And yet the labor force participation rate is still falling

by on March 9, 2013 at 2:13 am in Current Affairs, Data Source, Economics | Permalink

laborforceparticipation

From Peter Coy, source here.  (And broken down by age here, I never find that disaggregation reassuring however, since the elderly are working more and the young less.)  Here are related comments and charts from Dylan Matthews.  Yet perhaps Felix Salmon has the clincher:

The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks.

Catherine Rampell discusses the rise of part-time work, very important stuff.  Here are relevant remarks by Pethoukis.  Here is more on the long-term unemployed.

By the way, my point is not to deny the “good news” aspects of the report, as summarized by Matthews and discussed elsewhere.  I would instead put it this way: we are recovering OK from the AD crisis, but the structural problems in the labor market are getting worse.  It’s becoming increasingly clear those structural problems were there all along and also that they are a big part of the real story.  On the AD side, mean-reversion really is taking hold, as it should and as is predicted by most of the best neo-Keynesian models.

dirk March 9, 2013 at 2:26 am

Hey Tyler, when are you going to post on the first of your “Most Asked Questions”? I mean this one here:

“The first is what kinds of jobs will be available for low-skilled Americans in the decades to come. I’ll be writing more on that.”

joan March 9, 2013 at 11:26 am

There is information about occupations/jobs and the education needed for them as well as which ones are growing in a new book which you can view on line at https://visualizingeconomics.squarespace.com/viewincomeguide see section starting on page 123

joan March 9, 2013 at 12:05 pm

It is free. You have to scroll down the page and click on the page image to see it, only the PDF version is for sale

sp6r=underrated March 17, 2013 at 8:53 pm

He has nothing to say about that because he doesn’t care about low skilled workers.

prior@approval.com March 9, 2013 at 2:52 am

‘It’s becoming increasingly clear those structural problems were there all along’

Well, at least since we started dismantling union membership in such industries as meatpacking or retail back in the 80s.

mulp March 9, 2013 at 7:47 pm

Not to mention cutting taxes cutting taxes cutting taxes….cutting taxes leading to record low Federal tax burdens for the past half century…

And cutting government workers during the recovery, the first time in the past 50 years.

Clearly the low rate of employment is a positive effect of conservative policies being put into effect.

By cutting taxes and the size of government, individuals now have more money to afford to not work, and there are fewer government dictates enforced by the smaller government so you can do whatever you like, like live in vacant houses, eat out of dumpsters, defraud people using the Internet.

mw March 9, 2013 at 4:12 am

What evidence can you bring to bear that the now-long-term unemployed were really just part of the “structural unemployment” problem *before* they became long-term-unemployed?

sp6r=underrated March 17, 2013 at 8:50 pm

Exactly.

The United States ignored long-term unemployment and as a result those people who had the misfortune of falling into long-term unemployed, and it was a misfortune because most of the long-term unemployed are no different than most of their similar skill-set peers who are employed, and now they are unemployable due to skill-set erosion and signaling issues. Oops.

Al March 9, 2013 at 4:42 am

Slightly more positively, employment-population for 25 to 54 year olds has been improving sloooooowwwwly since 2010.

Ray Lopez March 9, 2013 at 5:55 am

An apology for the New Normal: (1) some workers, call them slackers, are unproductive and only should be hired at the peak of the business cycle–we are not there yet; (2) some workers, such as myself, are already rich and prefer to run their own business, earning less working part time rather than full-time for a big company. The New Normal is not so bad, for category (2), if you have investment income from rent seeking (in my case from DC real estate).

john presonna March 9, 2013 at 10:53 am

I’m kind of a (2). I have enough to live simply and not worry. In a rip-roaring economy I might be pulled in, but not now. I often wonder if I’m totally unique or part of a demographic. Perhaps I started my retirement a couple years earlier, and with more intention, than the 50-something cohort left as long term unemployed … but if they are out there now, they are pulling in their horns and will offer less consumption and demand going forward.

Steve Sailer March 9, 2013 at 5:57 am

“The first is what kinds of jobs will be available for low-skilled Americans in the decades to come. I’ll be writing more on that.”

All I can say is thank goodness we’ve added all those unskilled illegal immigrants and their children and grandchildren to the population. When you find yourself in a hole, the first thing to do is keep digging. Otherwise people might think maybe you made a bad decision in the past.

Corey March 9, 2013 at 10:24 am

As someone who works a $9.00 per hour job (valet driver) I can tell you that I am grateful. I enjoy the lower prices their participation to the workforce brings and also take comfort knowing that they provide additional tax revenue to fund my social security when I get older.

The Anti-Gnostic March 9, 2013 at 11:32 am

Of course, because that’s why immigrants come to the US: to pay taxes for stupid old white people.

msgkings March 9, 2013 at 12:53 pm

It may not be why they come, but it’s what happens when they do.

maguro March 9, 2013 at 1:07 pm

Really? My impression is that immigrants, and especially their children, are net consumers of social welfare services. Hard to believe that such a downscale demographic group contributes a lot of tax revenue, given the progressivity of our tax system.

msgkings March 9, 2013 at 3:19 pm

If they find work, the Social Security tax gets taken out of the paycheck whether they like it or not.

The Anti-Gnostic March 9, 2013 at 8:55 pm

Or they work under the table, or they are net tax consumers ultimately dipping from the same trough. The idea that retired Americans are going to get their nursing home bills paid by young, working immigrants strikes me as politically and financially untenable.

Urso March 9, 2013 at 7:19 am

Is the age-adjusted chart really as bad as it looks or is it just a result of baby boomers moving from the 25-54 group to the 55+ group?

I mean, it’s still bad, but the underlying demographics make it look worse than it might actually be.

anon March 9, 2013 at 8:21 am

“It’s becoming increasingly clear those structural problems were there all along and also that they are a big part of the real story.” Not one of the linked articles (with a working link) unequivocally supports that assertion … that is your prior and preferred reading of the data. The described catch-22 of the long-time unemployed relies more on their low quality *signal* in the over supply of labor (and low overall demand) world … not their lack of initial skills or the degradation of their skills in the recession. Yes, there are some important long-term trends at play, but can you honestly say they are a bigger deal than the massive cyclical shocks and do you really want to pin this all on the rise of the ZMP workers? Still seems to me like the dysfunction in the labor market is a symptom not the cause of our economic problems, but if we wait long enough you may well be right.

Dave Anthony March 9, 2013 at 8:24 am

One of the new “structural problems” with the labor market is a predictable and direct result of the ridiculous PPACA law. Low skilled workers are going to have a harder and harder time finding full time work because the required benefits coverage is so outrageously expensive. So they are going to have to get multiple part time jobs just to get buy. Now if we can raise the minimum wage, we can make sure they’ll never find work again.

givco March 9, 2013 at 12:00 pm

Higher Negative taxes play a role, as does the expansion of disability rolls.

JonF March 10, 2013 at 1:56 pm

No it’s not the ACA. This trend has been in place since way back in the 00s.
Besides which most jobs already provide health insurance so they ACA is not an issue for them. And the cost of not providing health insurance is fairly trivial to a business.

Becky Hargrove March 9, 2013 at 8:55 am

While there may not be adequate means to “prove something” about long term unemployed that impacts anything; just the same, communities and families alike need better structural realities to move forward with growing numbers of people economically disconnected and thus presently unable to contribute to either their destinies or the destinies of others.

infopractical March 9, 2013 at 9:08 am

“On the AD side, mean-reversion really is taking hold, as it should and as is predicted by most of the best neo-Keynesian models.”

Can somebody help me interpret this? I can usually follow Tyler, but I’m not sure if he’s (a) displaying a rainman-like ability to eyeball a chart, (b) referring to something I didn’t see in one of the links, (c) being ironic, or (d) saying something I just don’t understand (he means “average duration” by AD?).

So, there are all kinds of historical correlations that have been studied regarding unemployment data, but what is the intuitive link to Keynes displayed here?

Thanks.

anon March 9, 2013 at 9:23 am

I suspect that sentence is a nod to the broader news of the employment report and other economic data of late … unemployment rate edging down and solid (by recent standards) job gains. The ‘mean-reversion’ quip is pretty much the ‘the economy always recovers after a recession’ view so those internal economic forces will get us back on track this time too. I never thought of it as a Keynesian model feature, but I suppose it makes sense since the adverse shocks there tend to temporary, not structural. (Mean reversion is not as pretty if the mean is/has been tanking.) There are many un-squared circles in the labor market/GDP/income patterns of late so no surprise that this post is impenetrable…with some clever sparks though.

Orrin JUdd March 9, 2013 at 9:09 am

On the other hand, if you simply extend the employment participation graph back a few decades you could come to the conclusion that the structural problem with employment is being repaired. Arguably, the high participation rates we had for thirty years were just a function of adding women and minorities to the workforce for political reasons, rather than economic ones. Since the white men hiring them weren’t about to give up their own jobs to do so, we merely ended up with massive numbers of makework jobs.

A generation later, and thanks to that integration, white men no longer enjoy that exclusive power so their own jobs are open to everyone and boondoggles are being shed. Thus employment participation is returning to the historical norm.

The bigger question becomes, given that computers, robots, and free trade all should have been driving employment participation lower during the past several decades, is there any reason to believe the number will stabilize at the historical norm? Shouldn’t it be far lower than that?

Liberal Order March 9, 2013 at 9:14 am

Here is further evidence of sectoral problems rather than a shortage of aggregate demand.

http://www.liberalorder.com/2013/03/further-evidence-of-a-sectoral-changing-economy.html

The Anti-Gnostic March 9, 2013 at 9:30 am

we are recovering OK from the AD crisis, but the structural problems in the labor market are getting worse.

Which “AD crisis,” the one where we found out we weren’t as rich as we thought? In some circles, that’s known as “reality.”

One might consider whether policies premised on an AD crisis are why we have a labor market crisis but I suppose that would just be unthinkable.

Mike March 9, 2013 at 9:44 am

Hi Tyler,

I’ve been reading your site since close to the beginning, but don’t think I’ve ever commented. I find your (admittedly, brief) comment on the age related chart a little unsatisfying, because I’m actually not sure it speaks to structural problems, particularly given its very short range (20 – 24 year olds). Of course, it does speak to a structural change. The labor market has changed significantly since the early nineties, when that graph was at its peak, to the 2010s. Most of us must be aware that a lot has changed in the two decade period of that chart, and as far as the minimum band of the working population covered by the Fed chart, those who are in college vs. participating in the labor market has changed dramatically:

“The figures reflect an increase in the share of the population going to college that began in the mid-1990s, after a relatively stagnant period that began in the 1970s. They show significant gains in all demographic groups, but blacks and Latinos not only continue to trail far behind whites, the gap has also widened in the last decade.”

http://www.nytimes.com/2012/02/24/education/census-finds-bachelors-degrees-at-record-level.html

In fact, the percentages are almost perfect: in the early nineties, a little more than 20% of the total population had college degrees; now, that total has crept above 30%. While that change will be scattered throughout the total working age range in the population, the distribution is most significant — as we would expect — for those in their early to late twenties.

The labor force participation rate in that banded group has fallen since the early nineties not because of a change in total labor demand, but because of a demand for more skilled labor.

People in the 20 – 24 year old range are not participating because they’re in school. Nothing else in that chart is even remotely terrifying.

ThomasH March 9, 2013 at 10:15 am

Yes, structural problems were there all along, but the collapse in ngdp growth and slow growth therafter certainly exacerbated them.

Ironman March 9, 2013 at 10:16 am

Some back of the envelope math:

In 2007, when the labor force participation rate averaged 66.0%:

Age 16+ Population: 232,006,061
Age 16+ Not in Labor Force: 78,882,061
Age 16-19 Population: 16,978,208 (7.3% of Age 16+ Population)
Age 16-19 Not in Labor Force: 9,966,208

In 2012, when the labor force participation rate averaged 63.7%:

Age 16+ Population: 243,288,854
Age 16+ Not in Labor Force: 88,313,854
Age 16-19 Population: 16,976,676 (7.0% of Age 16+ Population)
Age 16-19 Not in Labor Force: 11,153,676

The change from 2007 through 2012:

Age 16+ Population: +11,282,793
Age 16+ Not in Labor Force: +9,431,793
Age 16-19 Population: -1,532 (-0.01% of change in Age 16+ population)
Age 16-19 Not in Labor Force: +1,187,468 (12.6% of change in Not in Labor Force)

Here’s the cause of the structural change in the U.S. economy that has so disproportionately affected teens (primarily) and also young adults (Age 20-24). For older Americans, look to the much, much smaller automotive industry that was much larger in 2007, which didn’t provide skills that could be easily translated into other industries.

Spencer March 9, 2013 at 12:41 pm

As measured by the Fed’s industrial production data the auto industry is now larger than it was at the 2007 peak.

msgkings March 9, 2013 at 12:57 pm

Output no doubt. But employment in heavy industry has been and will always be in decline.

CG March 9, 2013 at 2:32 pm

Stop beating around the bush and just say it. Exactly how much unemployment is due to an AD shortage (30%? 70%?), how much is structural, and why? All of these vague assertions from economists (“well its mostly structural” or “its lack of demand”) are absolutely meaningless. I thought this was a profession that used quantitative analysis.

TallDave March 9, 2013 at 10:34 pm

I’ve decided I will no longer care about this until it is age-adjusted.

And even then, I’ll muse about living standards, the opportunity cost of lost leisure, and the rationality of work.

JonF March 10, 2013 at 1:59 pm

Re: the opportunity cost of lost leisure

Huh? Unless one is being paid for one’s leisure there is no obvious cost to having less of it (except at the extreme where less leisure results in one being bale to work less due to exhaustion, etc.)

kebko March 10, 2013 at 5:32 pm

Then how did you come to decide to post that comment?

TallDave March 10, 2013 at 7:45 pm

Not all “costs” are monetary — losing leisure time costs utility. That’s why few people work 70-hour weeks, why most people want vacation time, why labor-saving consumer devices are popular, etc.

Jane March 11, 2013 at 6:46 pm

This site definitely has all of the information I needed concerning this subject and didn’t know who to ask.

Ethan A March 12, 2013 at 11:46 pm

I found it interesting to learn that many of the jobs that are being taken are by people who already have a job. If the number of multiple jobholders rose from 340,000 to 7.26 million in one month the unemployment rate will become understated. This is not because there is a lack of demand for labor, but a lack of supply of labor. In the past six years the average age of retirement has dropped from 66.5 to 63.5 years of age, and the age of workers entering the labor force has increased. The result from these changes in the ages of labor in the market is resulting in a demand for labor that must be filled. This is resulting in more pressure for people who already have jobs to take on other jobs so that the economy can still operate at its highest production possibilities curve. In addition to the problem of the shrinking amount of time people are staying in the labor force is people are also taking longer to re-enter after becoming unemployed. In the last month the number of people who have been unemployed longer than six months also increased from 89000 people to 4.8 million. This is a startling statistic that is suggesting that the American economy cannot be solely judged by the slightly improved unemployment rate. There are many factors that must be considered when determining how much the economy has really healed from the recession.

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