Yes, the unemployment rate has fallen. But almost the entire reason it has fallen is the drop in the number of people in the labor force — either working or actively looking…This shift long predates the recent financial crisis, too. The labor force participation rate peaked more than a decade ago… the labor force participation rate has fallen almost as sharply for people aged 25 to 54 as it has for the overall adult population.
Pointer from Mark Thoma.
Leonhardt refers to this white paper, from Express Employment Professionals, which appears to be a search firm. It says,
According to Gallup’s “Payroll to Population” measure, fewer Millennials were working full time in June of 2013 than in June of 2012, 2011, or 2010…
That paper and Leonhardt also refer to a note by San Francisco Fed economists Leila Bengali, Mary Daly, and Rob Valletta. They write,
Although the 2007–09 downturn exhibits a strong positive relationship between state-level changes in employment and participation, the recovery so far does not. This calls into question our interpretation that much of the recent participation decline is cyclical and likely to reverse. However, the current weak correlation between changes in employment and labor force participation could reflect employment’s relatively modest recovery to date. The economy has been expanding for a sustained period. But, as of March 2013, we have recovered only 67% of total jobs lost during the downturn. Thirty-seven months after the employment trough in past recoveries, employment greatly exceeded the pre-recession peak.
Leonhardt argues that the phenomenon of lower labor force participation is important. I agree.
It is hard to invoke conventional macroeconomics to explain it. Sticky nominal wages? If wages are too high, then I would think we should see labor force participation that is high rather than low. That is, lots of people would want to work because wages are too high to clear the labor market.
Casey Mulligan’s idea of a redistribution recession? As I read the recent Cato paper by Tanner and Hughes, since 1995 the disincentive to work has gone down in many states (see table 2 of their paper). For example, in Illinois, they calculate that in 1995 overall welfare benefits were a salary equivalent to $29,000, but today they are only $13,580, after adjusting for inflation. One would think that labor force participation would have increased in such states. Meanwhile, no large state shows an increase of as much as $5000. I think one would have to bring disability into the story to make the case. Indeed, the white paper from EEP says,
Fourteen million Americans, including roughly 8.5 million former workers receive disability. In 2011, that included 4.6 percent of the population between the ages of 18 and 64. These Americans are not included among the “unemployed.” And it’s estimated that less than one percent of them have returned to the workforce in the last two years.
Another story to invoke is that of job polarization. The EEP paper refers to a previous survey.
The survey also found that 53 percent of more than 400 U.S. employers say that recruiting and filling positions is “somewhat difficult” or “very difficult.”
I liked your concluding quote, as that was where I was going to go myself, as I read this piece. It strikes me that a big contributor to the lower participation rate is the increased specialization in the economy and the rigidity that comes with the way employers often deal with it. There was a great WSJ article almost a decade ago about the ridiculous requirements that many employers place on new hires- for example, requiring a college degree for a warehouse manager position- and their irrational unwillingness to train up potential employees in the face of a skills shortage at their particular openings. The blind preference is for new hires that already have years of experience in the same type of position, not just the right education credentials, to the point where positions are commonly left unfilled for years rather than hire someone capable and train them. I have heard of job requirements in fast-moving fields like software where they ask for five years of experience in three year-old technology(!), where some drone obviously copy-pasted the usual five-year requirement in a nonsensical way.
This strikes me as employers being overwhelmed by the complexity that comes with specialization, to the point where they make irrational decisions rather than deal with the complexity intelligently. It also contributes to income inequality, as the few that are able to pass the specialization gauntlet by garnering PhDs or having been around early enough to gain lots of experience in a particular field then face higher demand for their “scarce skills.”
However, this is a great arbitrage opportunity for some entrepreneurs to leverage, whether by replacing college degrees with online training or using online exchanges to find quality work regardless of degree/experience. I see this job search market being completely disrupted in the coming years, through such online measures.
I’m starting a company, and I’ve given a lot of thought to this observation. Companies are insistent on requiring X years of experience for every position they have to fill, and there are probably scores of people who’d be able to do the job competently if they had 6 months of good training.
I’m not sure how rational it is, but I think a new company could probably pick up $20 bills off the ground by finding intelligent, underemployed youngsters to do their work for them very cheaply.
You relate: Fourteen million Americans, including roughly 8.5 million former workers receive disability. In 2011, that included 4.6 percent of the population between the ages of 18 and 64. These Americans are not included among the “unemployed.” And it’s estimated that less than one percent of them have returned to the workforce in the last two years.
I comment that there are many Americans who have been working who are now applying for and receiving disability; most of these really could work. Many receive disability awards on what amounts to bogus or phony or sham claims such as anxiety, bipolar disorder. And the society transfer payments are really quite substantial $700 month disability, $200 food stamps, $300 health care to cover medical, and psychiatric and subscription care, and $400 housing assistance via Section 8 voucher or Public Housing.
The most egregious disability award is for antisocial disorder which is actually psychopathic disorder, where individuals are involved in busybodyness, which Ask.com relates is “the act of interfering or meddling into other people affairs; it is also the act of touching or handling other people’s properties without their permission or consent which may result into conflicts”
In past generations, men and women, although this disorder is twice as prevelant amongst males, there was an abundance of factory and construction work, so these individuals could get some employment; but with an increasing number of jobs becoming more social in nature, the social setting can be just overwhelming for these individuals, so they apply for and receive SSI disability, SNAP and housing benefits totaling $1,600 a month.
Living in the downtown area I encounter these men and women constantly; they come into the senior center for a meal; and I know many personally; they manifest with social flare, that is extravgent speech, like complimentary speech on one’s attire; or dictatorial speech, telling one what to do, like wear a different belt, or even to pray over one’s meal. One thing about the antisocial ones is that they have no real desire to understand anything, and always seek preeminence. For example, one roudy individual told me that he is a Libertarian; I wanted to tell him that no he is a Libertine, but I do not want to become a target for any mean and crazy behavior. It’s impossible to have a relationship with such people as they have such a big ego. And if one does enter a relationship with one, and then one wants to leave; they often times will never leave one alone.
Well, anyway, the tragic story is that society gives the antisocial ones, and the midly emotionally disturbed ones, what amounts to welfare. It would just be best if society gave them SNAP benefits alone and provided a place for them to shower and clean their clothes; and let nonprofit organizations provide a place to sleep in the winter.
With Jesus Christ acting in Dispensation, closing out the era of investment choice, which produced a moral hazard based high technology society, and introducing the age of diktat, Ephesians 1:10, I see increasing poverty coming on line in the suburbs, with headlines such as The Denver Post reporting “Level 3 cuts 700 jobs worldwide, including 150 in Broomfield, Jefferson County, Colorado”. This high tech suburb of Boulder, CO is similar to San Jose, CA, in nature.
I wonder if the recent trend in the labor force participation rate is a trend back towards single earner households. An interesting statistic would be the household labor participation rate. Your incentive to work, especially for low-quality and/or low-wage work, is significantly different if your partner – or parent if you still live with them – is working. I suspect many of the people who have left the labor force have a working partner/parent.
To the extent that’s true, then it may simply be a trend towards greater leisure, at least at the household level. Which at least is not as big a problem as it first seems.