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May 09, 2014

How Has Disability Affected Labor Force Participation?

You might be unaware that May is Disability Insurance Awareness Month. We weren’t aware of it until recently, but the issue of disability—as a reason for nonparticipation in the labor market—has been very much on our minds as of late. As we noted in a previous macroblog post, from the fourth quarter of 2007 through the end of 2013, the number of people claiming to be out of the labor force for reasons of illness or disability increased almost 3 million (or 23 percent). The previous post also noted that the incidence of reported nonparticipation as a result of disability/illness is concentrated (unsurprisingly) in the age group from about 51 to 60.

In the past, we have examined the effects of the aging U.S. population on the labor force participation rate (LFPR). However, we have not yet specifically considered how much the aging of the population alone is responsible for the aforementioned increase in disability as a reason for dropping out of the labor force.

The following chart depicts over time the percent (by age group) reporting disability or illness as a reason for not participating in the labor force. Each line represents a different year, with the darkest line being 2013. The chart reveals a long-term trend of rising disability or illness as a reason for labor force nonparticipation for almost every age group.

Percent of Age Group Reporting Disability or Illness as the Reason for Not Participating in the Labor Market


The chart also shows that disability or illness is cited most often among people 51 to 65 years old—the current age of a large segment of the baby boomer cohort. In fact, the proportion of people in this age group increased from 20 percent in 2003 to 25 percent in 2013.

How much can the change in demographics during the past decade explain the rise in disability or illness as a reason for not participating in the labor market? The answer seems to be: Not a lot.

Following an approach you may have seen in this post, we break down into three components the change in the portion of people not participating in the labor force due to disability or illness. One component measures the change resulting from shifts within age groups (the within effect). Another component measures changes due to population shifts across age groups (the between effect). A third component allows for correlation across the two effects (a covariance term). Here’s what you get:

Contribution to Change in the Portion of the Population Who Don't Want a Job Because They Are Disabled or Ill


To recap, only about one fifth of the decline in labor force participation as a result of reported illness or disability can be attributed to the population aging per se. A full three quarters appears to be associated with some sort of behavioral change.

What is the source of this behavioral change? Our experiment can’t say. But given that those who drop out of the labor force for reasons of disability/illness tend not to return, it would be worth finding out. Here is one perspective on the issue.

You can find even more on this topic via the Human Capital Compendium.

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

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


May 9, 2014 in Employment, Labor Markets, Unemployment | Permalink

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I wish you had used different colors, its really hard to differentiate the years.

One wonders if there has been a commensurate increase in claims for disability.

As a percentage of the total people not in the labor force, disability as a reason has gone up from~10% in 1998 to ~13% in 2014. That seems like an awfully big jump. Other than an intervening recession, I am struggling to think of what might cause this as I cannot think of any policy changes to entitlement programs that would cause this.

Posted by: dwb | May 10, 2014 at 01:11 PM

I have a real problem with your label "people who don't want a job because they are disabled or ill." My husband is collecting disability insurance after a mental breakdown several years ago and subsequent bipolar disorder diagnosis. Its NOT that he "doesn't WANT to work" because of his illness that has no cure, its because he CAN'T work due to that illness. He has been mourning the loss of his dream career for 9 years now and would do anything he could to be able to work in his chosed field again. Its NOT his fault that his medication and therapy only goes so far in helping him to live a half-way normal life. There is NO CURE for this disease and he has a very hard-to-manage case according to his doctors who are doing everything they can for him, but don't demean him by saying he doesn't WANT to work, because he wants that more than anything and he always will.

Posted by: Susan Buchanan | May 12, 2014 at 11:20 AM

Some conjectures: 1) A rise in the entitlement mentality. 2) A rise in fraud. 3) More lax governmental oversight. 4) Changes in incentives for claiming disability. 5) Greater expectations of near-perfect health as a norm.

Posted by: Marvin McConoughey | May 14, 2014 at 07:29 PM

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April 17, 2014

Using State-Level Data to Estimate How Labor Market Slack Affects Wages

At a recent speech in Miami, Atlanta Fed President Dennis Lockhart had this to say:

Wage growth by most measures has been very low. I take this as a signal of labor market weakness, and in turn a signal of a lack of significant upward unit cost pressure on inflation.

This macroblog post examines whether the data support this assertion (answer: yes) and whether wage inflation is more sensitive to some measures of labor underutilization than other measures (answer: apparently, yes). San Francisco Fed President John Williams touched on the latter topic in a recent speech (emphasis mine):

We generally look at the overall unemployment rate as a good yardstick of labor market slack and inflation pressures. However, its usefulness may be compromised today by the extraordinary number of long-term unemployed—defined as those out of the workforce for six months or longer... Standard models of inflation typically do not distinguish between the short- and long-term unemployed, because they're assumed to affect wage and price inflation in the same way. However, recent research suggests that the level of long-term unemployment may not influence inflation pressures to the same degree as short-term unemployment.

And Fed Chair Janet Yellen said this at her March 19 press conference:

With respect to the issue of short-term unemployment and its being more relevant for inflation and a better measure of the labor market, I've seen research along those lines. I think it would be tremendously premature to adopt any notion that says that that is an accurate read on either how inflation is determined or what constitutes slack in the labor market.

The research to which President Williams refers are papers by economists Robert Gordon and Mark Watson, respectively. (For further evidence, see this draft by Princeton economists Alan Krueger, Judd Cramer and David Cho.)

The analysis here builds on this research by broadening the measures of labor underutilization beyond the short-term and long-term unemployment rates that add up to the standard unemployment rate called U-3. The U-5 underutilization measure includes both conventional unemployment and "marginally attached workers" who are not in the labor force but who want a job and have actively looked in the past year. The difference between U-5 and U-3 is a very close proxy for the number of marginally attached relative to the size of the labor force.

U-6 encompasses U-5 as well as those who work less than 35 hours for an economic reason. The difference between U-6 and U-5 is a very close proxy for the share of "part-time for economic reason" workers in the labor force. These nonoverlapping measures of labor underutilization rates are all shown in the chart below.


The series are highly correlated, making it difficult to isolate the impact of any particular labor underutilization rate on wage inflation (e.g., "How much will wage inflation change if the short-term unemployment rate rises 1.0 percentage point, holding all of the underutilization measures in the above figure constant?").

We follow the approach of Staiger, Stock, and Watson (2001) by using state-level data to relate wage inflation to unemployment in a so-called "wage-Phillips curve." Because the 2007–09 recession hit some states harder than others, we can use the cross-sectional variation in outcomes across states to arrive at more precise estimates of the separate impacts of the labor underutilization measures on wage inflation (see the chart).


Five-year state-level wage inflation rates for 2008–13, using monthly Current Population Survey(CPS) microdata, are shown on the vertical axis. The CPS microdata are also used to construct all of the labor underutilization measures. Each circle represents an individual state (red for long-term unemployment and blue for short-term unemployment), and each circle's area is proportional to the state's population share. Two noteworthy states are pointed out for illustration. North Dakota has had lower unemployment and (much) higher wage inflation than the other states (presumably because of its energy boom). And California has had higher unemployment and (somewhat) lower wage inflation than average. Even after excluding North Dakota, we see a clear negative relationship between wage inflation and underutilization measured with either short-term or long-term unemployment.

Because short-term and long-term unemployment are highly correlated (also apparent in the above plot), one can't tell visually if one underutilization measure is more important for wage inflation than the other. To make this assessment, we need to estimate a regression. The regression—which also includes both U-5 minus U-3 and U-6 minus U-5—adjusts wages for changes in the composition of the workforce. This composition adjustment, also made by Staiger, Stock and Watson (2001), controls for the fact that lower-skilled workers tend to be laid off at a disproportionately higher rate during recessions, thereby putting upward pressure on wages. The regression also weights observations by population shares.

The regression estimates imply that short-term unemployment is the most important determinant of wage inflation while U-6 minus U-5—the proxy for "part-time for economic reason" workers—also has a statistically significant impact. The other two labor underutilization measures do not affect wage inflation statistically different from zero. Rather than provide regression coefficients, we decompose observed U.S. wage inflation for 1995–2013 into contributions from the labor underutilization measures, workforce composition changes, and everything else (see the chart).


Both short-term unemployment and workers who are part-time for economic reasons have pushed down wage inflation. But the "part-time for economic reason" impact has become relatively more important recently because of the stubbornly slow decline in undesired part-time employment.

Photo of Patrick HigginsBy Pat Higgins, a senior economist in the Atlanta Fed's research department


April 17, 2014 in Employment, Labor Markets, Unemployment | Permalink

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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

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have you considered that a number of people will say they dont want a job because they have experienced repeated frustration in finding one? it's better for one's psyche to lie to yourself and to others about such than to accept the fact that one has repeatedly been rejected...

Posted by: rjs | April 10, 2014 at 04:39 PM

Astonishing decline in male labor force participation since 1970s.

I would be interested to see more detailed age bracket than category of the 25 - 54 age brackets.

This is so we can see if the decline over time is consistent for all ages or the particular works from certain age that flows through remainder of their working life.

Jason

Posted by: Jason | April 12, 2014 at 10:21 PM

Clearly there is nobody who is unemployed who does not want a job. This article is simply a deceptive representation of the facts. The problem is largely that employers will not hire qualified people unless they have done the exact same job before. They will not for example hire an Architect to work as a project manager at a company that manufactures windows, because the HR people use IT to scan the resumes in place of interviews and will only choose from the set of people who have been employed by manufacturers of windows in the past.

Do the survey and the research over again and ask the right questions. The problem more than likely is that the most qualified people are being overlooked, are frustrated because they can,t crossover to a different industry or are victims of age discrimination. You can be certain that most people want to have a job. Sop, dig deeper.

Posted by: Terry L. Walker, ARCHITECT | April 14, 2014 at 11:01 AM

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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

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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

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What do you think of the fact that the Employment Population Ratio plummeted 5 percentage points from 2006/07 by 2010 to 58.2, where it pretty much has sat still?

56 straight months between 58.2 and 58.8, where it is today.

Posted by: BTN | April 02, 2014 at 07:10 PM

Hmm, well I just saw an older blog entry, so I'll look at that.

Posted by: BTN | April 02, 2014 at 07:16 PM

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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

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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

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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

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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

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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

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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

Labor force participation rate for men is at lowest level since data has been collected (started in 1948), and continues to trend downward with no sign of a plateau. Please explain.

Posted by: Richard Miller | May 16, 2014 at 01:14 PM

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January 14, 2014

A Football Field of Labor Market Progress

The December meeting of the Federal Open Market Committee (FOMC), as summarized in the minutes published last week, debated the context for tapering the quantitative easing (QE) program of asset purchases and adjusting the FOMC’s forward guidance on the federal funds rate. One of the issues debated was postrecession progress in the labor market. For example, participants struggled with the reasons for the large drop in labor force participation in recent years:

Some participants cited research that found that demographic and other structural factors, particularly rising retirements by older workers, accounted for much of the recent decline in participation. However, several others continued to see important elements of cyclical weakness in the low labor force participation rate and cited other indicators of considerable slack in the labor market, including the still-high levels of long-duration unemployment and of workers employed part time for economic reasons and the still-depressed ratio of employment to population for workers ages 25 to 54. In addition, although a couple of participants had heard reports of labor shortages, particularly for workers with specialized skills, most measures of wages had not accelerated. A few participants noted the risk that the persistent weakness in labor force participation and low rates of productivity growth might indicate lasting structural economic damage from the financial crisis and ensuing recession.

In a speech on Monday, Atlanta Fed President Dennis Lockhart emphasized similar concerns. He posed the question of whether the improvement in the unemployment rate since the end of the recession, now having recovered about 65 percent of its 2007–09 increase, is overstating the actual progress in the utilization of the nation’s labor resources. President Lockhart observes:

But the unemployment rate is influenced by labor force participation, and there has been a sizable decline in the share of the population in the labor force since 2009. This explains how you could get a big drop in the unemployment rate with anemic job gains, as occurred in December.

The labor force participation rate has fallen from 65.8 percent of the population at the end of 2008 to 62.8 percent in December 2013. On this, President Lockhart notes:

Some of the decline in labor force participation since 2009 is due to the baby boomers retiring, but even among prime-age workers—those aged 25 to 54—the participation rate is down significantly [2.1 percentage points]. This suggests that other factors, such as low prospects of finding a job, are playing a role.

To examine this possibility, we can look at the sum of marginally attached workers. These are people who say they are willing to work and have looked for work recently but are not currently looking.

The marginally attached are not counted in the official labor force statistic. During the recession, the number of marginally attached swelled (from around 1.4 million at the end of 2007 to 2.4 million at the end of 2009). Since the end of 2009, the marginally attached rate (as a share of the labor force including marginally attached) has retraced only 12 percent of the recessionary increase. From this, President Lockhart concludes:

It’s accurate to say the country has a large number of people in the so-called “shadow labor force.”

Because the sharp decline in labor force participation is not fully understood, and because the unemployment rate decline conflates declines in participation with employment gains, President Lockhart suggests it is useful to also look at the share of the prime-age population that is employed. Between the end of 2007 and 2009 the employment-to-population rate for this group declined from 79.7 to 74.8 percent. Since 2009, employment gains for the core of the workforce have advanced only 27 percent toward the prerecession peak (for the entire population over age 16, the recovery is essentially zero). Variations on this theme can be seen here and here.

Usually, the employment to population rate and the unemployment rate move in lock step (because labor force movements are very gradual). But that has not been the case during this recovery.

In addition to unemployment, President Lockhart highlights the issue of underemployment:

Many Americans are working fewer hours than they would prefer because their employers are offering them only part-time work. The share of workers who are involuntarily working part-time doubled during the recession and has moved only about 30 percent lower since the recovery began.

So, on the question of whether the unemployment rate decline has overstated actual progress in labor utilization, Lockhart says yes:

To sum up, these comparisons of employment data suggest that the labor market is not as healthy as the improved unemployment rate might suggest. The unemployment rate drop may overstate progress achieved.

The Atlanta Fed has been featuring the labor market spider chart tool on its website as a way to track relative progress in a number of labor market indicators since the end of the recession. For the purposes of President Lockhart’s speech, the relative improvement in various indicators of the rate of labor utilization was presented graphically in the form of yardage gains from the goal-line of a football field. The changes can be seen here (the data are from the U.S. Bureau of Labor Statistics and Atlanta Fed calculations). The idea is that the labor utilization “team” was driven back to its own goal line from the end of 2007 through the end of 2009, and the graphic shows how many yards (percent) the team has recovered as of the January 10 labor report. (The use of a football field image is perhaps appropriate, given that the recent BCS championship game featured two teams from the Sixth District.)

Labor Utilization Recovery: How Far Have We Come?

President Lockhart also suggests a link between labor market slack and the weak pricing trends we have experienced in recent years:

It’s worth noting that wage and salary income growth remains weak. I hear very little from business contacts about upward wage pressures except in a few specialized job categories. Wage pressures usually accompany growing demand and rising inflation but, although demand appears to be growing, inflation is very soft.

Inflation Y-O-Y Percent Change

In fact, looking at the recent disinflation apparent in virtually all consumer price statistics relative to the FOMC’s longer-run objective, President Lockhart acknowledges the risk of an inflation “safety”:

...I think inflation will stabilize and begin to move back in the direction of the FOMC’s 2 percent objective as the economy gathers momentum. So I’m interpreting the soft inflation numbers as a risk signal. Through the lens of prices, the economy could be weaker than we currently believe.

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


January 14, 2014 in Labor Markets, Monetary Policy, Sports, Unemployment | Permalink

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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

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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

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