Why Are Fewer People Looking for Jobs?

Dozens of job seekers line up to enter a National Career Fair, Wednesday, Feb. 22, 2012 in New York. The number of people seeking unemployment aid stayed at a four-year low last week, the latest evidence that layoffs are low and the job market is slowly healing. (AP Photo/Mark Lennihan)
National Journal
Major Garrett
Jan. 21, 2014, 2:35 p.m.

I’m not an eco­nom­ist.

I don’t even pre­tend to be one on tele­vi­sion.

But something has been nag­ging at me through the af­ter­math of the Great Re­ces­sion, and it’s the labor-force par­ti­cip­a­tion rate, which enu­mer­ates Amer­ic­ans who have a job and Amer­ic­ans who want a job. The LF­PR has fallen from 66 per­cent to 62.8 per­cent since the Great Re­ces­sion began. That ac­counts for 12.6 mil­lion people leav­ing the work­force, ac­cord­ing to the Fed­er­al Re­serve Bank of At­lanta.

When the na­tion­al job­less rate fell from 7 per­cent to 6.7 per­cent, much of the de­cline was due to Amer­ic­ans leav­ing the work­force. The Wall Street Journ­al’s Mar­ket Watch grimly noted the LF­PR for Decem­ber 2013 was 62.8 per­cent. That matched Oc­to­ber’s data and her­al­ded the low­est LF­PR since 1978. You can see the trend since 1990 here.

There are com­pon­ent parts to this story. A quick scan of Labor De­part­ment data re­veals the fol­low­ing:

  • Part-time work (chart 7) is sig­ni­fic­antly high­er than at any time since 1990 — with the ex­cep­tion of a brief rise and fall in 1994. Moreover, the num­ber of Amer­ic­ans work­ing part-time be­cause they can­not find full-time work (chart 8) has jumped al­most four mil­lion since the dawn of the Great Re­ces­sion and con­tin­ues to run well ahead of data col­lec­ted since 1990.
  • Lastly, the rav­ages of the Great Re­ces­sion, like all re­ces­sions be­fore it, hit least edu­cated work­ers (chart 17) the hard­est. But the dam­age has been more wide­spread and longer this time around.

This sounds and looks like a calam­ity. For those look­ing for work, it is that and more — par­tic­u­larly if Wash­ing­ton does not ex­tend and ret­ro­act­ively provide long-term job­less be­ne­fits.

But is this a har­binger of a new, grue­some eco­nom­ic nor­mal of laid-off work­ers who can’t find work, young Amer­ic­ans cling­ing to col­lege and post-gradu­ate work — adrift in a job­less fu­ture, pil­ing up debt? Or is it a stat­ist­ic that looks alarm­ing but is really be­nign — a stat­ist­ic­al brew of trends in aging, school­ing, re­train­ing, and life choices that’s frothy and mys­ter­i­ous but no more dis­taste­ful than Guin­ness served too cold?

It seems an im­port­ant ques­tion. The LF­PR and what it says about our eco­nom­ic fu­ture will likely loom large in the mid-term elec­tions and could well be a heav­ily de­bated part of Pres­id­ent Obama’s eco­nom­ic leg­acy — thus a spring­board to the na­tion­al eco­nom­ic con­ver­sa­tion in 2016.

Stat­ist­ics can lead you in many dir­ec­tions, not all of them re­veal­ing. Ques­tions be­dev­il.

For ex­ample, the LF­PR for Amer­ic­ans ages 16 to 24 was 66.1 per­cent in 1992. It fell 2.9 per­cent from 1992 to 2002, ac­cord­ing to the Bur­eau of Labor Stat­ist­ics. From 2002 to 2012 it fell 8.4 per­cent, from 63.3 per­cent to 54.9 per­cent. That’s a big drop, es­pe­cially when you con­sider that the BLS pro­jects the LF­PR for this pop­u­la­tion will fall 5.3 per­cent from 2012 to 2022. A de­cline in the over­all pop­u­la­tion of this group ex­plains only part of the story (it fell .4 per­cent from 1992-2002, 1.4 per­cent from 2002-2012, and is pro­jec­ted to fall 1 per­cent from 2012-2022).

What’s happened and what is hap­pen­ing to these young work­ers try­ing to find their way in­to entry-level jobs or land that first job out of col­lege?

How about older Amer­ic­ans? What do the stat­ist­ics tell us about LF­PR and choices to re­tire or re­main in the work­force or re­turn to the work­force after test­ing the re­tire­ment wa­ters? Again, it’s a bit of a puzzle.

The LF­PR for work­ers 55 to 64 was 56.2 per­cent in 1992 and rose to 61.9 per­cent in 2002. It jumped again to 64.5 per­cent in 2012 and is pro­jec­ted to be 67.5 per­cent in 2022. This would ap­pear to be the Baby Boom bulge mov­ing stat­ist­ic­ally through the work­ing years and, there­fore, some­what easy to ex­plain. But data for work­ers 65 and older con­tin­ues this trend, which doesn’t ap­pear as eas­ily ex­plained. The LF­PR for work­ers over the re­tire­ment age of 65 was 11.5 per­cent in 1992. It rose to 13.2 per­cent in 2002 and to 18.5 per­cent in 2012. It’s pro­jec­ted to hit 23 per­cent in 2022.

I posed these ques­tions to the White House and top eco­nom­ists Mark Zandi, chief eco­nom­ist for Moody’s Ana­lyt­ics, and Douglas Holtz-Eakin, former dir­ect­or of the Con­gres­sion­al Budget Of­fice.

Here’s Holtz-Eakin’s take:

“I think this is a big deal. Be­cause of its de­cline, the em­ploy­ment-to-pop­u­la­tion ra­tio (the frac­tion of the pop­u­la­tion work­ing) is now lower than be­fore the re­ces­sion star­ted. There are two pieces of this de­cline that we un­der­stand: re­tire­ment of the baby boomers and bad job growth. And there is one coun­ter­vail­ing force — the rise in the LF­PR of wo­men — that has stopped in re­cent years. But the re­mainder is un­ex­plained and deeply troub­ling.”

By his reck­on­ing, the re­tire­ment of baby boomers ac­counts for only one-third of the de­cline in LF­PR.

Here’s Zandi’s take:

“Of the just-over 3 per­cent­age point de­cline in labor-force par­ti­cip­a­tion since the Great Re­ces­sion, ap­prox­im­ately 2 per­cent­age points is due to the re­tire­ment of baby boomers and the oth­er 1 per­cent­age point is due to dis­cour­aged work­ers. Over the past year, most of the de­cline in par­ti­cip­a­tion is due to re­tir­ing boomers. Evid­ence of this is the num­ber of people that aren’t in the labor force but say they want a job. There are cur­rently about 1.5 mil­lion more of these folks than pri­or to the re­ces­sion. This is equal to 1 per­cent­age point of the labor force.”

I asked Zandi about dis­cour­aged work­ers or those who want a job but simply can’t find one.

“These dis­cour­aged work­ers will be­gin look­ing for work again and enter the labor force once un­em­ploy­ment falls an­oth­er per­cent­age point and wage growth be­gins to pick up. They won’t even be­gin look­ing for work un­til they feel that they can find a job that pays for com­mut­ing costs and child­care. A good num­ber of these dis­cour­aged work­ers also prob­ably pre­vi­ously worked in hous­ing-re­lated in­dus­tries and live in areas of the coun­try where there are few­er oth­er job op­por­tun­it­ies. But as hous­ing activ­ity con­tin­ues to im­prove, these people will be en­ticed back in­to the work­force by jobs that are more suited for their skills.”

I re­ferred Zandi to Holtz-Eakin’s con­cerns that the LF­PR data simply isn’t that clean and that re­tire­ment alone can­not ac­count for such a large part of the eco­nom­ic puzzle.

“I agree with Doug that the factors driv­ing the de­cline in par­ti­cip­a­tion aren’t fully un­der­stood. The aca­dem­ic re­search on the top­ic gen­er­ally shows that re­tire­ment is the most sig­ni­fic­ant factor, but what is be­hind the rest of the de­cline in par­ti­cip­a­tion is a mat­ter of le­git­im­ate de­bate. I proffered a couple of factors that I think are at work, but there are oth­er factors, some of which we un­der­stand (e.g., the de­cline in 16-24 par­ti­cip­a­tion is due in large part to young people go­ing back or stay­ing longer in school), and oth­ers that we don’t com­pletely un­der­stand. As such, I don’t think labor force par­ti­cip­a­tion will be a ser­i­ous is­sue a few years from now, but I can’t say that with com­plete con­vic­tion.”

Where is the White House on this?

Ex­tens­ive con­ver­sa­tions with a top Obama eco­nom­ist, whose candor came in ex­change for an­onym­ity, yiel­ded the fol­low­ing ob­ser­va­tions.

First, and I sup­pose un­der­stand­ably, there was a thirst for good news in the data. The har­vest was as fol­lows: Over the past 12 months, both the rates of short-term un­em­ploy­ment (26 weeks or less) and long-term un­em­ploy­ment (27 weeks or more) rates have de­clined by 0.6 per­cent­age point — for a cu­mu­lat­ive drop in the topline job­less rate of 1.2 per­cent­age points). Over the past 24 months, the short-term rate de­clined 0.7 per­cent and the long-term rate 1.1 per­cent­age point.

But what about the de­cline in LF­PR among young Amer­ic­ans? Is this a wor­ry­ing trend?

“Some of what we’re see­ing in the growth of 16-to-24 year olds out of the labor force is as­so­ci­ated with the weak labor mar­ket, but a good amount of this is due to in­creased school­ing,” the White House eco­nom­ist said. “While we’re see­ing few­er 16-to-24 year olds com­bin­ing work and school­ing, there’s been a rise in full-time en­roll­ment at school, and the change in total en­roll­ment has been pos­it­ive over the last five years.”

What about the rise in work­ers 55 to 64 and older than 65? Doesn’t that ar­gue against the no­tion that most of the na­tion­al de­cline in LF­PR is driv­en by baby boomers hit­ting the ham­mock or the fair­ways?

An­oth­er seni­or White House eco­nom­ist took a swing, meta­phor­ic­ally, at this ques­tion. The an­swer con­forms, gen­er­ally, with Zandi’s and Holtz-Eakin’s un­der­stand­ing of baby boomer heft as they move through the data on work, re­tire­ment, and LF­PR. The ba­sic ex­plan­a­tion is the num­ber of re­tir­ing baby boomers is so large it tilts the data, ob­scur­ing among baby boomers who de­cide not to re­tire or who re­turn to the work­force after dis­cov­er­ing — in­croy­able! — re­tire­ment is a crash­ing bore.

The meta­phor is right up my base­ball-lov­ing al­ley. I leave it to trained eco­nom­ists to judge its ana­lyt­ic­al and ex­plan­at­ory value.

“If on a base­ball team, you have nine play­ers — three who bat .100, three who bat .200, and three who bat .300, your lineup bats at an av­er­age of .200,” the White House eco­nom­ist ex­plained. “You then fo­cus on im­prov­ing the av­er­age of the low­est per­formers so that the .100s now bat .150. But you also end up adding more of them. Now you have five play­ers who bat .150, one who bats .200, and three who bat .300. The over­all team av­er­age now goes down to .189 — be­cause while the low­est-per­form­ing group im­proved, its share also in­creased.”

But why are older Amer­ic­ans work­ing? Are they bail­ing out chil­dren who can’t find work, are riddled with col­lege debt, or be­cause they were tor­pedoed by the Great Re­ces­sion?

This is also a top­ic at the White House, and eco­nom­ist No. 1 (for lack of a bet­ter des­ig­na­tion), offered the fol­low­ing:

“All of the evid­ence on the up­ward trend in par­ti­cip­a­tion among older work­ers in­dic­ates that this is a pos­it­ive de­vel­op­ment. The lit­er­at­ure points to rising edu­ca­tion, high­er pay­ing and less phys­ic­ally de­mand­ing jobs, in­creased at­tach­ment of older wo­men to the labor force, and bet­ter health as the main forces re­spons­ible for this up­ward trend. Re­mark­ably, more than a quarter of re­tir­ees will un-re­tire at some point, not due to fin­an­cial ne­ces­sity, but be­cause they find work more re­ward­ing and en­joy­able than re­tire­ment. Some com­ment­at­ors have spec­u­lated that the in­creased par­ti­cip­a­tion of older work­ers has been driv­en by losses of wealth dur­ing the Great Re­ces­sion, but the re­search that has in­vest­ig­ated this finds that these de­clines in wealth were con­cen­trated among the richest house­holds and that the data show no im­pact on labor-mar­ket be­ha­vi­or. “

No eco­nom­ic con­ver­sa­tion, as I have dis­covered, is ever com­plete or salted with every grain of stat­ist­ic­al con­text.

The num­bers don’t lie about his­tor­ic levels of long-term un­em­ploy­ment or in­vol­un­tary part-time work. Dis­cour­age­ment among work­ers, par­tic­u­larly the young, is not merely an­ec­dot­al. It’s in the data. And older work­ers are re­tir­ing, and that’s a big chunk of the de­cline in LF­PR. How big a chunk? The data is opaque and eco­nom­ists genu­inely dif­fer.

Holtz-Eakin thinks it un­wise to mark it all, or mostly, to re­tire­ments and young work­ers simply find­ing col­lege more at­tract­ive — either as un­der­grads or grads. Zandi con­siders it more be­nign, and the White House sees be­ha­vi­or­al ex­plan­a­tions be­hind the trends that don’t por­tend pro­longed eco­nom­ic blight — es­pe­cially con­sid­er­ing the down­ward trend in short-term and long-term job­less­ness. And the White House con­cedes the busi­ness cycle re­mains slack and more jobs with high­er wages must ap­pear to pull in­to full em­ploy­ment those who have giv­en up, those who are look­ing, and those stuck in part-time jobs.

As I said at the top, I’m not an eco­nom­ist.

And after this ex­er­cise, I damn sure won’t ever try to play one on tele­vi­sion.

The au­thor is Na­tion­al Journ­al cor­res­pond­ent-at-large and chief White House cor­res­pond­ent for CBS News. He is also a dis­tin­guished fel­low at the George Wash­ing­ton Uni­versity School of Me­dia and Pub­lic Af­fairs.

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