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Thursday, September 13, 2012

'Where Have All the Workers Gone?'

Jessie Romero of the Richmond Fed analyzes why so many people are leaving the labor force, and what they are doing after they exit:

Where Have All the Workers Gone?, by Jessie Romero, Richmond Fed: Since September of last year, the unemployment rate in the United States has declined nearly a full percentage point, from 9 percent to 8.3 percent. On its face, this is an encouraging signal about the health of the labor market. But some of the change is due to a potentially troubling trend: a dramatic decline in the number of Americans who are part of the labor force. Prior to the recession, 66 percent of the population (not counting active duty military or people in a nursing home or in prison) over the age of 16 was in the labor force. Just four years later, this rate — known as the “labor force participation rate,” or LFPR — has fallen to 63.7 percent. While this might not sound like a large decline, it is unprecedented in the postwar era. The dropoff is all the more striking because it does not include unemployed workers who are actively seeking work; such workers are still considered to be part of the labor force. It is only when the unemployed decide to stop looking for jobs, perhaps because they have given up on the possibility of finding one, that they are considered out of the labor force...
The current low labor force participation rate is the result of both long-term structural changes, such as an aging population and decreased demand for low-skill workers, and cyclical factors, namely the lingering effects of the 2007-09 recession. ... But it’s difficult to discern the impact of the business cycle relative to structural change. “The certain answer I can give you is that they’re both playing a role. If you want me to divide it proportionally and say how important is each, that’s where it becomes much, much more difficult,” says Betsey Stevenson... A recent report by Dean Maki, an economist at Barclays Capital, argued that only about one-third of the recent decline in the LFPR is due to the weak labor market, with the rest due to demographic factors. Economist Willem Van Zandweghe at the Kansas City Fed found that the split is closer to 50-50, as did economists at the Chicago Fed. Van Zandweghe used a model in which the overall unemployment rate is the primary cyclical indicator. When he altered the model to include the long-term unemployment rate, which might be a better gauge of labor market weakness, he found that cyclical factors could explain as much as 90 percent of the decline in the LFPR.
Whatever the research eventually shows, the fact remains that millions of people who would like to be working have given up trying to find a job. According to the monthly Current Population Survey (CPS) conducted by the BLS, the share of workers not in the labor force who report that they want a job ... [is] 6.8 million workers. “There’s a large group of people who are counted as out of the labor force who we should be trying to find jobs for, and who would want jobs if they were available,” says Rothstein. ... [much more here, including what the workers are doing after they leave the labor force] ...

    Posted by on Thursday, September 13, 2012 at 03:34 PM in Economics, Unemployment | Permalink  Comments (20)


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