Singing “off-key”

Bill McBride at Calculated Risk keeps singing his preferred tune: “Much of Recent Decline in Labor Force Participation Rate due to “ongoing structural influences“:

For several years, I’ve been arguing that “most of the recent decline in the participation rate” was due to demographics and other long term structural trends (like more education). This is an important issue because if most of the decline had been due to cyclical weakness, then we’d expect a significant increase in participation as the economy improved. If the decline was due to demographics and other long term trends, then the participation rate might keep falling (or flatten out) as the economy improves.

My counterarguments (and Dave Shuler´s comment) from two years ago are still relevant:

  1. Overall Labor force participation peaked at around 67.1% in early 1997 and maintained that level through early 2001. After falling to 66.1% in late 2003, that level was maintained through mid-2008, after which point the “Great Recession” “incredibly accelerated the aging rate of the population”.
  2. Curiously, given CR´s interpretation, employment among those 55 and up has been rising steadily since 1996. The Great Recession only provoked a short lull in the level of employment in that age group. I know that if population is aging the number of people above 55 is increasing. But so is the corresponding employment level, i.e. it is not inducing a fall in the participation rate.
  3. That´s not the case with the prime age work force, those between the ages of 25 and 54. The employment level in that age group dropped like a stone after mi-2008. Many likely are not participating at the moment, but that´s not because they “aged”.
  4. The participation rate among the really aged, those above 65 has surprisingly increased despite the rise in their number (data only after mid-2008 available). Again, this is not consistent with the big drop in the overall participation rate since mid-2008.

Dave´s comment:

Sadly, Bill McBride is increasingly desperate to portray the present economic situation in a favorable light. You failed to highlight the most outrageous part of his post:

“If someone says the “actual” unemployment rate is much higher than reported because of the decline in the participation rate, they are unaware of a key demographic shift.”

Demography per se does nothing whatever to alter the labor force participation rate and there really is no way to reconcile his claims with increasing employment and participation rate among seniors.

Contrary to Mr. MacBride’s preferred narrative the reality is that seniors are working longer than they have in generations while the young incur educational debts that will reduce their other personal consumption expenditures below what has been expected for those of their age in generations.

An updated chart:

Off-Key

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