Close

This page had been redirected to a new URL, please update any bookmarks.

Font Size: A A A

macroblog

April 10, 2014

Reasons for the Decline in Prime-Age Labor Force Participation

As a follow up to this post on recent trends in labor force participation, we look specifically at the prime-age group of 25- to 54-year-olds. The participation decisions of this age cohort are less affected by the aging population and the longer-term trend toward lower participation of youths because of rising school enrollment rates. In that sense, they give us a cleaner window on responses of participation to changing business cycle conditions.

The labor force participation rate of the prime-age group fell from 83 percent just before the Great Recession to 81 percent in 2013. The participation rate of prime-age males has been trending down since the 1960s. The participation rate of women, which had been rising for most of the post-World War II period, appears to have plateaued in the 1990s and has more recently shared the declining pattern of participation for prime-age men. But the decline in participation for both groups appears to have accelerated between 2007 and 2013 (see chart 1).

140410_1

We look at the various reasons people cite for not participating in the labor force from the monthly Current Population Survey. These reasons give us some insight into the impact of changes in employment conditions since 2007 on labor force participation. The data on those not in the official labor force can be broken into two broad categories: those who say they don't currently want a job and those who say they do want a job but don't satisfy the active search criteria for being in the official labor force. Of the prime-age population not in the labor force, most say they don't currently want a job. At the end of 2007, about 15 percent of 25- to 54-year-olds said they didn't want a job, and slightly fewer than 2 percent said they did want a job. By the end of 2013, the don't-want-a-job share had reached nearly 17 percent, and the want-a-job share had risen to slightly above 2 percent (see chart 2).

140410_2

Prime-Age Nonparticipation: Currently Want a Job
Most of the rise in the share of the prime-age population in the want-a-job category is due to so-called marginally attached individuals—they are available and want a job, have looked for a job in the past year, but haven't looked in the past four weeks—especially those who say they are not currently looking because they have become discouraged about job-finding prospects (see the blue and orange lines of chart 3). In 2013, there were about 1.1 million prime-age marginally attached individuals compared to 0.7 million in 2007, and the prime-age marginally attached accounted for about half of all marginally attached in the population.

140410_3

The marginally attached are aptly named in the sense that they have a reasonably high propensity to reenter the labor force—more than 40 percent are in the labor force in the next month and more than 50 percent are in the labor force 12 months later (see chart 4). This macroblog post discusses what the relative stability in the flow rate from marginally attached to the labor force means for thinking about the amount of slack labor resources in the economy.

140410_4

Prime-Age Nonparticipation: Currently Don't Want a Job
As chart 2 makes evident, the vast majority of the rise in prime-age nonparticipation since 2009 is due to the increase in those saying they do not currently want a job. The largest contributors to the increase are individuals who say they are too ill or disabled to work or who are in school or training (see the orange and blues lines in chart 5).

140410_5

Those who say they don't want a job because they are disabled have a relatively low propensity to subsequently (re)enter the labor force. So if the trend of rising disability persists, it will put further downward pressure on prime-age participation. Those who say they don't currently want a job because they are in school or training have a much greater likelihood of (re)entering the labor force, although this tendency has declined slightly since 2007 (see chart 6).

140410_6

Note that the number of people in the Current Population Survey citing disability as the reason for not currently wanting a job is not the same as either the number of people applying for or receiving social security disability insurance. However, a similar trend has been evident in overall disability insurance applications and enrollments (see here).

Some of the rise in the share of prime-age individuals who say they don't want a job could be linked to erosion of skills resulting from prolonged unemployment or permanent changes in the composition of demand (a different mix of skills and job descriptions). It is likely that the rise in share of prime-age individuals not currently wanting a job because they are in school or in training is partly a response to the perception of inadequate skills. The increase in recent years is evident across all ages until about age 50 but is especially strong among the youngest prime-age individuals (see chart 7).

140410_7

But lack of required skills is not the only plausible explanation for the rise in the share of prime-age individuals who say they don't currently want a job. For instance, the increased incidence of disability is partly due to changes in the age distribution within the prime-age category. The share of the prime-age population between 50 and 54 years old—the tail of the baby boomer cohort—has increased significantly (see chart 8).

140410_8

This increase is important because the incidence of reported disability within the prime-age population increases with age and has become more common in recent years, especially for those older than 45 (see chart 9).

140410_9

Conclusions
The health of the labor market clearly affects the decision of prime-age individuals to enroll in school or training, apply for disability insurance, or stay home and take care of family. Discouragement over job prospects rose during the Great Recession, causing many unemployed people to drop out of the labor force. The rise in the number of prime-age marginally attached workers reflects this trend and can account for some of the decline in participation between 2007 and 2009.

But most of the postrecession rise in prime-age nonparticipation is from the people who say they don't currently want a job. How much does that increase reflect trends established well before the recession, and how much can be attributed to the recession and slow recovery? It's hard to say with much certainty. For example, participation by prime-age men has been on a secular decline for decades, but the pace accelerated after 2007—see here for more discussion.

Undoubtedly, some people will reenter the labor market as it strengthens further, especially those who left to undertake additional training. But for others, the prospect of not finding a satisfactory job will cause them to continue to stay out of the labor market. The increased incidence of disability reported among prime-age individuals suggests permanent detachment from the labor market and will put continued downward pressure on participation if the trend continues. The Bureau of Labor Statistics projects that the prime-age participation rate will stabilize around its 2013 level. Given all the contradictory factors in play, we think this projection should have a pretty wide confidence interval around it.

Note: All data shown are 12-month moving averages to emphasize persistent shifts in trends.

Melinda PittsBy Melinda Pitts, director, Center for Human Capital Studies,

John RobertsonJohn Robertson, a vice president and senior economist in the Atlanta Fed's research department, and

Ellyn TerryEllyn Terry, a senior economic analyst in the Atlanta Fed's research department

April 10, 2014 in Business Cycles, Employment, Labor Markets | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a5119b7704970c

Listed below are links to blogs that reference Reasons for the Decline in Prime-Age Labor Force Participation :

Comments

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

April 08, 2014

A Closer Look at Post-2007 Labor Force Participation Trends

Introduction
The rate of labor force participation (the share of the civilian noninstitutionalized population aged 16 and older in the labor force) has declined significantly since 2007. To what extent were the Great Recession and tepid recovery responsible?

In this post and one that will follow, we offer a series of charts using data from the Current Population Survey to explore some of the possible reasons behind the 2007–13 drop in participation. This first post describes the impact of the changing-age composition of the population and changes in labor force participation within specific age cohorts—see Calculated Risk posts here and here for a related treatment, and also this recent BLS study. The next post will look at the issue of potential cyclical impacts on participation by examining the behavior of the prime-age population.

Putting the decline in context
After rising from the mid-1960s through 1990, the overall labor force participation rate was relatively stable between 1990 and 2007. But participation has declined sharply since 2007. By 2013, participation was at the lowest level since 1978 (see chart 1).

140407_1

For men, the longer-term declining trend of participation accelerated after 2007. For women, after having been relatively stable since the late 1990s, participation began to decline after 2009. The decline for both males and females since 2009 was similar (see chart 2).

140407_2

The impact of retirement
One of the most important features of labor force participation is that it varies considerably over the life cycle: the rate of participation is low among young individuals, peaks during the prime-age years of 25 to 54, and then declines (see chart 3). So a change in the age distribution of the population can result in a significant change in overall labor force participation.

140407_3

The age distribution of the population has been shifting outward for some time. This is a result of the so-called baby boomer generation—that is, people born between 1946 and 1964 (see chart 4). The oldest baby boomers turned 62 in 2008 and became eligible for Social Security retirement benefits.

140407_4

At the same time the age distribution of the population has shifted out, the rate of retirement of older Americans has been declining. Retirement rates have generally been drifting down since the early 2000s (see chart 5). The decline in age-specific retirement rates has resulted in rising age-specific labor force participation rates. For example, from 1999 to 2013, the share of 62-year-old retirees declined from 38 percent to 28 percent. The BLS projects that this trend will continue at a similar pace in coming years (see table 3 of the BLS report).

140407_5

Although the decline in the propensity to retire has put some upward pressure on overall labor force participation, that effect is dominated by the sheer increase in the number of people reaching retirement age. The net result has been a steep rise in the share of the population saying they are not in the labor force because they are retired (see chart 6).

140407_6

Participation by age group
Individuals aged 16–24
The labor force participation rate for young individuals (between 16 and 24 years old) has been generally declining since the late 1990s. After slowing in the mid-2000s, the decline accelerated again during the Great Recession. However, participation has been relatively stable since 2009 (see chart 7). Nonetheless, the BLS projects that the participation rate for 16- to 24-year-olds will decline further, albeit at a slower pace than it declined between 2000 and 2009, and will fall a little below 50 percent by 2022.

140407_7

The change in participation among young people can be attributed almost entirely to enrollment rates in education programs (see here) and lower labor force participation among enrollees (see chart 8). The change in the share of 16- to 24-year-olds who say they don't currently want a job because they are in school closely matches the change in labor force participation for the entire cohort.

140407_8

Individuals aged 25–54 (prime age)
Generally, people aged 25 to 54 are the group most likely to be participating in the labor market (see chart 3). These so-called prime-age individuals are less likely to be making retirement decisions than older individuals, and less likely to be enrolled in schooling or training than younger individuals.

However, the prime-age labor force participation rate declined considerably between 2007 and 2013, and at a much faster pace than had been seen in the years prior to the recession (see chart 9). Reflective of the overall gender-specific participation differences seen in chart 2, the decline in prime-age female participation did not take hold until after 2009, and since 2009 the decline in both prime-age male and female participation has been quite similar. Nevertheless, the BLS projects that prime-age participation will stabilize in coming years and prime-age participation in 2022 will be close to its 2013 level.

140407_9

Implications
The BLS projects that participation by age group will look like this in 2022 relative to 2013 (see chart 10).

140407_10

Participation by youths is projected to continue to fall. The participation of older workers is projected to increase, but it will remain significantly lower than that of the prime-age group. Combined with an age distribution that has also continued to shift outward (see chart 11), the overall participation rate is expected to decline over the next several years from its 2013 level of around 63.3 percent. From the BLS study:

A combination of demographic, structural, and cyclical factors has affected the overall labor force participation rate, as well as the participation rates of specific groups, in the past. BLS projects that, as has been the case for the last 10 years or so, these factors will exert downward pressure on the overall labor force participation rate over the 2012–2022 period and the rate will gradually decline further, to 61.6 percent in 2022.

140407_11

However, an important assumption in the BLS projection is that the post-2007 decline in prime-age participation will not persist. Indeed, the data for the first quarter of 2014 does suggest that some stabilization has occurred.

But separating what is trend from what is cyclical is challenging. The rapid pace of the decline in participation among the prime-age population between 2007 and 2013 is somewhat puzzling. Could this decline reflect a temporary cyclical effect or something more permanent? A follow-up blog will explore this question in more detail using the micro data from the Current Population Survey.

Note: All data shown are 12-month moving averages to emphasize persistent shifts in trends.

 

Melinda PittsBy Melinda Pitts, director, Center for Human Capital Studies,

John RobertsonJohn Robertson, a vice president and senior economist in the Atlanta Fed's research department, and

Ellyn TerryEllyn Terry, a senior economic analyst in the Atlanta Fed's research department

April 8, 2014 in Business Cycles, Employment, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a51199e182970c

Listed below are links to blogs that reference A Closer Look at Post-2007 Labor Force Participation Trends:

Comments

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

March 18, 2014

Human Capital Topics Now Searchable

A little more than a week ago, all eyes were on the February Employment Situation report released by the U.S. Bureau of Labor Statistics. The Establishment Survey surprised on the upside: nonfarm payrolls rose 175,000 in February, and payrolls were revised upward for December and January. The Household Survey indicated that the unemployment rate edged up slightly to 6.7 percent in February from 6.6 percent the prior month, and the labor force participation rate held steady at 63.0 percent.

These are some of the facts on the table as the Federal Open Market Committee meets today and tomorrow and, judging from recent comments from the folks who will be at that meeting, those facts (and more like them) will be very much front of mind.

These days, multiple tools are available to assist both casual and expert observers in navigating the rich and sometimes baffling story of labor markets in the post-Great Recession world. Just last week, you could find a new "Guide for the Perplexed" on labor market slack in The New York Times and an interactive feature on the "Eight Different Faces of the Labor Market" at the New York Fed's Liberty Street Economics blog. And that's not to mention the most recent update of the Atlanta Fed’s own 13-headed Labor Market Spider Chart.

All of these contributions reflect a great deal of effort to understand the story of what's happening in labor markets. As part of that effort, our colleagues across the Federal Reserve System have been taking deeper dives into employment statistics and reaching out into their communities to get a better understanding of labor force dynamics and workforce development issues. This research can be found on the various Reserve Bank and Board websites.

To facilitate access to that work, the Atlanta Fed's Center for Human Capital Studies has worked to bring those resources together in the Federal Reserve Human Capital Compendium (HCC). We are pleased to announce that we have recently enhanced the HCC so you can perform simple or advanced searches that allow you to research whatever facet of that research strikes your fancy (see the figure):

We encourage you to take your own deeper dive into the latest research across the Federal Reserve System by browsing the HCC or searching out those labor topics that have piqued your interest lately.

Photo of Whitney MancusoBy Whitney Mancuso, a senior economic analyst in the Atlanta Fed's research department

March 18, 2014 in Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a51188857d970c

Listed below are links to blogs that reference Human Capital Topics Now Searchable:

Comments

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

March 07, 2014

Thinking About Progress in the Labor Market

Today's employment report for the month of February maybe took a bit of drama out of one key question going into the next meeting of the Federal Open Market Committee (FOMC): What will happen to the FOMC's policy language when the economy hits or passes the 6.5 percent unemployment rate threshold for considering policy-rate liftoff? With the unemployment rate for February checking it at 6.7 percent, a breach of the threshold clearly won't have happened when the Committee meets in a little less than two weeks.

I say "maybe took a bit of drama out" because I'm not sure there was much drama left. All you had to do was listen to the Fed talkers yesterday to know that. This is from the highlights summary of a speech yesterday by Charles Plosser, president of the Philadelphia Fed...

President Plosser believes the Federal Open Market Committee has to revamp its current forward guidance regarding the future federal funds rate path because the 6.5 percent unemployment threshold has become irrelevant.

... and this from a Wall Street Journal interview with William Dudley, president of the New York Fed:

Mr. Dudley, in a Wall Street Journal interview, also said the Fed's 6.5% unemployment rate threshold for considering increases in short-term interest rates is "obsolete" and he would advocate scrapping it at the Fed's next meeting March 18–19.

From our shop, Atlanta Fed president Dennis Lockhart echoed those sentiments in a speech at Georgetown University:

Given that measured unemployment is so close to 6.5 percent, the time is approaching for a refreshed explanation of how unemployment or broader employment conditions are to be factored into a liftoff decision.

That statement doesn't mean we in Atlanta are disregarding the unemployment rate altogether. We have for some time been describing the broader net we have cast in fishing for labor market clues. One important aspect of that broader perspective is captured in the so-called U-6 measure of unemployment, about which President Lockhart's speech gives a quick tutorial:

The data used to construct the unemployment rate come from a survey of households conducted by the Census Bureau for the Bureau of Labor Statistics. To be counted as a participant in the labor force, a respondent must give rather specific qualifying answers to questions in the survey...

Those who are available, have looked for work in the past year, but have not recently looked for work are labeled "marginally attached." They are not in the official labor force, so they are not officially unemployed. You might say they are a "shadow labor force"...

One measure that counts the marginally attached in the pool of the unemployed is U-6.

U-6 also includes working people who identify themselves as working "part time for economic reasons." These are people who want to work full time (defined as 35 hours or more) but are able only to get fewer than 35 hours of work.

The "shadow labor force" comment is based on these observations. First, in President Lockhart's words:

The makeup of the class of marginally attached workers is quite fluid. About 40 percent of the marginally attached in any given month join the official labor force in the subsequent month.

There is no new story there. The frequency with which people move from marginally attached to in the labor force has been stable for quite a while (see the chart):


President Lockhart's second observation regarding the marginally attached is more important:

But only about 10 percent of those who move into the labor force find a job right away. In effect, they went from unofficially unemployed to officially unemployed.

The chart below depicts this observation:


Relative to before the Great Recession, the frequency with which people transitioned from marginally attached to employment has fallen by about 5 percentage points.

That decline is related to this conclusion (again from President Lockhart):

Here's my point: what U-6 captures matters. Measures such as marginally attached and part time for economic reasons became elevated in the recession and have not come down materially. Said differently, broader measures of unemployment like U-6 suggest that a significant level of slack remains in our employment markets.

It is not that we have failed to see progress in the U-6 measure of labor market slack. In fact, since the end of the recession, the U-6 unemployment rate has declined about in tandem with the standard official unemployment rate (designated U-3 by the U.S. Bureau of Labor Statistics; see the chart):


What is the case is that we have failed to undo the outsized run-up in the marginally attached and people working part-time for economic reasons that occurred during the recession (see the chart):


One interpretation of these observations is that the relative increase in U-6 represents structural changes that cannot be fixed by policies aimed at stimulating spending. But we are drawn to the fact, described above, that the marginally attached are flowing into the labor market at the same pace as before the recession, but they are finding jobs at a much slower pace, making us hesitant to fully embrace a structural interpretation.

Or, as our boss said yesterday:

As a policymaker, I am concerned about the unemployed in the official labor force, but I am also concerned about the unemployed in the shadow labor force. To get close to full employment, as I think of it, would involve substantial absorption of this shadow labor force. I do not think we're near that point yet. This is one of the reasons I support continuing with a highly accommodative policy and deferring liftoff for a while longer.

But if you are looking for some good news, here it is: Though the official unemployment rate has been essentially flat for the past three months, the broader U-6 measure that we are monitoring closely has fallen by half a percentage point. More of that, and we will really be getting somewhere.

Photo of Dave AltigBy Dave Altig, research director and executive vice president at the Atlanta Fed


March 7, 2014 in Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a5117ed779970c

Listed below are links to blogs that reference Thinking About Progress in the Labor Market:

Comments

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

February 26, 2014

The Pattern of Job Creation and Destruction by Firm Age and Size

A recent Wall Street Journal blog post caught our attention. In particular, the following claim:

It’s not size that matters—at least when it comes to job creation. The age of the company is a bigger factor.

This observation is something we have also been thinking a lot about over the past few years (see for example, here, here, and here).

The following chart shows the average job-creation rate of expanding firms and the average job-destruction rates of shrinking firms from 1987 to 2011, broken out by various age and size categories:

In the chart, the colors represent age categories, and the sizes of the dot represent size categories. So, for example, the biggest blue dot in the far northeast quadrant shows the average rate of job creation and destruction for firms that are very young and very large. The tiny blue dot in the far east region of the chart represents the average rate of job creation and destruction for firms that are very young and very small. If an age-size dot is above the 45-degree line, then average net job creation of that firm size-age combination is positive—that is, more jobs are created than destroyed at those firms. (Note that the chart excludes firms less than one year old because, by definition in the data, they can have only job creation.)

The chart shows two things. First, the rate of job creation and destruction tends to decline with firm age. Younger firms of all sizes tend to have higher job-creation (and job-destruction) rates than their older counterparts. That is, the blue dots tend to lie above the green dots, and the green dots tend to be above the orange dots.

The second feature is that the rate of job creation at larger firms of all ages tends to exceed the rate of job destruction, whereas small firms tend to destroy more jobs than they create, on net. That is, the larger dots tend to lie above the 45-degree line, but the smaller dots are below the 45-degree line.

As pointed out in the WSJ blog post and by others (see, for example, work by the Kauffman Foundation here and here), once you control for firm size, firm age is the more important factor when measuring the rate of job creation. However, young firms are more dynamic in general, with rapid net growth balanced against a very high failure rate. (See this paper by John Haltiwanger for more on this up-or-out dynamic.) Apart from new firms, it seems that the combination of youth (between one and ten years old) and size (more than 250 employees) has tended to yield the highest rate of net job creation.

John RobertsonBy John Robertson, a vice president and senior economist in the Atlanta Fed’s research department, and

Ellyn TerryEllyn Terry, a senior economic analyst in the Atlanta Fed's research department


February 26, 2014 in Economic conditions, Employment, Labor Markets, Small Business | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a3fcc72334970b

Listed below are links to blogs that reference The Pattern of Job Creation and Destruction by Firm Age and Size:

Comments

So young high growth firms that succeed create the most jobs. WOW!

Large successful old firms are stable and neither create nor destroy large amounts of new jobs. The analytical insight is unbelievable!

and to top if off small, risky start-ups destroy the most jobs as they constantly fail. OMG, Nobel Price of Economics right there!

Americans please send even more of your tax dollars to the Atlanta Federal Reserve given the amazing level of research and analytical insights they are capable of.

Posted by: Alex | February 27, 2014 at 01:46 AM

Are the highlighted features of the chart -- that "rates of job creation and destruction tend to decline with firm age" and that "the larger dots tend to lie above the 45-degree line, but the smaller dots are below the 45-degree line" -- stable over the time period examined, or do they come and go from year to year? And if the latter, can that change be correlated in a useful way with events in the economy as a whole (eg the "dot bomb" of 2001, the financial crisis of 2007-8, or the Great Recession to which that crisis gave rise)?

Posted by: Ed Blachman | February 27, 2014 at 09:29 AM

I keep thinking about the pattern and I wonder what it would look like if it was in motion through time. I wonder if it would follow patterns in nature. I also wonder if the large industries 4 years or less move around much since it is so unusual for a company to hire that many employees in such a short time because of outliers. I also wonder the implications for future employment levels as there are fewer entrepreneurs. Thank you so much for posting this. Great article. I've read other stuff you've done that you linked out to. Great job guys. You've found a lot of the critical data points that really matter. I've been looking to find something like this. I will bookmark this page.

Posted by: buttmunch1 | February 28, 2014 at 12:17 AM

One question: Would the chart look much different if you stopped at 2006? The idea is that large numbers of small firm jobs were likely destroyed by the financial crisis. Further, after the crisis small firms have lacked access to start-up funds, thus diminishing gross new firm creation (and its attendant jobs). One can think of the GFC as a seminal event in small firm birth/death dynamics, much more so than for large firms. While it may look from the data that small firms don't have much impact on net job creation, this may be because of the lack of small firm "births" in the past five years.

Posted by: Diego Espinosa | March 07, 2014 at 12:17 PM

The chart is better art than economics.

The obvious correlation between firm age and firm size means that it is impossible to separate the effects of the two factors (on job creation) by assigning colors and sizes to firms and graphing them against each other. The "cure" for multicollinearity is not changing the color or size of data points -- but recognizing that both change simultaneously.

A successful startup firm in 1987 moved along a path from then to 2011 that took them from tiny blue dots in the direction of giant orange balls. What does that PATH suggest about job creation and destruction? We can be certain that companies traveling the same path in the opposite direction have a far higher rates of job destruction to creation. Shall we paint both of them green, and assign both medium-size dots?

Finally, I was confused by the artist's practice of measuring dependent variables along both principal axes, then graphing observations for independent variables as points in the x-y plane. This is perfectly fine if the sole purpose is to describe the data in a compact way. But if one's purpose is to guide the reader's mind toward cause-effect relationships, this is a poor practice.

Posted by: Thomas Wyrick | March 08, 2014 at 10:05 AM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

February 06, 2014

A Prime-Aged Look at the Employment-to-Population Ratio

Trying to interpret changes in labor utilization measures such as the employment-to-population ratio is complicated by the fact that they do not refer to the same set of people over time. The age composition of the population is changing, and behavior can vary across and within age cohorts.

This issue is illustrated in a recent New York Fed study of the employment-to-population ratio by Samuel Kapon and Joseph Tracy. This ratio nosedived during the recent recession by about 4 percentage points and has barely budged since.

This measure of labor utilization is the clear laggard on any labor market recovery dashboard. But the authors show that it is not so clear that the employment-to-population ratio is really so far from where it should be, once you control for the fact the employment rates tend to be lower for younger and older people and that the age composition within the population has shifted over time. This idea is similar to the one used to estimate the trend labor force participation rate in this Chicago Fed study by Daniel Aaronson, Jonathan Davis, and Luojia Hu. The issue of controlling for dominant demographic trends is one of the reasons we at the Atlanta Fed decided not to feature either the overall employment-to-population ratio or the overall labor force participation rate in our Labor Market Spider Chart.

A simple, and admittedly crude, alternative to computing the demographically adjusted employment-to-population ratio trend is to look at a segment of the population that is on a relatively flat part of the employment (or participation) rate curve. A common standard for this is the so-called prime-aged population (people aged 25 to 54). These individuals are less likely to be making retirement decisions than older individuals and are less likely to be making schooling decisions than younger people. Of course, this approach doesn't control for within-cohort factors like educational differences.

So what do we find? The prime-aged employment-to-population ratio declined almost 5 percentage points between the end of 2007 and 2009 (versus 4 percentage points overall) and since then has recovered about 25 percent of that decline. Using the end of 2007 as reference, the Kapon and Tracy trend estimate has declined about 1.7 percentage points, which implies the overall employment-to-population ratio, by not continuing to decline, has improved by about 40 percent.

Then what does the analysis say about labor utilization in the wake of the recession? Once demographic factors are controlled for, both aforementioned measures indicate that labor-resource utilization has improved relative to trend. In fact, as Kapon and Tracy note, the relative improvement would be even greater if you believed that employment was above trend before the recession.

Photo of John RobertsonBy John Robertson, a vice president and senior economist in the Atlanta Fed's research department


February 6, 2014 in Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a73d716c7c970d

Listed below are links to blogs that reference A Prime-Aged Look at the Employment-to-Population Ratio:

Comments

Prime-age recovered about 25 percent of that decline...so what is the overall recovery (if any) if you include under 25 and over 54?

I'm trying determine why some are saying the decline (since 2000) was because of Boomers retiring (even though the first didn't retire until 2008 at age 62).

Many over-50ish workers who lost jobs since 2007 were never rehired again, but were too young to take a pension or early Social Security retirement. Most likely they are among the millions of so-called "discouraged workers".

So if demographics were being used, it should not be said the decline was because "people were retiring", but instead should be noted that employers consider them to be obsolete widgets, and don't want them any longer.

Posted by: Bud Meyers | February 07, 2014 at 11:21 AM

The labor force increase has barely kept pace with new entrants even when you all try to show it in its best light. The country needs to face up to permanent loss of jobs due to the rapid pace of technology. And the more we dumb down the educational system with hair brained Washington schemes like common core we weaker employment figures will become.

Posted by: august mezzetta | February 07, 2014 at 05:40 PM

I have determined that young "non-starters" into the labor force (high school and college graduates) and discouraged workers (who are mostly prime-age workers) make up most of the recent decline in the labor force.

Birth rates are currently historically low, so those who are already within the population are graduating from high school at a faster pace than births, and more so than those who are retiring (now at record highs) or those going of disability (which recently have actually declined).

Note: Although disability "claims" have greatly risen since the last recession, actual "awards" for year-to-year net increases are tiny compared to retirees and high school graduates.

At this time, we can not compare job growth to population growth, as it's not relative to maintaining the labor force participation rate or the employment-to-population ratio.

My post with links to data here:

http://www.economicpopulist.org/content/record-number-boomers-left-labor-force-5523

Another post as a follow-up: "Prime Age Workers: Bulk of Discouraged Workers"

http://bud-meyers.blogspot.com/2014/02/prime-age-workers-bulk-of-discouraged.html

And this: "22% of all U.S. Households had no Earners" ---- Maybe someone with a higher pay-grade can reconcile those numbers ;)

http://bud-meyers.blogspot.com/2014/01/22-of-all-us-households-had-no-earners.html

And from another post: "8 Million Jobs Short, 6 Million Missing Workers" to show the numbers from the Economic Policy Institute—but they appear to be far too conservative. (I'd say at least 20 million jobs short and 20 million missing workers.)

http://bud-meyers.blogspot.com/2014/02/8-million-jobs-short-6-million-missing.html

* Note: There were a couple of minor discrepancies in the SSA data for year-to-year numbers in gains for disability (from two different links at SSA), and one explanation might be that one is the number of "awards" not yet in payment status. After an award is first granted, there is usually a waiting period before a payment is made. But the discrepancy is only minor.

Posted by: Bud Meyers | February 13, 2014 at 11:26 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

January 17, 2014

What Accounts for the Decrease in the Labor Force Participation Rate?

Despite the addition of only 74,000 jobs to the economy in December, the unemployment rate dropped significantly—from 7 percent to 6.7 percent. The decline came mostly from a decrease in the labor force.

Since the recession began, the labor force participation rate (LFPR) has dropped from 66 percent to 63 percent. Many people have left the labor force because they are discouraged from applying (U.S. Bureau of Labor Statistics data indicate that a little under 1 million people fall into this category). But the primary drivers appear to be an increase in the number of people who are either retired, disabled/ill, or in school.

Certainly, the aging of the population accounts for much of the increase in the retired and disabled/ill categories. Still, there has been a lot of movement over the past few years in the reasons people cite for not participating in the labor force within age groups. Knowing the reasons why people have left (or delayed entering) the labor force can help us understand how much of the decline will likely halt once the economy picks back up and how much is permanent. (For more on this topic, see here, here, and here.)

The chart below shows the distribution of reasons in the fourth quarter of 2013. (Of the people not in the labor force, 1.6 percent indicate they want a job and give a reason for not being in the labor force. They are categorized here as "want a job" only.) Young people are not in the labor force mostly because they are in school. Individuals 25 to 50 years old who are not in the labor force are mostly taking care of their family or house. After age 50, disability or illness becomes the primary reason people do not want to work—until around age 60, when retirement begins to dominate.


How has this distribution changed over the past seven years? For simplicity, I've grouped people by age to show changes over time in the reasons people give for not being in the labor force. However, you can also see an interactive version of the same data without age buckets—and download the data—here.

Of the 12.6 million increase in individuals not in the labor force, about 2.3 million come from people ages 16 to 24, and of that subset, about 1.9 million can be attributed to an increase in school attendance (see the chart below). In particular, young people aged 19 to 24 are more likely to be in school now than before the recession. Among college-age people, those absent from the labor force because they are in school rose from 57 percent to 60 percent. Among people of high school age, the share not in the labor force because they are in school rose from 87 percent to 88 percent.


The number of middle-aged workers not in the labor force rose by 1.8 million (or 11 percent), with four main factors driving the increase.* "Wants a Job" increased 546,000 (34 percent). The "In School" category increased 438,000 (a 38 percent rise). "Disability/Illness" rose 393,000 (an 8 percent rise), and 302,000 more people said they were retired (a 43 percent rise; see the chart below).


Among individuals aged 51 to 60, those not in the labor force increased by 1.6 million (or 16 percent). This increase came almost entirely from the number of people who are disabled or ill, which rose by 1.3 million (a 33 percent increase). Interestingly, the number of retired individuals actually fell by 305,000 between the fourth quarter of 2007 and the fourth quarter of 2010. Since then, the number of retired people within this age group has risen 183,000 but remains 122,000 lower than fourth-quarter 2007 levels. So it seems more people in this age group were delaying retirement instead of leaving early (see the chart below).


About 6.8 million of the 12.6 million increase in those not in the labor force came from the 61-and-over category. An additional 5.3 million (a 17 percent increase) are retired, and 1 million more (a 34 percent increase) are not in the labor force because they are disabled or ill. The other categories were little changed (see the chart below).


In total, the number of people not in the labor force rose by 12.6 million (16 percent) from the fourth quarter of 2007 to the fourth quarter of 2013. About 5.5 million more people (a 16 percent increase) are retired, 2.9 million (a 23 percent increase) are disabled or ill, and 2.5 million (a 19 percent increase) are in school. An additional 161,000 are taking care of their family or house, and an additional 99,000 are not in the labor force for other reasons. The fraction who say they want a job has risen the most (32 percent) but has contributed only 11 percent to the total change. The chart below shows the overall contributions by reason to the changes in labor force participation for all age groups since the onset of the recession.


What further changes can we anticipate? It's hard to say, as many moving parts are at play. Most people currently in school will be approaching the labor market upon graduation. But increased college and graduate school enrollment could augur a permanent shift in the portion of the population who are in school instead of the labor force. We can also expect continued downward pressure on the LFPR from retiring baby boomers as well as boomers who exit the labor force because of disability or illness.

Last, the portion of people who want a job has increased the most since the recession began, and is currently 1.4 million above its prerecession level. People in this category tend to have greater labor force attachment, making them more likely to shift into the labor force. In fact, the number of people in this category has already started to decrease—and is down 709,000 from the fourth quarter 2012.

My Atlanta Fed colleagues Julie Hotchkiss and Fernando Rios-Avila in their 2013 paper "Identifying Factors behind the Decline in the U.S. Labor Force Participation Rate," looked at a range of LFPR projections for 2015–17 based on different labor market assumptions. Depending on the future strength of the U.S. labor market, the projections are highly varying—ranging between a decline of 2.4 percentage points and an increase of 2 percentage points from the 2010–12 average of 64.1 percent. So far, more factors are pulling down the LFPR than pushing it up; the latest reading for December 2013 is already 1.3 percentage points below the 2010–12 average. At that pace, the Hotchkiss et al. lower-bound estimate will be reached before the end of 2014, unless the dynamics change as the economy further improves.

Photo of Ellyn TerryBy Ellyn Terry, an economic policy analysis specialist in the research department of the Atlanta Fed



* I've chosen to break the "middle-age" grouping at age 50 instead of 54 because the probability of retiring has changed in different ways over the past few years for the 25- to 50-year-old group and the 51- to 60-year-old group. See the chart mentioned earlier for more detail.

 

January 17, 2014 in Education, Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef01a3fc5ff728970b

Listed below are links to blogs that reference What Accounts for the Decrease in the Labor Force Participation Rate?:

Comments

Hmmm...a quick scan of this post seems hard to reconcile with the significant falloff in the 25 to 54 employment-to-population ratio from 1999 to 2013.

The E2P % fall seems to indicate more involuntary than voluntary exits within the 25-to-54 age group than this post seems to suggest.

("Taking care of the house" - Really? How was the house taken care of in the 90's?)

Wasn't the E2P collapse in 25 to 54 precisely why the Fed has been hitting the big red ZIRP button for over a decade?

Trying to hike cratered US 25-to-54 employment in the face of Chinese import competition in the US and capital export controls in China?

This certainly seems to have been behind the Fed's long-standing ZIRP...it would be very helpful if the Fed were upfront (finally) about it.

Instead the Fed seems to have been waging some sort of silent currency Cold War that has only been marginally effective on the US labor front and highly disruptive on the real and financial US investment front.

Posted by: cas127 | January 18, 2014 at 02:07 AM

Is the Fed subject to the First Amendment and not permitted to engage in content discrimination of blog posts?

I'll be asking a judge.

Posted by: cas127 | January 21, 2014 at 02:51 AM

Very informative. Thanks. I guess the rise in disability rolls tells us that there is some wiggle room within the answer categories (unless maybe people worked harder owing to less job security and hurt themselves more). And the 1% increase in staying in high-school maybe calibrates how much job opportunity there is for 17-year-olds to leave secondary education for work?

One data question: are any of the shifts in age composition of the US big enough to change some of these numbers? Eg if the number of 22-24-year-olds is changing over time then does that mess with the "staying in school longer" numbers?

Posted by: isomorphismes | January 21, 2014 at 05:05 AM

I found this article very interesting too. Clearly, this is the most critical missing link in the "recovery" so far. The fact that we are back to 1977 levels on the labour force participation rate is just depressing.

One of the most interesting things to come out of the data I think is that the notion of increasing labour supply in old age (inciting people to work longer) to reduce the "burden" of old age, rising dependency ratios etc seems to run into some obvious empirical obstacles. Exit from the labour force for retirement reasons starts to climb already from the age of 50 and onwards!

I have given this some airtime over at our own blog, it deserves it

http://blog.variantperception.com/2014/01/22/a-closer-look-at-the-decline-in-the-us-labour-force-participation-rate/

Claus

Posted by: Claus Vistesen | January 23, 2014 at 05:37 AM

Is there a reason you didn't also comment on the number of people in each age cohort? This is an important fact...what PERCENTAGE of people in each cohort who have retired/gone to school, etc. Can give a good sense of where we are going.

In other words, just because there are more nominal people who are 61+ and retired, doesn't mean there is a greater propensity for people over 61 to retire, it may mean there are a lot more people over the age of 61.

Studying the RATES for each cohort will tease out whether what is being seen is due to economic conditions, or simply due to changes related to people aging.

Posted by: AJ | January 27, 2014 at 08:12 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

December 27, 2013

Is the Labor Force Participation Rate about to Fall Again?

A few posts back my Atlanta Fed colleagues Tim Dunne and Ellie Terry offered up our latest contribution to the ongoing head-scratching over the rather spectacular decline in U.S. labor force participation (LFP) since the onset of the Great Recession in December 2007. “Rather spectacular” in this case means a fall in the participation rate from 66 percent (of the working age population either working or actively seeking work) to the 63 percent level reported for November. In people terms, that 3 percentage point decline represents a reduction of about 1.4 million participants in the U.S. labor market.

Like many other analysts, Dunne and Terry find that the drop in labor force participation appears to come from a combination of demographic factors—mainly the aging of the population—and other causes not specifically identified but generally interpreted to be associated with the weak economy in one way or another.

Two developing stories suggest the LFP may not be leaving the spotlight just yet. The first is this one, from USA Today:

Some 1.3 million Americans are set to lose their unemployment benefits Saturday...

Federal emergency benefits will end when funds run out for a program created during the recession to supplement the benefits that states provide. The cutoff will initially affect 1.3 million people, but 1.9 million more will lose benefits by mid-2014 when their 26 weeks of state paychecks run out, according to the National Employment Law Project.

What will those 1.3 million Americans do when their benefits run dry? According to a recent study by Princeton University’s Henry Farber and the San Francisco Fed’s Robert Valletta—also presented at a conference hosted here at the Atlanta Fed in October—on balance, the affected individuals are likely to leave the labor force:

We examined the impact of the unprecedented extensions of UI [unemployment insurance] benefits in the United States over the past few years on unemployment dynamics and duration and compared their effects with the extension of UI benefits in the milder recession of the early 2000s. We found small but statistically significant reductions in unemployment exits and small increases in unemployment durations arising from both sets of UI extensions. The magnitude of these overall effects is similar across the two episodes...

We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have first-order efficiency effects. The major effect of extended benefits is redistributive, providing income to job losers who would have exited the labor force otherwise (consistent with Card et al. 2007). [link mine]

In other words, if a significant decline in unemployment benefits comes to pass, we may well see another bump downward in the labor force participation rate. Although a decline in LFP associated with the expiration of extended UI benefits would fall in Dunne and Terry’s nondemographic category, the Farber and Valletta results suggest that we should interpret any such decline as structural. And structural in this case means not directly amenable to correction by policies aimed at stimulating spending.

The other important piece of recent news, however, is this one, which you probably heard about:

According to the Bureau of Economic Analysis, real gross domestic product—output produced in the United States—actually grew at a rate of 4.1% in the third quarter, up from BEA’s previous estimate of a 3.6% growth rate. The final results are also a gain over the second quarter’s 2.5% GDP growth.

Furthermore, as noted at Calculated Risk, the good news doesn’t stop there:

A little Christmas cheer...

Via the WSJ:

Macroeconomic Advisers...[raised] its estimate for fourth-quarter growth. It now forecasts gross domestic product to expand at an annualized rate of 2.6% in the final three months of the year, up three-tenths of a percentage point from an earlier estimate.

And Goldman Sachs has increased their Q4 GDP tracking to 2.4% annualized growth.

That all adds up to pretty decent growth in the second half of the year. If it persists, and the long-awaited acceleration in the economic expansion finally arrives, better labor market conditions should follow. And if the six-year fall in LFP has in large measure been driven by weak economic conditions, we should at least see a pause in participation declines as economic activity picks up. Actually, we should probably see an outright increase.

The next several quarters, then, may well provide some clarity as to the persistent question of whether or not the large recent exodus of Americans from the labor force has been the result of a lackluster economy. In this period, we may get some clarity as to whether efforts to stem that exodus were justified by a correct diagnosis of the underlying cause.

Or not.

David Altig By Dave Altig, executive vice president and research director at the Atlanta Fed


December 27, 2013 in Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef019b03c2fc85970c

Listed below are links to blogs that reference Is the Labor Force Participation Rate about to Fall Again?:

Comments

The NY Times profile on this problem called out the example of a 68 year old IT guy who got laid off last summer. They guy is eligible for SS but not yet collecting it. Please, let this guy retire and get out of the way for some younger person.

http://www.nytimes.com/2013/12/28/us/benefits-ending-for-one-million-of-unemployed.html?hp

Surely our resources are better spent on someone other than Mr. Davis.

“I’ve got a résumé that knocks your socks off. The reason for this long period of unemployment is that the work just isn’t there.”

I suppose, but I really doubt it.

Posted by: Neildsmith | December 28, 2013 at 02:33 PM

Sort of curious as to why you don't address the 3.2% fall in 15-64 employment from '00 to '07 and the dramatic increase in the 15-24 / 25-64 employment spreads. At the moment my pet hypothesis, built largely on the Canadian increase in minimum-wage / productivity ratios as the US ratio fell, both starting at roughly 15% in 2000, is that the American labour market is at the point where its minimum wage is definitely below a classical free market equilibrium. If this is the case, oligopsony is depressing wages, employment, and output below their optimum levels.

Posted by: Valerie Keefe | December 29, 2013 at 05:31 PM

shouldn't we expect the same demographic trends--they've been persistent since pre-Great Recession--to influence the smaller subset of would-be workers on the cusp of losing their unemployment benefits? that is, losing the marginal benefit of UI may encourage "retirement" rather than continued participation as unemployed. especially for those with retirement savings (likely bolstered by this year's stock market returns); especially for those whose longer-term unemployment may be attributed to unwillingness to accept "lesser" work or to retrain; especially for the contingent of unemployed who fit the demographic plainly.
anyway, that'd be my expectation, but i'd prefer to hear from a trained and practicing economist.

Posted by: Matt L | December 30, 2013 at 01:27 PM

Dave, nice article. A question about one of your final comments: "In this period, we may get some clarity as to whether efforts to stem that exodus were justified by a correct diagnosis of the underlying cause." By "efforts" do you mean monetary policy and specifically QE? Because our fiscal policy has been contractionary, if anything. And it can be argued that QE and zero interest rates have not been contractionary but have had little stimulative effect on the economy. Thanks for any insight.

Posted by: Scott Bailey | December 30, 2013 at 11:10 PM

I read this article at EconoMonitor and posted this comment:
The author gets the numbers wrong. He says the drop in labor force participation "represents a reduction of 1.4 million". Wrong. First look the LFPR at the bls page on historical civilian noninstitutional population: http://www.bls.gov/web/empsit/cpseea01.htm.
The workforce today is 155.294,000, the civilian non. pop is 246,567,000 -- divide = 63%. In 2007 and 2008 the LFPR was 66.0%, 3% of 246,567,000 is 7,397,010, not the author's 1.4 million participants. With the same LFPR as 2007 the unemployment rate would be 11.3%, not 7.0%. If we had the LFPR of 2000 then the unemployment rate would be 12.7%. It is a big deal, not just psychologically, but that too. Eliminating the EUI benefits has already been tried in North Carolina, see this article at the Economic Policy Institute: http://www.epi.org/blog/north-carolinas-failed-experiment-cutting/
The Center on Budget and Policy Priorities has also covered the issue: http://www.cbpp.org/
If 4.8 million workers lose their EUI benefits the LFPR may drop by that amount. That would drop the official and inaccurate official unemployment rate from 10.9 million unemployed to 6.1 million below 5%. That would be a joke of sorts. As an effect of eliminating EUI the jobless rate goes down? Yes, that's right. No new jobs are created, but the rate declines --- this has been the pattern for the past 4 years. Look at the employment to population rate number in the bls chart-- also go cpeg.org monthly report on unemployment. My blog: http://benL8.blogspot.com
-- Yet the GDP is increasing. Only it benefits fewer, and hardship is not mitigated.

Posted by: Ben Leet | December 31, 2013 at 05:35 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

December 19, 2013

Labor Force Participation Rates Revisited

In an earlier macroblog post, our colleague Julie Hotchkiss examined the decline in labor force participation from the onset of the Great Recession into early 2012, concluding that cyclical factors likely accounted for most of the drop. In this post, we examine how labor force participation has changed since the start of 2012 (and admittedly, we’re much less ambitious in our analysis than Julie). Motivating our analysis, in part, is the observation that much of the recent decline in the labor force participation rate (LFPR) is related to rising retirements (see the November 19 Research Rap by Shigeru Fujita). This is not surprising, as the percentage of individuals aged 65 and older in the population has been increasing sharply over the last half decade. That said, our approach indicates that the LFPR of prime-age workers (ages 25–54) continues to fall, and this is an important source of the overall decline in LFPR in the recent data. Such declines in LFPR in these age categories should be less related to retirement decisions, keeping on the table the possibility that a weak overall labor market remains a key drag on labor force participation.

A straightforward decomposition illustrates that the decline in LFPR among prime-age workers is a major contributor to the overall decline in LFPR. To see this, we separate the change in LFPR into three components: one that measures the change due to shifts in the LFPR within age groups—the within effect; one that measures changes due to population shifts across age groups—the between effect; and one that allows for correlation across the two effects—a covariance term. It works out the covariance term is always very close to zero, so we will omit discussion of that term here. The analysis breaks the data down into five age groups: 16–24, 25–34, 35–44, 45–54, and 55+.

The chart presents the decomposition from Q1 2012 to Q3 2013. Over this period, the overall LFPR declined by half a percentage point, from 63.8 percent to 63.3 percent. The blue areas represent the change due to within-age-group effects, and the green areas represent the change due to between-age-group effects. The sum of the bars is equal to the overall change in labor force participation.

Decomposition of Change in Labor Force Participation (Total Decline from Q1 2012 to Q3 2013 = 0.5)

Three key results emerge. First, increases in labor force participation for the youngest age group boosted overall labor force participation by 0.075 percentage points. Second, the growing population share of the 55+ age group reduced LFPRs over the period by 0.21 percentage points, accounting for roughly 40 percent of the overall decline. Third, labor force participation for prime-age workers continued to fall. The combined within effect for the prime-age individuals (25–34, 35–44, and 45–54) reduced the participation rate by 0.28 percentage points—or a little over half of the overall decline in labor force participation. Additional declines in labor force participation were associated with the reduction in population shares of prime age workers.

From an accounting standpoint, the analysis shows that the fall in the LFPR for prime-age workers is a main contributing factor to the recent decline in labor force participation. Indeed, the LFPR of prime-age workers fell from 81.6 to 81.0 from Q1 2012 to Q3 2013, with similar declines for both men and women. Given that prime-age workers make up more than half of the population, it is not surprising that the drop in the LFPR for these age groups accounts for a substantial fraction of the overall decline.

To put this in perspective, we present the same decomposition from Q1 2010 to Q4 2011, where the decline in the LFPR is 0.8 percentage point. While the magnitude of the overall change is different, the decomposition results are quite similar. The decline in participation rates for prime-age workers accounts for a little over 60 percent of the overall decline, with a substantial drag from the rise in the share of older workers (accounting for a third of the drop). In short, the changes in participation due to within and between effects over the first two years look quite similar to that of the second two years of the labor market recovery.

Decomposition of Change in Labor Force Participation (Total Decline from Q1 2010 to Q4 2011 = 0.8)

A corollary to this analysis is that these sources of decline in labor force participation have allowed the unemployment rate to decline more sharply than expected, given the moderate employment growth observed. We will not take a stand on whether these are “wrong” or “right” reasons for unemployment rate declines. Rather, we note that the patterns observed early in the recovery are still in place (more or less) in the recent data.

Photo of Timothy DunneBy Timothy Dunne, a research economist and policy adviser,

Photo of Ellie Terryand Ellie Terry, an economic policy analysis specialist, both in the research department of the Atlanta Fed


December 19, 2013 in Employment, Labor Markets, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef019b034bbc0d970c

Listed below are links to blogs that reference Labor Force Participation Rates Revisited:

Comments

totally incomprehensible to me; I'm an avg college educated person interested in economics.
Just poorly written - sort of an embarrassment.

Posted by: ezra abrams | December 20, 2013 at 05:34 PM

Please supply the following numbers:

1) the number of persons in the labour force, year-end, 2007: The percent of persons of working age actually employed at year end 2007.

2) the number of persons currently in the labour force, (most recent data): The current percent of persons of working age actually employed (most recent data).

3) the current unemployment rate, calculated as if the work force were as grreat as it was year end 2007

Posted by: tom velk | December 21, 2013 at 01:49 PM

Eyeballing the graphs, I don't agree that the patterns are "still in place." I see the between-age groups for prime age being different. A statistical test? Perhaps supplying a link to the data?

Posted by: Frank de Libero | December 22, 2013 at 02:16 PM

Much shorter, if not as detailed, chart version -

Google "Employment to Population 25 to 54" and FRED

"Labor Force Participation" is a metric best suited for political manipulation due to the mushiness of its terms.

That is a feature, not a bug, in the eyes of political administrations.

But if you are interested in the truth, try to stick to more objectively determinable terms like "employed" and "population" and ignore vaporous concepts like "desire for work" or "looking for work".

Posted by: cas127 | December 26, 2013 at 11:54 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

November 14, 2013

Atlanta Fed's Jobs Calculator Drills Down to the States

In March 2012, the Federal Reserve Bank of Atlanta launched its Jobs Calculator, an application that illustrates the relationship between the unemployment rate, growth in payroll employment, the labor force participation rate, and a few other variables to boot. Most notably, it tells us how many jobs need to be created to achieve a specific unemployment rate within a given period of time. This tool has turned out to be a useful one for anchoring discussions about national employment growth and unemployment among policy makers and the media.

However, the national employment situation masks significant differences in state labor markets. For example, at the trough of the business cycle (June 2009), the national unemployment rate was 9.5 percent, but it ranged from 4.2 percent in North Dakota to 15.2 percent in Michigan. State policy makers, in managing the dynamics of their own employment situation, need to know the data on a state level.

We are pleased to announce that the Atlanta Fed recently unveiled the state-level Jobs Calculator. The same tool that has been used for national discussions is now available for state-level analyses (see the figure below).


Not only does this state tab allow a quick overview of the historical employment growth in each state (see, for example, Alabama's historical employment growth in the figure below), but it also has the same functionality as the national Jobs Calculator. (Because of the recent partial government shutdown, the data are updated only through August; state-level employment data for October will be available November 22.)


Like the national Jobs Calculator, the state-level version allows the user to input a target unemployment rate, choose the number of months desired to hit the target rate, and find out how many new jobs are required per month to get there. But the calculator is flexible enough to allow other interesting experiments as well.

Consider the case of Florida. During the recession, Florida experienced a significant decline in its population growth. It has gone from a high of about 0.2 percent growth per month (roughly 2.4 percent per year) to its current 0.115 percent growth per month (about 1.38 percent per year; see the figure below). Suppose policy makers in Florida want to know how a return to prerecession population growth might affect the number of jobs needed to maintain its current unemployment rate over the next 12 months. (Note that as of August, the unemployment rate in Florida was 7 percent.)


The calculator's default settings always answer the question, “How many jobs per month does it take to maintain today's unemployment rate over the next 12 months?” To answer our hypothetical policy makers' question, all they would have to do is enter a prerecession monthly population growth rate of 0.2 percent into Florida's state Jobs Calculator, leaving everything else the same. Given the current data in hand, we would discover that Florida would need to generate about 6,000 more jobs per month at the higher population growth than at the current—and lower—population growth to stabilize the unemployment rate at 7 percent.

The data behind the state-level Jobs Calculator come from the U.S. Census Bureau's Establishment Survey, the same data used for the national Jobs Calculator, combined with the Local Area Unemployment Statistics (LAUS) programs run by each state. The LAUS contain the regional and state employment statistics that are consistent with data from the Census Bureau's Current Population Survey. State-level population estimates are provided by the U.S. Census Bureau (and are described in more detail here). You'll note that the LAUS data, especially for very small states, look more erratic than national or larger states' numbers—the unfortunate consequence of small sample sizes.

LAUS data are generally issued about the third Friday of each month following the reference month, which means that the state-level Jobs Calculator statistics will be updated about two weeks after the national Jobs Calculator. The schedule of release dates is available from the U.S. Bureau of Labor Statistics.

Photo of Julie HotchkissBy Julie Hotchkiss, a research economist and policy adviser in the Atlanta Fed's research department


November 14, 2013 in Employment, Unemployment | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef019b011567d6970d

Listed below are links to blogs that reference Atlanta Fed's Jobs Calculator Drills Down to the States:

Comments

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in