Why are fewer people looking for jobs?

Job seekers meet with a recruiter during the East Bay's HIREvent on October 8, 2013 in Emeryville, California. Justin Sullivan, Getty Images

 


This post originally appeared in National Journal.

 I'm not an economist.

I don't even pretend to be one on television.

But something has been nagging at me through the aftermath of the Great Recession, and it's the labor-force participation rate, which enumerates Americans who have a job and Americans who want a job. The LFPR has fallen from 66 percent t o 62.8 percent since the Great Recession began. That accounts for 12.6 million people leaving the workforce, according to the Federal Reserve Bank of Atlanta.

When the national jobless rate fell from 7 percent to 6.7 percent, much of the decline was due to Americans leaving the workforce. The Wall Street Journal's Market Watch grimly noted the LFPR for December 2013 was 62.8 percent. That matched October's data and heralded the lowest LFPR since 1978. You can see the trend since 1990 here.There are component parts to this story. A quick scan of Labor Department data reveals the following:

  • Part-time work (chart 7) is significantly higher than at any time since 1990—with the exception of a brief rise and fall in 1994. Moreover, the number of Americans working part-time because they cannot find full-time work (chart 8) has jumped almost four million since the dawn of the Great Recession and continues to run well ahead of data collected since 1990.
  • Lastly, the ravages of the Great Recession, like all recessions before it, hit least educated workers (chart 17) the hardest. But the damage has been more widespread and longer this time around.

This sounds and looks like a calamity. For those looking for work, it is that and more—particularly if Washington does not extend and retroactively provide long-term jobless benefits.

But is this a harbinger of a new, gruesome economic normal of laid-off workers who can't find work, young Americans clinging to college and post-graduate work—adrift in a jobless future, piling up debt? Or is it a statistic that looks alarming but is really benign—a statistical brew of trends in aging, schooling, retraining, and life choices that's frothy and mysterious but no more distasteful than Guinness served too cold?

It seems an important question. The LFPR and what it says about our economic future will likely loom large in the mid-term elections and could well be a heavily debated part of President Obama's economic legacy—thus a springboard to the national economic conversation in 2016.

Statistics can lead you in many directions, not all of them revealing. Questions bedevil.

For example, the LFPR for Americans ages 16 to 24 was 66.1 percent in 1992. It fell 2.9 percent from 1992 to 2002, according to the Bureau of Labor Statistics. From 2002 to 2012 it fell 8.4 percent, from 63.3 percent to 54.9 percent. That's a big drop, especially when you consider that the BLS projects the LFPR for this population will fall 5.3 percent from 2012 to 2022. A decline in the overall population of this group explains only part of the story (it fell .4 percent from 1992-2002, 1.4 percent from 2002-2012, and is projected to fall 1 percent from 2012-2022).

What's happened and what is happening to these young workers trying to find their way into entry-level jobs or land that first job out of college?

How about older Americans? What do the statistics tell us about LFPR and choices to retire or remain in the workforce or return to the workforce after testing the retirement waters? Again, it's a bit of a puzzle.

The LFPR for workers 55 to 64 was 56.2 percent in 1992 and rose to 61.9 percent in 2002. It jumped again to 64.5 percent in 2012 and is projected to be 67.5 percent in 2022. This would appear to be the Baby Boom bulge moving statistically through the working years and, therefore, somewhat easy to explain. But data for workers 65 and older continues this trend, which doesn't appear as easily explained. The LFPR for workers over the retirement age of 65 was 11.5 percent in 1992. It rose to 13.2 percent in 2002 and to 18.5 percent in 2012. It's projected to hit 23 percent in 2022.

I posed these questions to the White House and top economists Mark Zandi, chief economist for Moody's Analytics, and Douglas Holtz-Eakin, former director of the Congressional Budget Office.

Here's Holtz-Eakin's take:

"I think this is a big deal. Because of its decline, the employment-to-population ratio (the fraction of the population working) is now lower than before the recession started. There are two pieces of this decline that we understand: retirement of the baby boomers and bad job growth. And there is one countervailing force—the rise in the LFPR of women—that has stopped in recent years. But the remainder is unexplained and deeply troubling."

By his reckoning, the retirement of baby boomers accounts for only one-third of the decline in LFPR.

Here's Zandi's take:

"Of the just-over 3 percentage point decline in labor-force participation since the Great Recession, approximately 2 percentage points is due to the retirement of baby boomers and the other 1 percentage point is due to discouraged workers. Over the past year, most of the decline in participation is due to retiring boomers. Evidence of this is the number of people that aren't in the labor force but say they want a job. There are currently about 1.5 million more of these folks than prior to the recession. This is equal to 1 percentage point of the labor force."

I asked Zandi about discouraged workers or those who want a job but simply can't find one.

"These discouraged workers will begin looking for work again and enter the labor force once unemployment falls another percentage point and wage growth begins to pick up. They won't even begin looking for work until they feel that they can find a job that pays for commuting costs and childcare. A good number of these discouraged workers also probably previously worked in housing-related industries and live in areas of the country where there are fewer other job opportunities. But as housing activity continues to improve, these people will be enticed back into the workforce by jobs that are more suited for their skills."

I referred Zandi to Holtz-Eakin's concerns that the LFPR data simply isn't that clean and that retirement alone cannot account for such a large part of the economic puzzle.

"I agree with Doug that the factors driving the decline in participation aren't fully understood. The academic research on the topic generally shows that retirement is the most significant factor, but what is behind the rest of the decline in participation is a matter of legitimate debate. I proffered a couple of factors that I think are at work, but there are other factors, some of which we understand (e.g., the decline in 16-24 participation is due in large part to young people going back or staying longer in school), and others that we don't completely understand. As such, I don't think labor force participation will be a serious issue a few years from now, but I can't say that with complete conviction."

 

  • Major Garrett

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