Tag Archives: labour-force participation rate

O Brothers, Where Art Ye? Young men are leaving the US labour force

Following April’s jobs report, there has been much discussion about America’s declining labour force participation rate. Brad DeLong, for instance, writes:

Given the current state of the employment-to-population ratio, we would predict that the current labor-force participation rate would be 1.5% points below its natural rate. That gives us a predicted labor-force participation rate today of 64.3%-64.7%. Instead, our labor-force participation rate is 63.6%.

That is a gap of 0.7%-1.1% points of the adult population: people who really ought to be in the labor force right now, but who are not.

Evan Soltas breaks down the numbers of the decline according to various factors, including gender. And as many people, for instance Mark J. Perry, have noted, the decline in the labour force participation rate is partly due to the fact that men are leaving the labour market.

Mike Konczal quotes Ben Bernanke saying that we are “no longer getting increased participation from women /…/ society ages and also, for other reasons, male participation has been declining over time.”

Catherine Rampell reaches the same conclusion:

The main reason the labor force has been declining in the last couple of decades, then, is that men have been dropping out in droves.

Rampell has posted two interesting graphs, where the first shows the labour force participation rate among adults aged 25-54, and the second shows the long-term trend of men aged 25-54 leaving the labour market.

The following figures take off where her second graph ends, focusing on the differences for men in various age groups:

This chart shows foremost two things: 1) the labour force participation rate varies widely between the age groups, and 2) the only age group for which we find a large decline is men aged 15-24.

If we draw another graph using 1990 as an index year, the second point becomes clearer:

So for two age groups, the labour force participation rates among men have actually increased over time, for two other groups they have – in relative terms – decreased a little, and for the youngest men it has declined severely compared with 1990. Here it is also interesting to note the clear positive relationship between age and change in labour force participation rate.

But what about the youth? Pete Seeger’s old lyrics do indeed come in handy here: “Where have all the young men gone?”

(Feel free to use all figures in this post as you wish.)

Simon Hedlin

Gone with the Wind: America’s vanishing labour force

At first, the falling unemployment rate in the United States may have seemed to be only positive news when the April numbers were released a few days ago. However, as Mark Gongloff at Huffington Post noted, the decline was partly because the labour force participation rate “dropped to 63.6 percent, the lowest since December 1981”. In fact, even in absolute numbers, the American labour force is currently shrinking. The Economist makes the same correct analysis, and points out that compared with the Congression Budget Office’s (CBO) estimate back in 2008, the actual size of the labour force in 2012 is smaller by five million people :

True, the slide in the unemployment rate – a full percentage point since September – owes mostly to rising employment (as measured by the household survey). But the decline in unemployment has been helped by the failure of the labour force to grow more quickly. /…/ Yet in January, 2008, the Congressional Budget Office reckoned it would be some 5m larger by now, or 159.5m /…/”

In addition to a slow-growing labour force with a falling labour force participation rate, there is another growing problem: a relatively smaller potential workforce.

In last week’s issue of The Economist, there was an interesting article about the United States and China. It metaphorically hypothesized that had China been dipped in the river Styx to be given invulnerability, the country would perhaps had been “held” in its demography:

Alongside the other many problems it faces, China too has its deadly point of unseen weakness: demography. /…/ Between 2010 and 2050 China’s workforce will shrink as a share of the population by 11 percentage points, from 72% to 61%—a huge contraction, even allowing for the fact that the workforce share is exceptionally large now. That means China’s old-age dependency ratio (which compares the number of people over 65 with those aged 15 to 64) will soar. At the moment the ratio is 11—roughly half America’s level of 20. But by 2050, China’s old-age ratio will have risen fourfold to 42, surpassing America’s.

True, China’s demographic prospects from an economic viewpoint do indeed look glum. Considering several important factors such as population growth, median age and old-age dependency rate, America’s position does in comparison look better. But it is important to note the “in comparison”, because as stated, America has its own demographic issues. And aside from the fact that the labour force participation rate is falling, the number of persons in working-age (aged 15-64) in relation to the number of children and seniors is rapidly contracting, as this graph shows.

(Feel free to use this figure for your own purposes, but please do not forget to mention this blog as the source.)

So to sum up this post in three points:

1) America’s labour force is growing at a slower rate
2) America’s labour force participation rate is falling
3) America’s potential labour force (persons in working-age) is shrinking relative the size of the rest of the population

1) implies slower economic growth, 2) means fewer workers are active on the labour market relative to the number of people who are likely to need support, and 3) will likely make the effects of 2) worse.

Hypothetically, with a faster growing labour force and a constant labour force participation rate, 3) alone would still constitute a worrying development. Thus, if these three issues are not taken seriously, America might really be heading for trouble.

Simon Hedlin