@TBPInvictus here:

On April 17, 2012, North Carolina Congresswoman Virginia Foxx stood before her colleagues in the House of Representatives and said (emphasis mine):

Ms. FOXX. Mr. Speaker, the March employment report continues to show us that the Federal Government has not been helping to create jobs in our economy. A Wall Street Journal editorial from April 9 highlighted a few examples from the report. Here is one extremely startling statistic:

The labor force participation rate–or the share of civilian population that is working–dropped again to 63.8 percent. In March, 2009, a month after the $800 billion stimulus passed Congress, the labor participation rate was nearly 2 percentage points higher, at 65.6 percent.

Interestingly, the Congressional Record has seen a hefty spike in mentions of the labor force participation rate over the past few years, and I can assure you they’re almost exclusively by Republicans and unflattering toward “President Obama’s America.”

Screen Shot 2014-05-08 at 7.29.05 PM

And there’s this:

Here’s a search of “labor force participation rate” at foxnews.com (as of around 7:45 PM ET on May 8):

Screen Shot 2014-05-08 at 7.40.12 PM

It’s good to know that Fox has been all over this important issue. The LFPR has been on the decline since about 2000, and I’m sure they’ve covered it very closely since it peaked. Let’s check their coverage during the Bush administration:

Screen Shot 2014-05-08 at 7.45.45 PM

Hmmm. Only one story until President Blackenstein took office. Very curious.

More curious still is why any of this is so “extremely startling” to anyone. I have found research back to 2002 – and I’m sure I could find even earlier – that foretold of a decline in our LFPR due to our demographics which, unlike variables such as policy making, are carved in stone. Yes, to be sure, the decline was exacerbated by the severity of the recession, but this story was essentially written between 1946 and 1964 when the Boomers made their collective entrance.

For example, here is a chart from a 2006 piece The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply:

LFPR Projection from 2006 Fed Paper

So, eight years after that paper was written, how have things played out? Let’s have a look:

lfpr quarterly since 1996

[Source: St. Louis Fed. Series: CIVPART rendered quarterly to match preceding graph.]

There’s also this, from the Center for Retirement Research at Boston College, from February of this year, which tells much the same story:

Screen Shot 2014-05-11 at 9.50.37 AM

St. Louis Fed President James Bullard gave an excellent speech on the LFPR in February:

I have reviewed some of the available literature on this topic. My view of the literature is that carefully constructed empirical models of the hump-shaped trend in the U.S. labor force participation rate do a good job of explaining the data. These models suggest that the current participation rate is not far from the predicted trend. This means, in turn, that the cyclical component in labor force participation is likely to be relatively small.

Translation: It’s mostly demographics with a touch of recession.

Said BLS in its December 2013 forecasts (emphasis mine):

Of note is the fact that the drop in the labor force participation rate was just 0.6 percentage point during the 2007–2009 economic downturn whereas, between 2009 and 2012, since the end of the recession, the rate declined by another 1.7 percentage points. A major factor responsible for this downward pressure on the overall labor force participation rate is the aging of the baby-boom generation.

Various regional Fed banks have weighed in on the LFPR, all striking a similar tone. Bill McBride over at Calculated Risk has written about LFPR many, many times, most recently here.

Little of what is happening with the LFPR is newsworthy. Yes, some of it is residual weakness from the recession, but our demographics are what our demographics are. Sadly, those who are focused on deceitfully misrepresenting what is going on with the LFPR will probably have ammunition for years to come. That will not change the fact that they’re being deliberately misleading.

Sincere thanks to those authors and researchers who took the time to discuss their work on the LFPR with me. Your time and insight were very valuable and much appreciated.

Further reading (and for the purpose of memorializing these links):

Age-Adjusted Labor Force Participation Rates 1960-2045
Employment outlook: 2012–22
Labor force projections to 2022: the labor force participation rate continues to fall
Visual Essay: Long-term labor force
Projections of the labor force to 2050: a visual essay
Employment outlook: 2010–20
Labor force projections to 2020: a more slowly growing workforce
Labor force participation:
A behavioral model for projecting the labor force participation rate
Employment outlook: 2008–18
Labor force projections to 2018: older workers staying more active
Employment outlook: 2006–16
Labor force projections to 2016: more workers in their golden years
Long-term labor force
A new look at long-term labor force projections to 2050
Employment outlook: 2004–14
Labor force projections to 2014: Retiring boomers
Employment outlook: 2002–12
Labor force projections to 2012: the graying of the U.S. workforce
Consumer Spending
Consumer spending: an engine for U.S. job growth
Long-term labor force
A century of change: the U.S. labor force, 1950–2050
Employment outlook: 2000–10
Labor force projections to 2010: steady growth and changing composition

In addition the following  are some interesting articles from different researchers on the labor force participation rate.

-Kansas City Fed http://www.kc.frb.org/publicat/econrev/pdf/12q1VanZandweghe.pdf
-Richmond Fed http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/cover_story.pdf
-Journal of Economic Perspectives http://www.class.uh.edu/faculty/cjuhn/Papers/docs/30033665.pdf
-St. Louis Fed http://www.stlouisfed.org/publications/re/articles/?id=2419

Category: Current Affairs, Cycles, Data Analysis, Economy, Employment, Politics

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.

24 Responses to “About That Labor Force Participation Rate . . .”

  1. 4whatitsworth says:

    So how do you explain the the high unemployment low employment rate among the young?

    http://generationopportunity.org/press/youth-unemployment-at-15-5-in-april-2/#axzz31Xvch9jD

    Invictus: That was not the subject of this post, and there are many reasons for high youth unemployment, among them a multi-year increase in the LFPR among those 55 and older:
    http://research.stlouisfed.org/fred2/graph/?g=ztY

    • ottnott says:

      That would be recession part of: “Translation: It’s mostly demographics with a touch of recession”

    • ottnott says:

      Only skimmed through this, but good info and background and figures of long-term trends in employment to pop ratios among the young.
      http://www.fas.org/sgp/crs/misc/R42519.pdf

    • ch says:

      And why the multi year increase in the LFPR among those 55 and older?

      Because they aren’t earning anything on their savings anymore. 7 years ago, $1m in the bank earned $70k risk free…now it earns $25k.

      I’m not left or right wing. There is no “two party system.” There is one party, with the illusion of choice. Technology also is a net job destroyer these days, which complicates things.

    • Futuredome says:

      You mean jobs the Boomers will now have in retirement phase? Sure, there will be less jobs for the young than before as well that they generally had before. It is another phase in demographics.

      Jobs for the “young” are useless indicators.

  2. Frilton Miedman says:

    With baby-boomers retiring at a rate equal to population growth, that alone accounts for much of the reduced participation rate.

    As for the younger workers, it’s bad news, a Chinese engineer with college degree makes 1/15th the salary of an American – China started offering socialized college education in the 80′s while our student debt is crushing young workers who have to incorporate tuition payments into wage requirements here, more and more multinationals are opening up shop over there, leaving us behind with our tuition debt and high healthcare cost problems that Chinese workers don’t have.

    The icing on the cake, we tax Chinese imports at 2.5%, while they tax us @ 25%….and….60% of those Chinese imports are American corporations doing biz in China for the cheap labor.

    Awsome!….

    let’s give three cheers to the corporate lobby on K street & Antonin Scalia’s “Money is speech”, there’s no such thing as bribery, it’s all “free speech”.

  3. boveri says:

    Thanks – Amazing convincing research by Invictus.

  4. Baywatcher says:

    I have no argument with the chart or the trend. But in order to dismiss the overblown negative hype occasioned by the LFPR, we shouldn’t overlook the fact that nearly 60 percent of the total is based on discouraged people who have withdrawn. It seems to me that we need to focus more on those folks and what’s behind that population and less on the efforts of some to overstate the problem.

    • DeDude says:

      I am not sure where you get the idea that 60% of (what?) total are discouraged people who have “withdrawn”. The “discouraged” (whatever that means) people I have seen documented would be the people “not in labor force” who state that they “want a job”. That is a rather low number and currently pretty much back to normal.

    • Futuredome says:

      That is because of the cohort. They “removal” from the labor force due to the large size of it could be because of anything. Injury, wealth, retirement yada yada.

      The labor force was dead flat from 46-64………………..aha.

  5. DeDude says:

    Lets hope this is just the right wing noise machine trying to get some political gains. If any of the actual policy makers think there is this huge shadow inventory of available workers willing to crawl out of the U6 woodworks as soon as U3 gets below X, then we will get to experience some unpleasant bumps in policy as they adjust to the reality that there isn’t.

  6. victor says:

    What is really worrisome is that the fertility rate of the total U.S. population is just below the replacement level of about 1.9 children per woman. So, since economic growth is largely based on a growing population of consumers and supporters of the old, what gives? Let’s forget (just for one minute please) about the political crap and who said what. Are we going the Japan way? But then again, immigration may save the day?

    • willid3 says:

      seems to be more of a how modern a country is. though not all ways. consider Japan and the US have had low birth rates (not really all that new), but did you know that China does too? course you do, since there is a national law mandating 1 child per couple.

  7. Aaron says:

    @TBPInvictus: Thanks for sharing this terrific post! Very informative and nicely written. You are always at the top of your game and I appreciate Barry putting your posts up on his site.

  8. VennData says:

    Invictus is a national treasure.

    As you add workers at this point in the cycle they will all be bringing down average earnings. Even the states where new drilling like North Dakota and Texas are adding lower income marginal workers.

    All the educated people are working. The marginal person is not your cloud computing coder, but a burrito folder.

    The GDP is at a record because people are buying stuff. Don’t get tripped up by the GOP narrative-of-the-week.

  9. SumDumGuy says:

    I recall a Wingnut blaming this on the rapid growth of the number of disabled people? Anyone have the numbers on that factor?

    • jhask says:

      http://www.economist.com/news/finance-and-economics/21586810-rising-disability-claims-may-explain-americas-shrinking-labour-force-missing

      “Between 2007 and 2012 the number of applicants for DI shot up from 11.2 per 1,000 working-age people to 14. Unpublished research by Mary Daly of the San Francisco Fed, Richard Burkhauser of Cornell University and Brian Lucking, a graduate student, estimates that this rise in applications equates to 2.6m people. Depending on how many of those applicants are eventually awarded benefits, this could explain between 31% and 59% of the decline in participation among 16-to-64-year-olds.

      These results suggest that if it were not for people receiving disability insurance, reported unemployment would be far higher. Although DI recipients may initially have climbed because the economy was weak, their numbers will almost certainly not decline when it strengthens again; only 4% of beneficiaries return to work within ten years. The proportion of working-age adults on DI has risen from 1.3% in 1970 to 4.6% in 2013. The impact on participation rates may be cyclical at first and then become structural.”

  10. S Brennan says:

    I didn’t read your article. Once I got the frame that only “right wing Republicans” are concerned with labor participation rates I knew I was dealing with either, an ignorant man, or a Democratic tool.

    In case it’s ignorance, a lot of us stepped away from the Democratic party in 2006 when they allowed [encouraged?] Republicans to roll over them. Pom-Pom-Rah-Rah articles FOR Dems, by attacking Republicans are one more reason to note, the Democratic party of 2014 has nothing in common with the party circa 1932-1978.

  11. rd says:

    Some interesting cutting edge HR technology to reduce age discrimination lawsuits as well as info that states with strong age-discrimination laws may have lower employment of people in their 50s and 60s.

    http://blogs.marketwatch.com/encore/2014/05/12/how-ibm-made-it-harder-to-sue-big-blue/

    http://blogs.marketwatch.com/encore/2014/04/22/age-bias-laws-backfire-on-jobless-boomers/?link=instory

  12. bigsteve says:

    I already knew all of this and I suspect readers of this blog did too. I am a old fashion conservative in the mold of Nixon or Eisenhower. The GOP today is radical Libertarian which has all of the flaws of Communism. For either to work people have to be completely selfless. Not going to happen. The Democratic party does not work for me either so I am a independent voter.

    I am faced with the prospect next year of retiring or labouring on. With my pension and Social Security combined with less taxes and other expenses I would have more money in my pocket retired than working. And this is with out tapping my retirement savings. So at sixty two I will drop out of the labour force. I am very skilled and well paid. Others like me are likely in the same situation. I wonder if this will affect the productivity of our economy?

    We are the only advance nation still with a positive growth rate. This is because the native born birth rate is close to replacement rates and immigration and the greater birthrate of recent immigrates for several generations. This is one of the greatest strengths of our economy. And the ignorant Fox crowd is totally unaware of it. I think that the executives of Fox News know better but it is so profitable to sell flimflam to the ignorant and fearful.

    You have to search out good sources of information to be truly informed. But it has always been that way. Which is why I am sign up for email notification of this blog and visit almost everyday.

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  14. DeltaV says:

    All of these discussions would be easier if we focused on the employment rate (number of employed divided by total population) rather than the unemployment rate, which has been sullied by so many statistically non-useful intermediate variables as to be almost entirely useless at this point.

    With that said, the fact that the employment rate of the 55+ demographic has been steadily increasing for the last 20 years is indicative (and probably conclusive but further information is required to be sure) that boomer retirements are not causing the reduction in labor force participation rate. This is entirely clear if we disregard the chimera-like unemployment rate and labor force participation rate in favor of the employment rate.

    The phenomenon of increasing employment in the age 55+ demographic has been ascribed to two very different phenomena, corresponding to the widely observed bifurcation of society:

    1. At the low end, people cannot live on social security alone, and must take other jobs to survive.
    2. At the high end, high educated / qualified people tend to work into their 70s and even 80s. They are not working for financial survival, they are working because it is meaningful to them (and perhaps necessary to their survival in non-financial ways).

    • DeltaV says:

      Incidentally, in order to make their unemployment and labor force participation rate statistics work out, the BLS has had to manipulate their statistics in ways that can be shown to cause specific demographics to increase or decrease (depending on the occasion) by 1,000,000 within a single month. This is 100% provable, and therefore a disgrace. I expect the government to be able to hire statisticians able to contrive data without this kind of obvious manipulation.

    • Frilton Miedman says:

      The 55 age group steadily increased since 1990 because baby-boomers were reaching that age at a rate of over 10,000 per day, they’re also now steadily reaching 65 at that rate.

      While I can present anecdotal evidence of the occasional older worker I know that refuses to retire, most retirement age workers I know retire as soon as they are able to.