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Whither the Workforce?

by: DocJess

Mon Apr 08, 2013 at 06:10:50 AM EDT

The workforce participation rate has fallen to 63.3%. It hasn't been this low since the late 1970's. Let's look at some numbers. Below is a chart of the labor participation rate from 2003 to the present. (All data from BLS.)









These are the associated numbers, by month, for the same time period. 










Here's the really scary part, which comprises the labor participation rate since 1948, when the BLS started keeping statistics.

The rise over time is understandable. The 60's, 70's and 80's saw a lot of women entering the workforce who would not have worked in prior times. In the 60's and 70's, this was primarily women who wanted to work, especially at vocations that weren't traditionally "pink collar". By the 80's, as wages stagnated and manufacturing moved overseas, there became a need for two incomes to support a family. And then came the drop. 

It's not just the 2007-09 crash, it's something more insidious. The labor participation rate peaked for the first four months of 2000 at 67.3%, and has been falling ever since. There are several explanations for some of the decrease, but not enough to explain all of it.

Part of it is in how ALL employment numbers are calculated. There are all sorts of numbers generated from different sets of statistics and there is "noise" associated with the numbers. Therefore, all sorts of things can be off. For example, if someone is making $30,000 doing ebay and Etsy, while sales taxes are paid, there are no payroll taxes, and that person wouldn't count as a member of the labour force. Alternately if there's a construction worker who can't find regular work, but is doing odd jobs for cash, he's not part of the labour force. Small start-ups, like cookie delivery with the proprietor being the sole employee, are not part of the count. And it's likely that this is part of it. 

Further, there are a large number of people who are on disability, or working towards getting on disability, who are not counted as part of the BLS data. If one is in the process of applying (which can take YEARS) that person cannot take a job, or it affects processing of the claim. 

There are also veterans who in prior times would have collected a military pension after 20+ years in the service and would have undertaken a second career, but now is just living off the pension, and likely income from a spouse. 

It's likely that if the unemployment rate fell to 4%, which is considered full employment, some, although not all, of these folks would go back to work. Just for comparison, here's a BLS chart of unemployment from 1948 to the present.

Yes, I know your question. The reason that that unemployment spikes didn't cause great decreases in the labor participation rate is that those recessions were relatively short lived AND government benefits such as unemployment was more robust AND people used to save more money, and thus had a cushion. Further. families were stronger: there are many more single person household today than ever before. In addition, the home ownership rate was lower: people can move for a job more easily if they don't need to sell a house.

The decrease of people in the labour force greatly affects the overall economy, in the same way as higher unemployment does. That is, we're a consumer-driven economy: fewer people with disposable income decreases that amounts of goods and services bought and consumed, thus lowering the overall GDP/GNP. 

So what are potential solutions? There are a few that relate to creating more jobs, but so long as there are Republicans in control of the House, I wouldn't count on any of them, despite the viability of such programs. One solution, as incongruous as it sounds, is to change the way mortgage interest interacts with taxes. This link is to a long and fascinating article on the mortgage income deduction.  It shows how people making less than $100,000/year derive little benefit, if any, from mortgage interest deductions, while those making above $100,000 take almost 50% of the benefit. (Remember, MANY fewer people make over $100,000 than below that threshold, so the impact is huge.) One of the side points is that having mortgage interest deductions set the way they are affects business investment, leading to decreased wages and fewer people employed. Further, it encourages debt, thus leaving people less able to handle unemployment and more likely to leave the labour force. 

Ideally, the solutions are more government spending directly on jobs programs (think FDR's alphabet soup programs) but as I said, not happening so long as there are Republicans. 

My final thought is if close to 40% of the American population between 16 and 65 is not in the labour force, and that number keeps rising, how does such a large population LIVE? The number of homeless people doesn't reflect that huge an increase, so these people must be living somewhere. 30% of America isn't on SNAP, so these people must be getting food somehow. It's a puzzlement. And a real problem when that number passes the 40% threshold, which isn't that far in the future if one extrapolates the data. 

DocJess :: Whither the Workforce?

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One note (0.00 / 0)
Etsy, start-ups, etc. should NOT remove people from the labor force statistics. The labor force statistics are determined by surveys of people, unlike the surveys of numbers of jobs, which comes from surveying companies. People are supposed to report if they're self-employed, so they should still count.

But they don't necessarily ... (4.00 / 1)
I know a lot of people who do the ebay/etsy thing and will tell you it's not a job...it's a hobby that brings in money. The people I know who do this would tell a BLS caller that they're not employed and not looking for work because they don't view ebay as a "job" -- they think it's not because they don't pay payroll taxes, they don't earn a steady income and they're afraid of having to pay taxes if someone "finds out". I'm not saying that's the norm response, but that's what I was told. When I found out about the drop, I actually made some calls just to ask.

While these folks pay the sales taxes, I don't know any who pay income taxes nor FICA. They should if they earn more than (I think) $400 net, but they don't because the income is so hard to prove, and the IRS isn't equipped to go after ebay people who might make $20k a year because the payoff is so low compared to tax cheats at higher incomes.

As usual, de facto vs de jure.

[ Parent ]
a couple of thoughts I've had recently (4.00 / 1)
What is the optimum level of work force participation?  I think this is a non-trivial question to answer.  First off 40% of the American population between 16 and 65 is not in the labour force isn't accurate.  The commonly quoted number of 63.3 is 16+ so people over 65 are still included in the denominator and may or may not be in the numerator.  Which brings us to the first point, do we want to be in a society where teenagers/college age kids have to work instead of finishing their education and 65+ers can't enjoy their retirements?

But it isn't all about the aging of the country, the 25-55 number peaked around 2000 and declined slightly through the next decade though recovering some of its decline before the great recession hit in 2008.  It currently sits at 81.  It had hit 84 at its peak but was mostly hovering around 83 before the recession started.  There seems to be a fair amount of noise in the data at all times which is why I'm trying not to use the decimal place too much.

81.0% roughly equates to 1984, while 63.3% is roughly late 1978.  So what we are seeing is a combination of an aging population and a decrease in participation by prime working age people.

Now first lets acknowledge that GDP/GNP isn't the be-all and end-all of an economy.  Paying someone to look after your kids or clean your house may increase GDP, but it doesn't really increase the output of the economy unless the person you are paying is significantly more efficient at it.  Which seems unlikely.  They are labour intensive so any time spent transporting that labour is essentially wastage.  Meanwhile if you don't really enjoy you job you are getting essentially double whammied.

So you need to make a certain amount at your job[not necessarily a constant amount across the population] in order to justify not devoting the labor to yourself.  But wages have stagnated over the last decade or so.  As wages stagnate, more people decide it makes economic sense to return to a single income household.  This may seem counterintuitive.  You may think with wages stagnating it forces both people to work to have enough money to live on.  But if you need to spend most of your extra income in order to facilitate your job, what have you really gained?  That's why some industries complain that they don't have enough workers and need to import them, because they are unwilling to pay enough.

How do we fix this if we think it needs fixing?  Increase the minimum wage which will put upwards pressure on all wages and entice people back into the workforce.

Then again this all might be bullshit. :)

I'm confused (0.00 / 0)
I had thought that the labor participation rate comprised those 16 until 65, and I can't find a definition that's different. While BLS is unclear, it implies in its glossary that they mean "working age" because they refer to the "labor force" which doesn't include retired people.

If your definition is correct, I certainly understand what you're talking about. And no matter what, I agree with raising the minimum wage.

But to answer your question about the optimum level of work force participation...I'm going with 67.2.

In September and October of 1998, the participation rate was 67.2, and the misery index was 6.05. (www.miseryindex.us)The stock market was on its way up, unemployment was under 5, and inflation was about 1.5%.  

[ Parent ]
yes it is hard to tell (0.00 / 0)
I will say this though there is a series called:
Civilian Labor Force Participation Rate - Men = 69.5

and there is:
Civilian Labor Force Participation Rate - With No Disability, 16 to 64 years, Men (LNU01376940) = 81.9

Civilian Labor Force Participation Rate - With a Disability, 16 to 64 years, Men (LNU01376955) = 34.9

.819*(x)+.349*(1-x)= .695

.47*x = .346
x= .736

So unless 26.4% of men between 16 and 64 have a disability, which seems high to me, the first series includes people 65+.  They even have a series, though it is only 5 years old, explicitly for 65+ years old which would be odd if they weren't even counting them.  Why would they have certain series explicitly labeled 16-64 if they were all implicitly intended as such.

[ Parent ]
Is this where you got your data? (0.00 / 0)

If so, I understand the disparity.

[ Parent ]
I was looking at (0.00 / 0)
FRED.  To be honest I have a hard time ever finding what I want on the bls.gov site.

[ Parent ]
BLS v FRED (0.00 / 0)

I couldn't seem to pull actual data from FRED - but I think I need an account.

I google what I want, and then pick the BLS link. This is what I was using for the charts in the post:  http://data.bls.gov/pdq/Survey...

I'm wondering if FRED is pulling separated data from BLS or if they're using other sources.  

[ Parent ]
If so... (0.00 / 0)
That data is a projection based on a data set and includes people who actually work. For example, we know that something like 33% or so of the US Senate, most of the Supremes, Joe Biden, and 80 some odd Congressmen are over 65. So they "count".

But the statistic itself for "Labor Force Participation Rate" is for people 16 until they turn 65.  

[ Parent ]
Side Note (0.00 / 0)
On the
There are also veterans who in prior times would have collected a military pension after 20+ years in the service and would have undertaken a second career, but now is just living off the pension, and likely income from a spouse.

There are more Vets now in my boat. Retired, but drawing concurrent VA Disability, so we make enough that we don't have to rejoin the labor force even if we wanted to. Prior to 8-10 years ago we go our retirement offset/reduced by the amount of VA Disability we were getting. Over the past few years it has been phasing that offset out so we will draw both. It's enough for some to live on. That is a good thing for some, because their disabilities, while may not be 100% can impact the ability to find and keep work, and at the same time not qualify them for SSI Disability. The current wars have left more disabled than dead. Plus the rules changed, not too many years back, that allowed some with disabilities to still serve. Back when I retired, a lot were medically discharged. In fact, the doctor doing my exit physical was surprised that I had slipped through the cracks and made it to retirement without being medical boarded and medically discharged prior to retirement. ;o)




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