Originally posted June 2, 2012.
One of the stronger arguments made by Reason regarding the nature of the late recovery has been that the unemployment figures are padded downward by decreases in the labor participation rate.
That is to say, a reduced labor pool also reduces unemployment. As an
example of this, imagine you have 15 people, eight of whom are employed,
five of whom are "not participating in the labor force" for whatever
reason, and two of whom are unemployed but looking. This means the
unemployment rate in this group is 20% (2/10). But say one of those
unemployed people becomes discouraged and stops looking for work. They
now are part of the "not participating" group, and now unemployment
becomes 1/9, or 11%. With only a definitional change, unemployment has
been nearly halved, and so we apparently see a similar sort of thing
going on with BLS data.
I wanted to look more closely at the labor participation rate, which in turn is based on the "not in labor force"
numbers (NILF hereafter). The BLS keeps four different subcategories of
NILF data in addition to the overall total, but the BLS data seems to
treat them all as subcategories of "want a job if they could have one",
so I will do the same. (If I'm misreading this, please let me know.)
The upshot of this is that while the "Want A Job Now" pile does
indeed continue to grow, the overall "Not In Labor Force" figures are
growing even faster, and is on a fairly consistent ascent. One likely
cause for this is the retirements of the Baby Boom generation, which
would have been foreseeable. Indeed, Dean Calbreath alerted me to this
possibility in another discussion when in 2002 the BLS projected this very scenario (PDF).
what's the takeaway from all this? It's not clear to me. On the one
hand, if the bulk of the increase in non-participants were from the
"want a job" pile, the answer would be quite obvious: they've become
stymied by the poor labor market. On the other hand, even if we assume
that 100% of the growth in the rest of NILF is a function of retirees,
that's a lot of people to be taking out of the labor market, and
presumably, people who are at or near the peak of their earning
potential. From a productivity standpoint, that means you've lost their
brains in the work force; from a spending standpoint, they're
downshifting their spending to match their newer circumstances. Neither
are particularly good for the economy.
One additional thought, something I should probably research: among the
NILF, how many are really discouraged workers who are counted as
retirees? Given what we know about how little Americans are saving for
retirement, I do wonder whether a lot of baby boomers wouldn't take a
job if they could find one, but because they are officially (and
permanently) retired they don't count as being part of the labor force.