Atypical Business Cycle Recovery
How atypical is the present recovery, in terms of employment rates and NILFs, when compared to prior cycles?
This much:
>
Its readily apparent from this chart that the unprecedented drop in Labor Participation rates is what's responsible for the exceedingly low unemployment rates.
Now you have yet another tool in your econo-hack™ detection kit. Anyone who gets on their hind legs to declare how wonderful the economy is based upon how low unemployment rates are outs themselves as a clueless known-nothing.
> Rant mode off <
>
Source:
Federal Reserve Bank of Cleveland
(Caveat Forecaster)
April 2005
http://www.clevelandfed.org/Research/ET2005/0405/trends.pdf
Friday, July 22, 2005 | 10:15 AM | Permalink
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» How many people should be working in America? from Econbrowser
Quite a few commentators have suggested that the labor force participation rate is a much better indicator of the health of the U.S. labor market than is the unemployment rate. I feel that quite a few commentators have this wrong.
[Read More]Tracked on Jul 24, 2005 4:11:49 PM
» How many people should be working in America? from Econbrowser
Quite a few commentators have suggested that the labor force participation rate is a much better indicator of the health of the U.S. labor market than is the unemployment rate. I feel that quite a few commentators have this wrong.
[Read More]Tracked on Aug 2, 2005 1:26:16 AM
» How many people should be working in America? from Econbrowser
Quite a few commentators have suggested that the labor force participation rate is a much
better indicator of the health of the U.S. labor market than is the unemployment rate. I feel
that quite a few commentators have this wrong. [Read More]
Tracked on Jan 6, 2006 6:01:48 PM
Comments
There are many other commenters that have looked at this from a longer term point of view. Perhaps you should do the same before you go off calling people names when your looking at a mere 4 years of data.
Posted by: cb | Jul 22, 2005 11:28:17 AM
This is not 4 years worth of data -- its a comparison of all the post-recession recoveries from 1948 to present, comapring the Labor Force Participation rate.
It compares a half century worth of data to the present recovery (now clocking in at 4 years).
Check the chart again . . .
Posted by: Barry Ritholtz | Jul 22, 2005 12:10:35 PM
But, how much of the drop in the Labor Participation rate is due to 1. demographic trends (baby-boomers retirees), and 2. people starting their own businesses (just think eBay).
Posted by: John | Jul 22, 2005 12:15:16 PM
1) retirees are not part of the labor participation rate
2) Some people have created full time careers on eBay -- but they are not the typial user (seller)
Besides, merely using a mechanism to sell existing items is not the same as manufacturing, designing, writing code, etc. in terms of its impact on the macro economy. Its hardly a substitute.
Posted by: Barry Ritholtz | Jul 22, 2005 12:28:08 PM
Actually, the impact of the baby boomers is to raise the participation rate this cycle. Baby boomers are just entering the young-old phase of the demographic cycle so the average age of the 55-64 cohort is falling and the participation rate of this cohort is rising because of this. So, the baby-boomers are actually pushing the participation rate up.
The same with people stating their own business. This means they are in the labor force and counted as participating.
Posted by: spencer | Jul 22, 2005 12:35:54 PM
Participation rates wouldn't be affected by retirees or self employment as the former are out of the workforce and the latter are still employed by themselves, though they might consider it a hobby rather than employment. Much of it is kids living with their parents when they can't find their first job, but rates have been declining for adult men for decades and now even for women. Couples may find it really doesn't pay for both to work, so the lesser paid or the unemployed stops working or stops looking. Singles would be much more surprising to find although if they could retire young then this could lower the rate.
Posted by: Lord | Jul 22, 2005 12:38:32 PM
Actually, the impact of the baby boomers is to raise the participation rate this cycle. Baby boomers are just entering the young-old phase of the demographic cycle so the average age of the 55-64 cohort is falling and the participation rate of this cohort is rising because of this. So, the baby-boomers are actually pushing the participation rate up.
The same with people stating their own business. This means they are in the labor force and counted as participating.
Posted by: spencer | Jul 22, 2005 12:43:13 PM
Teenage and females w/ kids participation rates have been falling/steady for a longer period of time than a few years, which suggests secular rather than cyclical reasons.
Posted by: cb | Jul 22, 2005 12:58:13 PM
I think you will find that Labor Force Participation Rate, as defined by BLS, refers to proportion of the population that is employed. The population refers to civilian noninstitutionalized population age 16 and over, regardless of employment status (including retired). Thus, retirees are part of the population counted an not in the labor force for the participation rate.
Here are the definitions of BLS CPS stats:
http://www.bls.gov/opub/hom/pdf/homch1.pdf
And this paper shows the differences between labor force participation rates for the recent recession and the early 90's one, broken down by age:
http://www.bls.gov/opub/ils/pdf/opbils51.pdf
"during the most recent economic downturn, the labor force participation rate amoung younger workers fell quite a bit more than it did during the recessionary period of the early 1990s; workers in that age group were more likely to have reported 'going to school' as a reason for nonparticipation in 2001 than their counterparts had been a decade earlier...In contrast, workers 55 and older increased their participation in the labor force significantly during the most recent period of weak labor market conditions...[elsewhere it suggests this may be due to changing Social Security regulations and a decline in stock market assets]
Also, keep in mind that US labor force participation is still higher than most OECD nations.
Posted by: Mr. Econotarian | Jul 22, 2005 2:08:23 PM
Table 1 in the report listed in the previous comments is interesting. The two biggest differences between '91 and '01 is the large increase in the 'retired' response and the large decrease in the 'couldn't find work' response.
Posted by: cb | Jul 22, 2005 2:31:16 PM
What is the scale of this graph?
Posted by: Confused | Jul 22, 2005 2:38:19 PM
Another way of looking at it is that in '91 1.5% of those not the labor force were there because they couldn't find a job, versus .6% in '01.
Posted by: cb | Jul 22, 2005 2:47:56 PM
One difference between the 'retired' responses and the 'couldnt find work' responses is that a number of people in the 50+ cohort have been forced into early retirement after having gotten nowhere for several years of searching without effect. It has recently been calculated by others that the actual unemployment rate in the US is about 3% higher than officially reported. I suspect that's optimistic.
Part of what is driving the avoidance of older workers is one of the biggest bubbles in this economy: ever-ballooning health costs. It's been expanding faster than the housing bubble, and for many more years.
At a time when employers are complaining about not being able to find experienced, qualified people, the intense downward pressure on total-burden health costs is making older workers pariahs in the workplace.
If you doubt this, do a nose-count as you walk through your own business areas and see how many folks you notice who are over 45. Then do the math.
Posted by: tancred | Jul 22, 2005 10:41:54 PM
Correction: " total-burden health costs" should have been "total-burden labor costs".
Posted by: tancred | Jul 22, 2005 10:54:24 PM
Hey, James Hamilton has a response.
http://www.econbrowser.com/archives/2005/07/how_many_people.html
Just FYI. Don't flame me.
Posted by: scott cunningham | Jul 24, 2005 4:53:53 PM
barry - interesting work, keep it up. we're lucky you are writing! - ed
Posted by: Ed | Jul 25, 2005 3:00:10 PM
