Undercounting very discouraged workers

by on November 14, 2012 at 7:19 am in Economics | Permalink

Here is a guest post from Stephen Bronars.  Excerpt:

I estimate that there are over four million fewer labor force participants than what would have occurred if age-adjusted participation rates maintained their pre-recession trend.  In this recovery, the official BLS count of “marginally attached” workers underestimates, by 40%, the number of people who left the labor force because they stopped looking for work.  Although BLS figures suggest that marginally attached workers are a minority of the 5.6 million adults who left the labor force, a more plausible estimate is that 72% of these non-participants stopped searching for work in the past few years.

If official underutilization measures included jobless workers who gave up searching for work within the past 36 months the labor force underutilization rates reported by the BLS would be higher by about 0.9%.  For example, the underutilization measure that includes unemployed and marginally attached workers would have been 10.2% (rather than 9.3%) last month.

1 ThomasH November 14, 2012 at 7:26 am

So the output gap and the benefits from better NGDP targeting are larger than we supposed?

2 Tyler Cowen November 14, 2012 at 7:39 am

I think you have that backwards. It is not obvious that lowering their real wage through monetary policy will “un-discourage” them.

3 mpowell November 14, 2012 at 2:03 pm

It’s not backwards, though, is it? It’s not as if the new evidence suggests the gap is smaller than previously believed, right?

4 david November 14, 2012 at 8:24 am

Maybe these are, finally, the fabled ZMP workers?

5 prior_approval November 14, 2012 at 8:26 am

Strange – German labor statistics seemingly already capture this group, as any Gewrman worker willing to work full time but working less than 15 hours a week are covered by official German Arbeitsamt statistics – resulting in a rate of under 4% for Baden-Württemberg, behind Bayern’s rate.

Which makes one wonder what is the comparative utilization rate along the Rhine – especially seeing how Bitcom (the German equivalent to the BSA) is desperate to have the state pay for computer education.

OK – admittedly a first world problem. And Germans, especially the Greens running this Bundesland, expect this rate to decline.

6 kebko November 14, 2012 at 2:07 pm

There is a lot of baggage that comes along with this topic because we tend to get captured by a narrative of marginalized laborers scraping by to get their next rent payment, and while this situation exists, I don’t think it describes most of the individuals that these statistics track. There are a lot of baby boomers who are balancing work, savings, and retirement in ways that make their categorization arbitrary. We would all like a better job at twice the pay, so you could say underemployment is at 100%. To arrive at a settled point with any of these statistics at a precision within a few percentage points of some hard and fast truth about each category is impossible.
He mentions that 2% of men from 30 to 54 have left the labor force in the last 5 years. I only see a 25-54 year range at the bls. But, for this range, there is a very long term trend of losing about 1% every 5 years through good times and bad. In addition, a look at the long term trend shows a bump above trend before 2007, so some amount of the shift above the 1% could be a reversion to the long term mean. It’s really easy to take these numbers in either direction depending on your assumptions.
If you have a guy who’s 55 years old, owns his house, and has $200,000 saved up plus social security coming, he’s going to be following a pro-cyclical employment strategy that will be hard to categorize as employed, unemployed, or discouraged. There are millions of these people.

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