June 9, 201610 yr So I don't think it's out of line to question why we've dropped to 62% participation. I don't see it as logical to assume we've just got a bunch of people that can live without a paycheck in a marginal economy, with wages just holding steady. IMO if anyone (not just Habib) is saying that those 8.5 million people leaving the work force is a sign of improving economy then the burden is on you to demonstrate how. Because it's never happened this way before. Sure, people enter and leave the work force all the time, but a net loss of 8.5 million is way beyond anything we've in the last 50 years. That's as far back as I went. It’s certainly not out of line to question why it’s dropped. All I’ve said is that it can’t be assumed as a given that the drop in participation rate is effectively stealth unemployment, especially when other plausible explanations exist. It’s a huge assumption and we need evidence for it. I’ve done a little research on this today and I don’t think my alternative explanations are as disregardable as you implied. I found a report from Goldman Sachs on the issue, cited by a center-right economist at AEI. I can’t find the text of the full report, but here are their conclusions cited in his post: What about the 3.6pp decline in the labor force participation rate since 2007? While it’s true that the unemployment rate would be much higher if participation had remained stable, we now believe most of the decline since that time should be considered structural. By far the largest contribution to the decline in participation has been an increase in retirees—mostly a natural consequence of the aging of the workforce. Rising disability rates—a trend mostly driven by demographics—and a tendency for young people to remain in school have also played a role. The remaining cyclical component is a relatively modest share of the labor force, and broadly captured by the U6 unemployment rate, in our view. I also found a more in-depth analysis of the question from the Chicago Fed and their conclusions are a little more mixed, citing a combination of structural factors like baby boomer retirement, young people staying in school for longer, a decline in teen employment, an inflated participation rate in the 1990s, as well as disaffected workers who’ve slipped through the traditional unemployment calculation. In the case of baby boomer retirement, they’ve found that it explains more than half of the drop in the labor participation rate experienced over the last several years (pg. 103): The baby boomers entered their prime working years during the 1970s and 1980s; and because of their sheer numbers, they caused an upsurge in aggregate LFP that lasted for decades. However, starting around 2000, a growing number of baby boomers reached their fifties and started to transition out of the labor force. Today, those same workers are now in their sixties and seventies, when LFP is much lower. To help make this point, we feature orange bars in figure 2 representing changes in the share of the working-age population for different age groupings over the years 2010–15. To quantify the importance of population aging, we compare in figure 3 the actual aggregate LFP rate with the LFP rate implied by demographic change— specifically, one that holds age-sex groups’ actual LFP rates fixed at 2007 levels while allowing their population shares to vary according to the actual data and U.S. Census population projections. Since 2007, the actual aggregate LFP rate fell by 3.2 percentage points, while the rate implied by demographic change fell by 1.8 percentage points. The difference means that changing demographics alone explain only about half of the decline in LFP since 2007. The rest of their report is interesting. They conclude there’s more slack in the labor market than the unemployment rate shows, but not nearly as much as implied by the decline of the labor participation rate alone. I'm highlighting this to show it can’t be assumed that the labor participation rate is commensurately connected with the unemployment rate. I also haven’t said that the change in the LFPR is a good sign and I said in my first post that the macro numbers likely don’t tell the full story. I’ve simply argued that the unemployment calculations didn’t suddenly change in 2008 and that its specious to “adjust” them based on conjecture. In that light, I think the U6 measure is a better tool for digging deeper into the unemployment rate than speculating that all of the people responsible for the decline of the participation rate are unemployed (want a job, don’t have a job) and it is at least comparable across time.
June 9, 201610 yr 1 in 5 American Families do not have a single member in the work force. How is that for simplification?
June 9, 201610 yr I agree. There is plenty of abuse and it drives me crazy. I've lived and worked in inner city environments, so I've seen it first hand. And it needs to be addressed. However, how many of those folks you see in the justice center do you see at your polling place come election time?? Those guys aren't voting in numbers enough to swing elections. And yes, when you gather them all together and put them in one place, it does look like a staggering number. But for everyone of those folks there are a bunch more able bodied people that work hard, and still need help just to survive, that you don't see. My guess is most of these people vote before election day. I know in my county there's a voting booth at the court house a couple of weeks before the actual election day.
June 10, 201610 yr Author It’s certainly not out of line to question why it’s dropped. All I’ve said is that it can’t be assumed as a given that the drop in participation rate is effectively stealth unemployment, especially when other plausible explanations exist. It’s a huge assumption and we need evidence for it. I’ve done a little research on this today and I don’t think my alternative explanations are as disregardable as you implied. I found a report from Goldman Sachs on the issue, cited by a center-right economist at AEI. I can’t find the text of the full report, but here are their conclusions cited in his post: I also found a more in-depth analysis of the question from the Chicago Fed and their conclusions are a little more mixed, citing a combination of structural factors like baby boomer retirement, young people staying in school for longer, a decline in teen employment, an inflated participation rate in the 1990s, as well as disaffected workers who’ve slipped through the traditional unemployment calculation. In the case of baby boomer retirement, they’ve found that it explains more than half of the drop in the labor participation rate experienced over the last several years (pg. 103): [ATTACH]56380[/ATTACH] The rest of their report is interesting. They conclude there’s more slack in the labor market than the unemployment rate shows, but not nearly as much as implied by the decline of the labor participation rate alone. I'm highlighting this to show it can’t be assumed that the labor participation rate is commensurately connected with the unemployment rate. I also haven’t said that the change in the LFPR is a good sign and I said in my first post that the macro numbers likely don’t tell the full story. I’ve simply argued that the unemployment calculations didn’t suddenly change in 2008 and that its specious to “adjust” them based on conjecture. In that light, I think the U6 measure is a better tool for digging deeper into the unemployment rate than speculating that all of the people responsible for the decline of the participation rate are unemployed (want a job, don’t have a job) and it is at least comparable across time. Thanks Habib for digging in as well. I don't have time to get through this at the moment but I will and I'll get back to you.
June 21, 201610 yr Author Analyzing the articles previously posted, and pulling all the relevant data takes a lot of time which I don’t currently have in large supply. So apologies for the delay in replying. The article cited in a previous post was this: Does lower labor force participation mean the 5% US unemployment rate is a phony number? - AEI | Economics Blog >> AEIdeas It’s a short column by a writer at the American Enterprise Institute in which he cites two other analyses to draw a conclusion on the ‘real’ unemployment rate, as we’ve been discussing. Here are a couple relevant snips that the writer cited: In this first quote, the analyst for Goldman Sachs cites (1) an increase in retirees, and (2) college students staying in school, as the primary reasons that the labor force participation rate has declined since 2009. This is cited by the AEI writer as support for his reasoning that the U6 unemployment rate is accurate and no “stealth” unemployment exists (or I assume he would say very minimal if not saying it’s zero). The AEI writer goes on to quote the San Francisco Fed analysis: This second citation mentioned the increase in retirees and students ‘going back to school’ as the primary drivers for decrease in Participation (similar to first snip) but balances that by explaining where the primary job loss was…in the 25-54 male group. I really didn’t have time to do all three pieces here so I started with the retiree question. Would a significant increase in retirements drive down the participation rate, all else being equal? On the surface this makes sense, right? There are always new people entering the work force and people retiring. But we’re talking about way more retirements than normal, well exceeding the number of new workers. So, has there been an abnormally high number of retirements and if so, what has that done to the unemployment rate? What I set out to do was to validate the writer’s conclusions by examining the underlying data. An obvious place to start was this: as I mentioned in a previous post, there was a large drop in participation from April 2016 to May 2016. Here are the numbers that I posted before: As I previously explained, the labor participation rate dropped from 62.8% to 62.6%, removing (458k) people from the labor force. You can see that the loss of (458k) from the labor force is a net of losing (484k) from the unemployed group and adding back in 26k of new hires. So obviously this drop in participation did not come from excessive retirements. It came from the ‘Unemployed’ group. If it were retirements, it would have come from the ‘Employed’ group. The people removed from labor force participation were looking for jobs, not retiring from an existing job. But maybe this one month was a fluke. It happens. I looked at the historical participation rates for 2010-2016. The two most significant drops in participation occurred in 2010 and 2013. I started with 2013 and pulled all the monthly employment data. What I found was this: (1) There were 5 months in which the participation rate dropped (2) In those 5 months, there were 1,332,000 people removed from the labor force In those 5 months, the ‘Employed’ group increased by +276,000 people. The ‘Unemployed’ group was reduced by -1,607,000 people. So for the labor participation lost in 2013, it too came from the Unemployed group and not retirees. There was probably some amount of retirements that can’t be deduced from looking at the raw numbers since we don’t have all the details. But big picture, unusually high retirements did not cause the participation drop for 2013. I then pulled the 2010 data and found the following: (1) There were 4 months in which the participation rate dropped (2) In those 4 months, there were 1,488,000 people removed from the labor force In those 4 months, the ‘Employed’ group decreased by -369,000 while the ‘Unemployed’ group decreased by -1,117,000. So 75% of the participation drop came from the unemployed, not retirements. It seems logical to assume all 369k removed from the employed group were retirements, so 25% of the participation rate drop came from retirements. So that underlying data reviewed to this point indicated that yes the retirements play a role in the drop in participation. But not a huge part like the analyses implied. But why isn’t the retirement piece a bigger slice of the pie when it comes to declining participation? A couple reasons... Looking at 2010 data, the U.S. population in the 65+ age group increased from 26,157,658 to 26,991,111, an increase of 833,453 people. Of those, 266,000 were in the labor force giving us a labor participation rate of 32% for that group. That significantly exceeds the 65+ participation level for 2009 which was 22%. The same is true for subsequent years. Each year we add more people to the 65+ age group, and the participation rate for that age group continues to go up. It was going up even as the general participation rate was going down. So that’s part of it. Fewer people 65+ are choosing to retire. I’ll do like the analysts and AEI writer and generally speculate that they don’t have enough money saved and are working to supplement social security. The other obvious conclusion is that a relatively high number of baby boomers were already ‘retired’ before the housing bubble crash in 2008 and aren’t driving any significant change in labor participation rate. There isn’t great data available for the 55-64 age group to try to trend that group moving to 65+. I looked for an hour and couldn’t find anything usable. I will get to the student group and the 25-54 male group when I have time. But the conclusion at this point is that the retirement explanation isn’t supported by the underlying data. It’s not a significant piece of the answer regarding declining participation.
June 21, 201610 yr Author Another bit of useful information I came across digging through the BLS site: This is their report for June 2016 and here's the cover: There are a couple relevant charts at the end of the report. These charts address the group "persons not in the labor force" which is the group we're analyzing. And here's the first chart that shows the 'marginally attached' group that makes up the U6 group that is out of the labor market but wants a job... So you can see the marginally attached group is about 1.7 million people. So BLS is saying this is the 'extra' unemployed people that they're not counting. And yet the slide right next to that one is this... This slide shows 6 million people not in the labor force that want a job. Just to be clear, these people are not counted in the official unemployment rate or the U6. Things that make you go hmmmm.
June 21, 201610 yr ^ - Interesting data. Bothersome that the new normal after each recession is worse than before the recession. I think in recessions where companies are squeezed at the top-line (revenue) they have to cut the bottom line (costs) to make P&L look good. And they do so aggressively. A lot of that going on over last few quarters. The problem may be that when the 'recovery' happens the employment does not return. And in the last 10 years that is very much the case as white collar jobs were shipped to offshore. They never returned. The other factor is lack of growth. We have a growing population. The need for GDP growth is also a need to employ more of a growing population. GDP less than 4% is a killer - and its where we have been for years. The new 'normal' seems 2% or less.
June 21, 201610 yr 1 in 5 American Families do not have a single member in the work force. How is that for simplification? My family would be one of them. My parents' family would be another.
June 21, 201610 yr My family would be one of them. My parents' family would be another. Does anybody in either of these family units want to work? Do you have retirees in these households?
June 21, 201610 yr Does anybody in either of these family units want to work? Do you have retirees in these households? All are retired.
June 21, 201610 yr As I previously explained, the labor participation rate dropped from 62.8% to 62.6%, removing (458k) people from the labor force. You can see that the loss of (458k) from the labor force is a net of losing (484k) from the unemployed group and adding back in 26k of new hires. So obviously this drop in participation did not come from excessive retirements. It came from the ‘Unemployed’ group. If it were retirements, it would have come from the ‘Employed’ group. The people removed from labor force participation were looking for jobs, not retiring from an existing job. We are just going to have to agree to disagree here. I follow what you’re saying, but you’re reading more into the numbers than what’s there. The chart simply doesn’t tell us how many people from both the employed and unemployed camp moved out of the labor force, moved from unemployed to employed, or employed to unemployed. I know you might say I’m being naïve or thickheaded, but I’m simply asking for more concrete evidence than speculation. Another bit of useful information I came across digging through the BLS site: This is their report for June 2016 and here's the cover: [ATTACH]56568[/ATTACH] There are a couple relevant charts at the end of the report. These charts address the group "persons not in the labor force" which is the group we're analyzing. And here's the first chart that shows the 'marginally attached' group that makes up the U6 group that is out of the labor market but wants a job... [ATTACH]56569[/ATTACH] So you can see the marginally attached group is about 1.7 million people. So BLS is saying this is the 'extra' unemployed people that they're not counting. And yet the slide right next to that one is this... [ATTACH]56570[/ATTACH] This slide shows 6 million people not in the labor force that want a job. Just to be clear, these people are not counted in the official unemployment rate or the U6. Things that make you go hmmmm. Chart 18 is evidence we can agree on and it seems to encapsulate the people you are targeting (people not included in the labor participation rate or the unemployment calculations, but want a job). It looks like the number of people not in the labor force who want a job is up by about a million compared to pre-crisis levels. The U6 captures some of this, but not all of it. Specifically, it leaves out people who want a job but did not look for a job in the previous year. So, following the lead of post #1, let’s create a new unemployment metric that includes these people. First, let’s add everyone in chart 18 to the labor force, since unemployment calculations are taken out of this number and we want these people included. In 2016 averages that would be 158,924,000 (labor force) plus 5,854,200 (want a job but are considered outside of the labor force). Now, let’s add the 2016 unemployment average (the U3) - 7,207,000 - to the number of people not counted as part of the labor force but who want a job and do not have a job (including people who did not seek a job in the last year, who sought a job in the last year but did not seek a job in the last four weeks, and the marginally attached) - 5,854,200. We can then consider this the total number of people who want a job and do not have a job. Lastly, we’ll divide our new unemployment total by the new labor population and get a new, all-encompassing unemployment rate. This would put the current unemployment rate at 7.9% using our fancy new unemployment calculation. Since BLS has all of this data going back to 1994 I’ve done this same calculation with yearly averages going back to 1994. We can also add the number of people who are working part-time due to economic reasons to this (which is included in the U6) to get another fancy new calculation: the U7? So, what is wrong with using these as metrics for capturing a fuller unemployment picture? I think it gives us a comparable measure of looking at the unemployed in both the labor force (U3) and outside of the labor force (chart 18) and we don’t have to do any speculation. I think the discussion over slack in the labor market is worthwhile, I just don’t think there’s a conspiracy of sorts to hide the true numbers or pad the stats, which is the vibe I'm getting from this thread.
June 22, 201610 yr Habib I get what picture you are trying to paint but numbers don't capture that picture. You selected a nice grouping. There is no way numbers can show a reason for a drop in the participation rate is a large number of retirees compared to people coming into the workforce. When the average age of retirement has continued to be extended. This is my area of expertise and I see it everyday. The average American can't retire at the same age as their parents. The generation (which I think makes up a large portion of this board) that ranges from 45-65 had their pensions frozen and didn't save into DC plans at the rate the younger generation has started . People are forced to work longer , take part time jobs and we see a large increase in disability claims. Not to mention the increase on Pre-65 retired people health care costs with companies no longer providing coverage and Obamacare increasing the price on the middle class market . The average US citizen can't afford to retire sooner than 65 and in most cases much later. Not to mention FRA for everyone born after 1960 is 67. The claim of the government and reasoning for the numbers is bunk for anyone who lives these numbers everyday.
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