Undesirable trends in the labor force participation rate

LabourForceRBCCM2-e1365451859304

From Cardiff Garcia, here is more.

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If the data are correct, the trend for 20-24 is not good (although the members of the group are different at the beginning and the end). The 55+ needs some analysis because it may reflect BB's replacing a smaller group from WWII generation.

Maybe he addresses this in the post - I haven't read it yet.

20-24 includes college and grad school students. I think it likely means that young people opted for more schooling rather than try their luck in a crappy job market.

The most difficult fact to explain is the discrepancy between the 55+ and the 45-54. Let's take the demographic story. For instance, female labor force participation rate being higher in younger generations, so as time goes by, the 55+ group have more women who have been working all their lives. But then I would expect the 45-54 line to be higher relative to the others.

There is actually a difference between these two age groups. The generation of 45-54 hit the job scene during the recession of 1982. It severely retarded their future job potential and they ended up in lower middle-income jobs whereas the 55+ had already gotten the jobs with future growth. So what I suspect you are seeing is the loss of middle-income jobs disproportionate to the 45-54 age group.

Presumably it means fewer people are able to retire relative to the pre-crash baseline. The 45-54 group just has the same difficulty finding jobs as the rest of the population.

Age discrimination. When you're 55+ and you lose your job the jig is up. There always exists a more qualified candidate when you're old. Thus they bypass unemployment and exit the labor force altogether. Those who lost their savings work longer in an attempt to recoup losses to net wealth that resulted from the recession.

Those who kept their jobs* work longer in an attempt to recoup losses to net wealth that resulted from the recession.

Actually, I think it's pretty easy to explain. Previously, 55+ participation rate was previously much lower than 45-54 because, obviously, many people 55+ are retired. So the increase in participation is from a much lower baseline -- people either delayed retirement or went back to work to make up for retirement account losses and especially, I would guess, from extremely low rates on the low-risk bond and CD investments that many retirees favor. But very few of the 45-54 group were retired, so there the change is from a higher baseline and age discrimination might explain why they've fared worse than the younger 35-44 group.

Well, if you increase the 55+ group population by 20%, all age 55-65, then the 55-65 will reduce the number 55+ who are retired.

Of course, retired workers continue working, often part-time, because they need the money and they can afford to settle for part-time because they have government provided health care. That argues for Medicare for all so that every potential worker can settle for part-time without medical benefits. But if an employer does not need to create an artificial criteria like part-time to selectively provide tax qualified compensation, then any worker can work 40 hours or more without penalizing the employer.

Tricky plot. e.g. Even though 55+ (blue line) is always higher than 20-24 (red line) the participation rate of 20-24 may actually be higher than the 55+ cohort?

i.e. Only the slopes of these lines matter. The relative positions don't mean much.

biggest reason we need SS/entitlement reform.

we should bribe old people to retire?

That was the original rationale for SS.

There is absolutely no reason to plot all these as indices (normalizing to Jan. 2008 = 100). Just plot the labor force participation rate for each group on the same graph, with X-axis of time and Y-axis going from 0 to 1 (or 0 to 100%).

The way it is now, to the eye, the labor force participation rate in 2013 for the 20–24 age group is about one-fifth what it was in 2008. Except that it's actually more like 94% of what it was. But we don't know what it was in absolute terms in 2008 or 2013, because you've indexed it!

Seriously, economists, you make the worst plots. This crap would not fly in physics.

Wait, sorry. This is MR. I meant to say – great plot, shows how Obama is seriously messing up the United States.

Physicist here. I didn't have a problem understanding the plot. Maybe you should stick to blogs that don't make you so angry?

I agree with both Jess and Geoff. Starting y-axes at non-zero numbers is OK with me, but arbitrarily normalizing data for no particular reason -- while understandable -- seems like it obscures more than it reveals.

Why is it that everyone who gets up in arms about y-axes with non-zero origins is OK with time series that don't start with the big bang? I mean the x-axis starts in 2008, not 13.6 billion years ago...is that grounds for complaint?

If the aim is to show diverging trends between the groups, then normalization seems like a good way to do that. Also, normalization helps the y scale of the graph stay small. This is defensible as long as changes of the size shown are significant (it is not inflating noise into an apparent trend by zooming in on the graph).

The only reference to the president was yours.

In any case, are you suggesting the economy is operating independently of the governance in the last five years?

If so, wouldn't that also imply government policies and spending are not effective and should be reduced significantly?

It is not the plot you need to worry about, but the narrative.

Why do people keep projecting? I do think Obama is horrible. But he didn't occur to me one iota when I looked at the graph. While I think he hasn't done a damn thing right WRT employment, I don't think he invented business cycles.

1. Note the y-axis.

2. What are starting percentages for each group?

3. Grad school?

4. Only 'lump of labor' fallacists interpret this as 'crowding out' of young 'uns. Older people are seeing the writing on the wall- keep working. This is healthy. I wonder how other countries compare.

> 3. Grad school?

Not really: "New enrollment in graduate schools fell last year for the second consecutive year, according to a report from the Council of Graduate Schools." http://www.nytimes.com/2012/09/28/business/new-enrollment-drops-again-in-us-graduate-schools.html

It's might be possible to attribute the steep drop among 20-24 year-olds between 2009 and 2010, which is the drop which differentiates them from 25-54 year-olds, to the increased grad enrollment that year. (I haven't checked if the numbers work out.) But the rest of the general decline for everyone under 55 certainly can't be explained this way.

Why on earth would you think that looks healthy? Old people are unable to retire, and no one is hiring young workers.

"Old people are unable to retire." In many developed countries, this does not seem to deter old people from retiring, which is definitely less healthy.

"..and no one is hiring young workers." If you're suggesting causality, see my reference to the 'lump of labor' fallacy, a concept that doesn't get a lot of traction around here apparently.

Also, see my #1 and #2 above, which suggest the picture is more alarming than it is.

Clearly the job market isn't zero-sum, but given the reduction of entry level work and the trend towards managerial positions for those with experience -- http://marginalrevolution.com/marginalrevolution/2013/04/the-thinning-out-of-the-labor-market-middle.html

It does seem that the reduction in wealth amongst the older demo that occurred during the recession (pushing back retirement) leaves them competing for jobs that would have otherwise gone to a younger generation. Obviously the elderly have more job skills that give them a leg-up.

Better charts and better insights:

http://www.calculatedriskblog.com/2013/04/labor-force-participation-rate-update.html

Not sure about better insights...

"A decline in participation for those in the 16 to 24 age groups. This is mostly due to higher enrollment rate in school"

You know, or a bad economy and higher minimum wage rates has led to higher unemployment and less opportunities for the young. Faced with bleak immediate economic prospects, they choose to borrow large sums of money to go to college instead (which is bad if they aren't getting in-demand degrees).

I wonder how many 16 or 17 year olds are actually borrowing money to go to college.

And calculated risk has a number of graphs/charts covering this topic in just one post - it is pretty hard to find a better place for information to be laid out without any seeming narrative being the main focus for what is presented.

But then, Bill McBride is retired, and as far as I know from public information, has never received funding from either thinktanks or from a government position - unlike the two bloggers at Marginal Revolution.

Again proving the superiority of analysis of those who don't rely on the largesse of patrons or taxpayers, or something like that - maybe some commenter who actually believes that can do a better job of writing it up without mockery.

I think this is part of a long term overarching story - over the past few decades, educated women with good social skills have taken a lot of middle class jobs from less educated men. The result is more meritocratic but creates problems for the relatively increased number of less employable men at the bottom of the education / IQ curve. I see the same thing happening for older folks - more educated & successful older people are continuing to work at their relatively pleasant management / desk jobs instead of retiring, crowding out less-skilled, less experienced workers at the bottom. This is partly due to lack of retirement savings but also changes in the nature of "work" vs. "retirement". Again, the result is more meritocratic, but creates lock-in problems, putting the less skilled younger people on a permamently lower trajectory (including increased rates of disability). There are also demographic reasons for this set-up - the largest cohorts are the old Boomers and the young Millenials, with fewer folks in the middle in their prime working years.

I like cats

Me too. And I like charts with more than "here is more" and "self-explanatory" text. Sigh. I am not super excited about the data formatting in the chart (percents of percents bug me), but it seems to show that the overall decline in participation rate is driven by the under 55 year olds. In relative terms, the youngest workers look like a big deal, though I find the middle three groups the most concerning. Now I have no way to add these up to a total participation rate and no clue of the pre-recession trends. One chart cannot examine all angles...would have been nice to know their point.

I will add one other bit of data to consider: http://www.bls.gov/news.release/empsit.t15.htm Some have asserted that the decline in the participation rate led to the decline unemployment rate last month...people just giving up on finding jobs, so no good news. Well the broader measures of under-utilization (U-4+), which include discouraged workers, fell even more than the headline rate. There are puzzles galore in the labor market, but I am not entirely sure which one this chart is supposed to focus my mind on. Nice colors though.

2008, the chart is supposed to focus your mind on 2008, as 2008=100, of 2008's rate of labor participation.

Of course, choosing 2008 is undoubtedly a sheerly incidental thing, and has nothing to do with a narrative being constructed.

Thank goodness America's elites had the brilliant foresight to let in all those illegal immigrants to do the jobs Americans were getting just too disabled to do!

Thank goodness Steve Sailer's one note rings true with a lot of people's nativist sentiments; otherwise he might have to start saying something more original and insightful.

An idea often called names, but rarely refuted...

Right. No one has ever refuted the nativist argument against immigration.

Right, because we all know the law of supply and demand magically doesn't apply to the effects of immigration. Letting in tens of millions of immigrants doesn't increase the supply of labor; increasing the supply of labor doesn't decrease the price of labor; and decreasing the price of labor doesn't make alternatives to working, such as figuring out a way to get on disability, more attractive.

I was about to post a link to an explanation of the Lump of Labor Fallacy, but why bother. We both know that you're opposition to immigration has very little to do with economic arguments.

"I was about to post a link to an explanation of the Lump of Labor Fallacy, but why bother...."

Some of the readers might give up the Lump of Labor fallacy if you'll give up the ad hominem, that's why.

j r - the lump of labor argument is inapt. It's just a way of saying that demand is persistent; it doesn't contravene the supply-demand curve, or declining marginal utility.

The "lump of labor fallacy" in this context itself is premised on the fallacy that labor is fungible.

No. It's premised on the fact that the Unites States isn't one big undifferentiated labor market and that new workers entering a given labor market are also new consumers and entrepreneurs.

j r - if your premises were correct, they could be "new entrepeneurs and consumers" in their own population-dense countries. Instead, they boost their comparative bargaining power by moving to markets where labor is more scarce and land is more abundant. All that actually appears to be happening is equalization of wages in the West to the global mean, with the benefits flowing away from the middle class (moochers!). Mark Zuckerburg wants to use his extra money to lobby for even more workers (and probably stronger IP and lower taxes as well).

Really, the idea that a million immigrants are good so ten million immigrants are great and therefore one billion immigrants would be heaven on earth is just wishful thinking.

I have met any number of young American citizens either A) pining for hip positions with nonprofits, to no avail, or B) sitting at home on couches with a medical marijuana card and Dorito breath. I have yet to see one standing in line outside the strawberry field seeking work.

You're right, immigrants only do extremely difficult fruit-picking work. They never take entry-level tech or construction jobs that American college and high school graduates have traditionally taken.

ps, if the only young Americans you know are pining for glamorous work or sitting on the couch, you should probably get out more.

In North Dakota oil fields, where they are paying a living wage, Americans are in fact doing back breaking labor. It isn't hard labor that American's don't like, it's slavery.

It isn’t hard labor that American’s don’t like, it’s slavery.

I don't believe anybody is talking about slavery, but instead work for hire.

That being said, I have little sympathy for farmers complaining about not having enough workers to pick in their field when they are offering relatively low wages. You don't have a right to "cheap" foreign labor to maximize your gross profit potential.

So, Steve, when are you going to recognize that illegal migration has pretty much stopped, with net migration from Mexico now zero, if not actually negative, for a couple of years now? How about you get real and stop your incessant whining about illegal immigrants. It is just ridiculously passe.

"It is just ridiculously passe."

Right, as you can see because nobody in Congress is talking about changing immigration laws at present.

A lot of the labor force decline is from "disability" recipients. The graph here suggests that people over 55 haven ot increased their rate of dropping otu to get disability SS. Is that true?

So old people are not retiring, thus not giving up spots that should go towards recent graduates with specialized degrees. Is this still a fallout from the 08 Housing crash? with old people wanting to recover the $$$ they lost in pensions etc.?

Sorry, im new to economics

It may not be a bad thing if the people dropping out are second earners in families. The stagnation of median wages began when the labor participation rate increased by more than 5% in the 1970´s and so did many of our social problems. Of the over 35 million households with children only 5 million have a parent that stays home to care for them.
http://visualizingeconomics.com/blog/2013/3/4/wages

The red line shows the sharp decline in work force participation among 20-24 year olds from early 2009 to late 2009. Obviously, this represents the impact of the recession. In 2006-07, it was common for the better sort of young Latino high school youth in California to drop out to work construction. When the housing bubble burst, high school graduation rates and community college enrollments soared.

Who needs stimulus when, of course, the solution to all of this,

In Libertarian terms, is:

Eliminate the minimum wage for

20-24 year olds.

Pass the gruel.

Is that some sort of haiku? I guess unpaid internships/low-paid apprenticeships to build skills are pretty Dickensian, what with all the starving to death that is going on these days.

Seriously, able-bodied 20-24 years old can always join the military:

1. They don't just pay minimum wage 2. They serve you food other than gruel 3. Give you a value-added resume after few years

I don't see many young Americans complaining about job market lining up to enlist though.

"Seriously, able-bodied 20-24 years old can always join the military:"

Not if you are in the bottom 30% in IQ. The military allows virtually no enlistment by those whose SAT scores are below the IQ equivalent of 92.

That's a big reason why in Iraq and Afghanistan, whites were killed in so much larger numbers than their share of the young adult population.

It's high time the US Government constituted a Federal Janatorial Corps.

That's not really the reason, though. Even though there are a lot of minorities in the military, whites have a much greater tendency to volunteer for combat arms specialties and that's why they get killed in disproportionate numbers.

I am not aware there is any IQ/SAT requirement for enlistment. You only need that if you are applying to be an officer or attending some specialties training schools like signals or intelligence. As for whites getting killed more often, I think that has something to do with the exclusiveness of many elite front line combat units (SEAL, Rangers etc.)

There is an IQ requirement, the military just calls it "GT". Between the IQ/GT requirement, the physical requirement, and the number of disqualifying medical conditions, I'm almost certain that <50% of 20-24 year olds are eligible. The number that gets thrown around is 30% eligibility, which seems reasonable. The entire argument's a red herring though, the military employs a fixed number of people and if more people try to join they just raise the standards. Supply and demand, you know.

About the white people thing, it doesn't just apply to the most elite units (although you're right about them). It's true of even regular line combat units, and it's not just matter of numbers. The racial makeup of combat vs support units is qualitatively different. It doesn't seem to cause much of a problem, although I'm sure with the right agitprop it could.

Right, just leave any shred of morality at the door.

Participation for 20-24 year olds between 2011 and 2013 shows wide variation but it is pretty flat. Maybe it is my eyes.

Where are those death panels we were promised?

This is a continuation of a trend that started as early as 1990, not a new trend in the past 5 years:

http://www.bls.gov/emp/ep_table_303.htm

it started decades ago...we will see the results in our lifetime. The warfare/welfare state keeps growing.

Does anyone know if there is a time series of people counted as Civilian Institutional Population over 55? I reckon that this group is largely living in nursing homes (as opposed to in jail, a mental institution or serving in the US armed forces).

I ask because if a greater proportion of the aged (over 55) with no desire to be in the labor force have shifted to living in nursing homes as opposed to living on their own in sufficient magnitude it would cause the labor force participation rate to artificially increase for those 55+ as we reduce the denominator (ceteris paribus) while keeping the numerator constant.

Yup. Labor participation rate has been declining since the start of Obama's first term in 2000.

http://research.stlouisfed.org/fred2/graph/?utm_source=research&utm_medium=website&utm_campaign=data-tools#

Yeah, Obama was responsible for that economic crisis that happened to start a couple months before his inauguration.

He's as powerful as they all those star struck journalists thought!!

Did he favor policies that inflated house prices? Did he support the actions of Fannie and Freddie? The relaxing of risk controls at banks so the poor could own?

Yes, he did, and for this he was partly responsible for the initial crisis.

And for the policies that have smothered the recovery he is almost wholly responsible.

People in which age cohort normally makes the hiring decisions at firms, also who to lay off when it comes time to that? This may be a piece of the puzzle.

The problem of getting younger people into the labor force seems general to developed countries.

"According to new numbers from Reuters (via the Atlantic), the unemployment rates in Greece and Spain for people under the age of 25 are approaching 50%. That’s shocking. For every young adult trying to make it in the job market, there’s another who can’t find a job or a livelihood. Things aren’t much better in other countries with debt problems: Italy, Portugal and Ireland all have youth unemployment rates around 30%."

http://www.care2.com/causes/half-of-spanish-and-greek-young-adults-are-unemployed.html#ixzz2PyQwnPcN

According to new numbers from Reuters (via the Atlantic), the unemployment rates in Greece and Spain for people under the age of 25 are approaching 50%.

That seems like a massive long term problem. This cohort is going to have low job skills, lower wages, they aren't contributing to taxes and the current level of socialism is unsupportable. It may take a long time for Greece to work its way out of this. Assuming, they don't have a coup of some sort.

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