Where Have All The Workers Gone?
Kurt Brouwer March 10th, 2008
The February job report was pretty dismal (see Weak Jobs Report Reinforces Recession Fears) with a decline of 63,000 jobs. However, one aspect of the report that was not noted very much or was actually misinterpreted when it was noted, was the fact that the unemployment rate actually went down slightly from 4.9% to 4.8%. What happened?
One theory espoused in a piece from the Associated Press was that the ranks of ‘discouraged’ workers — that is those who were too discouraged to look for work — went up by a few hundred thousand. And, since discouraged workers are not included in the ranks of the unemployed, the unemployment percentage went down. Here is what the AP story stated [emphasis added]:
“…Dangerous cracks in the nation’s job market are deepening. Employers slashed jobs by the largest amount in five years and hundreds of thousands of people dropped out of the labor force – ominous signs that the country is falling toward a recession or has already toppled into one…”
Unfortunately for the Associated Press, that statement I emphasized was wrong. I imagine the normally-reliable Jeannine Aversa just misinterpreted the data. And, I hope the AP will correct this gaffe pretty quickly. The Bureau of Labor Statistics report referenced in the AP story actually refutes what she wrote. The BLS report stated [emphasis added]:
“…there were 396,000 discouraged workers in February, about the same as a year earlier…”
More importantly, the level of discouraged workers was actually down in February from the level in January when there were 467,000 discouraged workers, therefore the AP story was clearly incorrect.
So, if an increase in the ranks of the discouraged is not the answer, what actually happened? One other possibility I can think of has to do with baby boomers and the size of the labor force. The BLS tracks statistics on growth in the labor force and labor force participation rates. Both are showing a decline recently.
The first chart from the BLS shows growth in the civilian labor force (in thousands) over the past couple of years. As you can see, the number had been growing steadily, but it declined in January. This alone is interesting, but not conclusive. However, it does indicate that the labor force itself was shrinking:
The second chart from the BLS is more interesting in that it shows a steady and significant decline in the labor force participation rate , beginning back in late 2006. This is shown as a percentage of the population:
The current labor force participation rate is below that of January 2006. At that point, the economy was growing nicely so why would the rate of participation in the labor force go down?
I’m wondering if this situation has to do with the aging of our population. As we get older and the baby boom generation begins to retire (see First Baby Boomers To Retire Are Doing Well), the labor force participation rate should naturally go down. The post on baby boomers listed above indicates that 3 million boomers are turning 62 this year. And, the survey mentioned in the post gave this as one of the best things boomers think about turning 62:
“…But even though the majority of leading-edge boomers don’t plan to take Social Security early, they do say the best things about being 62 are “retirement” and “not having to work.”
Assuming that even a small percentage of the boomers turning 62 did stop working this year, what impact would that have on the labor force? Those who do retire would not be working or even looking for work so both the labor force and the labor force participation rate would go down — as they have.
So, my theory is that we have entered a period in which the labor force may shrink for a while as more and more boomers retire. That being the case, there would be more job openings as employers fill the positions vacated by boomers. And, that would mean we would need less actual growth in new jobs to keep up with normal population growth. In short, even though job growth was negative in January, as long as more boomers retired than jobs were lost, the unemployment rate should fall — and it did fall.
This is just a theory as to why the unemployment rate went down in February, but it’s my theory and I’m sticking to it. Of course, if you have a better one, I’d like to hear about it.
Hat Tip: Bizzyblog
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Nice post. Thx for the link.
A NewsBuster commenter pointed out that those working in 65+ went up in Feb., but I think that might be a measurement anomaly, and the point about people retiring is well-taken. Another good Q would be how many are “retiring” (they often refer to themselves as “retired”) and going to PT vs. FT work.