rich (and corporations) don’t consume the extra money they harvest from the economy. Except for temporary debt driven spending in the private or public sector there is just not going to be much growth in demand.

    When demand stalls then efficiency becomes the enemy of the economy. The more efficient (or automated) production becomes, the less work hours needed to produce all the products for a (stalled) “constant demand” economy. This increases unemployment and puts pressure on wages – further reducing income for the consumer class and reducing aggregate demand. And down the spiral goes. The final destination can be observed in many 3’rd world countries, but it will be interesting to see if a middle class in a democratic industrialized country will accept to be slammed into a dirt-poor-mud-hut living style.

    Greece and Spain will likely be the first demonstration cases of predatory capitalism eating itself from the inside. However, in those countries social systems are so much more advanced than here, so who knows if they actually will be the first industrialized countries to explode. In this country the political parties are clueless enough to suggest putting out the fire with gasoline (by increasing retirement ages and cutting benefits for the consumer class). Not a chance of us being saved by sensible redistribution of wealth and income with the help of government.

  15. S Brennan says:

    I have never been a friend of George Bush but…

    “Nearly all of this increase in unemployment occurred during the years Bush was “responsible”; i.e. 2002-2009″…

    this statement is wrong by a factor of 2x according to the chart above.

    The sad fact is the Obama maintained, or more often accelerated the return of 19th century economics (sans mercantilism). 19th century economics is now commonly called Noe-Liberalism, which is neither new, nor liberal and is bringing the same misery it did during the 1870-1932 period. Why both parties insist on returning the US to this level of poverty and the depressions of 1873-79/1884-86/1893-1900/1907-1911/1913-14/1918-19/1920-24/1926-27/1929..is beyond a good Christians comprehension.

    I understand people who supported Obama are heavily invested in not being shown to be fools…but I think that would be better accomplished by showing some mastery of the stark reality presented by the man’s record.

  16. NoKidding says:

    “Demographics of the aging baby boomers, who are retiring, living longer, and impacting this ratio;”

    Boomers living longer puts more retired non-workers on the old side of the curve -OK

    Offset by those who work past retirement because they expect to live longer or failed to save (BP Invictus posts)?

    Offset by ever-declining birthrates (US=1.9, below replacement) which puts fewer student non-workers on the young side of the curve?

    “Robotics”

    Slow and steady it goes. That is part of the industry I started in, consumer electronics manufacturing and test. You would be shocked to see how good the robots can be, then equally shocked by the repetitive simple tasks that are cheaper to hire a human for. In Taiwan I witnessed manual insertion of semiconductor chips into electronic test fixtures at a rate of 100 per minute, in three shifts. Dollar-an-hour labor crouched over the input of a million dollar machine.

    Offset by post-amortization price deflation. After the payoff period you’re making tooth brushes for the cost of a few oz of Nylon (pennies). Bad news – no tooth brush jobs. Good news – almost free tooth brushes.

    All valid points you post, but dodging the real issue – the economy has sucked for about 5 years due to debt fueled consumer and government oversopending. The HELOC debt bought more F150′s and PlayStations than manufacturing robots.

  17. S Brennan says:

    This is absolutely right NoKidding:

    “You would be shocked…by the repetitive simple tasks that are cheaper to hire a human for.”

    Particularly, for today’s short product cycles. Planned obsolescence has at it’s corner stone a short product lifetime. Automation is not cheap when all the plant capitalization must be recovered in a very short production run.

    The need for something shiny and new, not only degrades the value of designs that are “classic” in some manner, it reduces the value of automation.

    Automation also requires high managerial skill in industrial planning, these types of managers have been shut out for some time…thanks to the “shareholder is God” ethos.

  18. dagmountain says:

    Here’s a chart for you Barry, via Andrew McAfee MIT.
    http://richardbrenneman.files.wordpress.com/2012/07/blog-trends.jpg

  19. dagmountain says:

    Here is a good interview with the founder of IRobot.
    http://www.exponentialtimes.net/videos/techonomy-2012-wheres-my-robot

  20. Frilton Miedman says:

    Conan sums my thoughts, the advent of dual working households saw it’s zenith this decade.

    Some points to add,

    Baby-boomers are now retiring at the same rate as population growth, meaning we’re likely seeing a range for the “new normal” in participation rate in the mid to low 60% for at least a decade to come.

    I say an overhaul on entitlement COSTS is inevitable, not cuts in services so much, food for thought in the medical portion of portfolio’s. (did anyone see “60 Minutes” this Sunday?)

    Robotics has eliminated MFG jobs and will continue to do so, yes, in time this “should” reflect the pricing of goods in such a way to offset lost wages with lower cost of goods. (I leave room here for “supply side” jokes, taxation & disparity, it’ll boil down to redistribution in the end, it’s unavoidable when prices aren’t matching jobs lost .)

    Also noteworthy, someone above correctly points to the fact that “menial” work has become higher functioning – Most states now require five years schooling with an accompanied apprenticeship just to become electricians, plumbing or HVAC licensed…..that’s more time & effort than a bachelors degree,

    As technology in these “menial” fields grows, so does the required knowledge & training.

    Last, on STEM, an educated Chinese engineer makes $250 a month and lives comfortably, has no tuition, no healthcare costs to incorporate into his wages.

    His American counterpart makes $4,700, has tuition debt and a substantially higher healthcare bill.

    Turns out, Globalization & free trade didn’t just take menial MFG jobs after all, it’s a lot more complicated than anyone imagined 20 years ago.

  21. gusgus says:

    @ S Brennan — STEM is a side issue, at best. Do you think adding 50,000 foreign STEM graduates a year to the labour poor would cause drastic changes? Do you thik these foreign STEM graduatesa are the cause of the age discrimination that you’ve witnessed? There are bigger drivers to worry about. Like:

    @dagmountain — I love the first chart. Isn’t is “remarkable” how record profits were seen in the 2006 without a recovery in employment, and how profits have bounced back post 2009 while the employment-population ratio remains depressed? This is the issue — corporations are making money, but profits are not being seen by the employees.

    @Apinak — I completely agree. The problem isn’t robotics, the problem is the distribution of the profits from the robotics. Corporate profits are at record highs — so why are we seeing high unemployment? This is what needs to be looked at.

    @Ritholtz — you raise robotics as a possible reason for the depressed employment – population rato. Echoing JasonPappas, this argument has been made since the start of industrialization, but it has never been true. Take for example the automization of farming which freed most of the populace from working the land. Jobs were found for all of these ex-workers and everyone’s standard of living rose. We are going through the same process now with robotics replacing some jobs. We’re waiting for the new jobs to appear.

    ~~~

    BR: As the link indicate, this about MUCH more than robots + industrialization — its also about software and its application to a variety of fields, from Doctors + Lawyers to Journalists to Sex workers!

    I cannot speak to what other people have forecasted in the past, but this upcoming shift is likely to be transformational.

  22. whatdoiknow says:

    Who designs and builds the robots for industrial automation, database systems enabling online retail, surgical tracking systems enabling minimally invasive surgery, machine vision enabling superfast product sorting, etc.?

    STEM workers… and they love every minute of it.

    Many robots do things that people simply can’t… align a photomask to 10 nanometers to make CPUs, weld two 50 kilogram objects precisely, drive on Mars.

    The comments here imply an evil centralized power planning the demise of flesh and blood. I don’t buy it. It’s just progress. The incremental fulfillment of incremental needs. And the source of most of this technology is the United States work force. Those poor STEM workers.

  23. algernon says:

    The proportion of Americans on Disability has increased so markedly over the last decade, that this factor probably should be mentioned.

  24. Rockta says:

    Is it possible to lay the unemployment rate on top of this chart?

  25. Frilton Miedman says:

    whatdoiknow Says:
    December 4th, 2012 at 9:53 pm
    “Who designs and builds the robots for industrial automation, database systems enabling online retail, surgical tracking systems enabling minimally invasive surgery, machine vision enabling superfast product sorting, etc.?

    STEM workers… and they love every minute of it.”

    ~~~

    When Bjarne Stroustrup took basic C language and broke it into predefined standard template algorithms, the STL, he created OOP language that required less programming time and fewer programmers for the same level of functionality, in turn reducing the costs of writing software, as well as reducing the need for as many programmers/coders.

    It’s only a matter of time before someone designs a language that converts standard spoken language into ASM, effectively eliminating all but troubleshooters from the field.

    ~~~

    Which leads me to your next comment -

    “The comments here imply an evil centralized power planning the demise of flesh and blood. I don’t buy it. ”

    ~~~

    No one here is inferring anything “evil” about progress, we’re looking at it straight in the face and contemplating what it means down the road for our economy, market & social structure.

  26. [...] person discovers the coming next wave of automation: Barry Ritholtz at The Big Picture: As the chart {of labor participation} above shows, this peaked in 1999, and has been trending [...]

  27. Jim67545 says:

    “Robotics” are mostly thought about as relating to assembly or manufacturing in the above comments. I submit that the bullet should be technological improvements to productivity.

    Check imaging (reducing the paper check to electronic form) and particularly branch level check capture decimated the ladies in the proof department and couriers for the bank in which I worked. The bank reduced its headcount by 5% – all part time or second income jobs, most with full benefits. Now software is permitting you to do the check capture task (deposit a check) by taking a picture of it and sending it via the camera in your cellphone. More loss of jobs – and not “evil banksters” but ordinary folks.

    Yesterday I was in a large Home Depot. Two checkout people, one on the “contractor” line and the other overseeing the self check-out machines. Probably replaced two checkout clerks. Bar codes have dramatically increased the speed of checkout compared to hand keying the price of every item.

    It is not only repetitive tasks that are at risk. It is the low required skill level ones too.