Wednesday, April 8, 2015


The employment numbers for March were released last week by the Bureau of Labor Statistics (BLS).

Total nonfarm payroll employment increased by +126,000 in March, and the unemployment
rate was unchanged at 5.5 percent according to the BLS. Employment gains were less that half of the average increase of +269,000 in net new jobs over the last year. This is troubling news for the economy if this trend continues.

The labor participation rate also set a 37-year low of 62.7%. This represents the percentage of working age Americans (those 16 years and older excluding those physically unable to work and those who are imprisoned) who are actually working. You would have to go back to February, 1978 to find a time when a smaller percentage of working age Americans were employed.

There are also a record 93.2 million people working age Americans who are not in the workforce. Ten years ago that number was 76.8 million.

I have written before that I am more focused on the labor participation rate than the unemployment rate as a gauge on our economy. The unemployment rate calculation has become too subjective. It only counts those as unemployed if they are actually looking for work. It does not count those who become discouraged and have simply quit looking. It does not count the young slacker who has dropped out of school and is living in his parent's basement playing video games. It does not count the older worker who got laid off at age 59 and "retires" because of no decent job prospects.

In the end, every American is a mouth to feed, clothe and shelter. If there are fewer people pulling the wagon and more people in the wagon, we have a fundamental problem. The money gets spread around in thinner and thinner increments. That is just basic economics.

The BLS points to the wave of Baby Boomers who are reaching their retirement years as being the most significant factor in the declining labor force participation rate.

“The baby boomers’ exit from the prime-aged workforce and their movement into older age groups will lower the overall labor force participation rate, leading to a slowdown in the growth of the labor force.” 

However, this seems to be an oversimplification of what is occurring and largely ignores the fact that Baby Boomers are working in much greater numbers at older ages than their parents did.

In addition, if a young person entering the workforce took the place of the old person leaving it, there would be no net change in the overall labor participation rate.

In 1992, only 30% of those over age 55 were working. Today it is 40%. 19% of 65+ people are working today compared to 12% in 1992.

On the other hand, 51% of age 16-19 were working in 1992 and only 34% are working now. 77% of those 20-24 were working in 1992 and only 71% are working now.

The chart below shows the decline in labor force participation in the prime age working cohort of ages 25-54 which includes well over 100 million able-bodied Americans. As you can see, the drop in the percentage of those working in this age group amounts to a reduction of 3-4 million workers over what we have traditionally expected from workers from this age cohort.

The young are not working at anywhere near the levels they have historically since women entered the workforce in significant numbers in the 1970's. However, the old are working at levels not seen in many, many, decades.

Credit: ZeroHedge

In fact, since the beginning of the "Great Recession" in December, 2007, there are over 5 million more Americans working who are age 55 or over but there is a decrease of some 2 million working between the ages of 25-54. This has to be unheard of in the annals of American history!

Credit: ZeroHedge

Does all of this look like aging Baby Boomers are the principal cause of the dropping labor participation rate as the BLS suggests?

I would hate to see what the numbers would look like if those Boomers really were retiring to the degree that the BLS narrative would lead us to believe.

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