Labor participation rate
Bill McBride at Calculated Risk offers this comment on labor force participation rates:
Note: A significant portion of the decline in the unemployment rate from 10.0% in October 2009 to 7.6% in June 2013 was related to a decline in the participation rate from 65.0% in Oct 2009 to 63.5% in June 2013. If the participation rate had held steady, the unemployment rate would be 9.7% (assuming an increase in the participation rate with the same employment level).
Now the participation rate is forecast to mostly move sideways – or maybe even increase a little in the short term – so we probably shouldn’t expect a decline in the participation rate to help push down the unemployment rate over the next year or two. Instead, and decline in the unemployment rate will probably because of an increase in employment.
Longer term the participation rate will probably continue to decline until 2030 or 2040. I expect the rate to fall from the current 63.4% to around 60% in 2030 based on recent trends and demographics.
I wonder how much of that participation rate is due to the demographics of the baby boomers retiring along with the economy?
as doug short noted, labor force participation for those over 65 is up over 60% since 87, and it’s almost doubled for those over 70:
Retiring after 2008 was a dream for babyboomers and it has been prolonged because of the collapse of Wall Street and TBTF impacting their investments. I think Bill might be referring to the inevitable retirement of babyboomers as they age. They will always work . . .
In the linked article . McBride says :
” The participation rate was expected to decline for structural reasons even before the great recession started (baby boomers retiring, younger Americans staying in school longer, etc.). ….”
You hear lots of people making different versions of this claim as a way to dismiss the employment trends we’re seeing as being the inevitable result of demographic and other structural trends that have been ingrained in place for a long time. However , these trends were well-known prior to the recession , but for some reason the impact of their effects has been allowed to strengthen in the current narrative.
Here’s a summary from the FRB-KC from 2006 , citing the common sources of data :
“……The available forecasts of the full employment rates of overall labor force participation in 2005 and 2015 are generally similar (Table 2). For 2005, the BLS estimates the full employment rate of labor force participation to be 66.0 percent. The CBO estimates the full employment rate of participation to be 66.5 percent. For 2015, the CBO projects that, under current tax rates, the full employment participation rate will fall to 65.4 percent. The BLS predicts an overall participation rate of 65.6 percent in 2014.”
The “structural” change of importance since those predictions were made in the mid-2000’s has been the transition from a ‘Great Moderation’ Ponzi economy to one that will increasingly be forced to consume and produce based on present – rather than future – resources. The structure that’s out of whack today is not demographic , it’s political-economic.
participation rate for 25 to 54 year olds:
must be a lot of young folk retiring, and old folk going back to school…