The Real Reason The Labor Participation Rate Is Lower

The Right's ideologues have many "footballs" they love to kick around in the culture wars in the U.S. of A., but one of their favorites is the "labor participation rate".  To read some of the hogswill in assorted economic columns - especially as it hit 63.0 percent in 2017, you'd think the whole country had turned into lazy bums who no longer want to work. But this misreads the statistic in a major way.

First let's get into the nitty gritty of this stat.

Here's how to calculate the Labor Force Participation Rate.

LFPR = Labor Force / Civilian Non-Institutionalized Population 

where the Labor Force = Employed + Unemployed

To calculate the formula correctly, you must first understand the underlying definitions outlined by the Bureau of Labor Statistics.

Civilian Non-institutional Population = Everyone living in the U.S. who is 16 or older MINUS inmates of institutions such as prisons, nursing homes and mental hospitals and MINUS those on active duty in the Armed Forces.

Labor Force =  Everyone who is classified as either Employed or Unemployed.

Employed =   Anyone aged 16+ in the civilian non-institutional population who worked in the last week. That means they worked an hour or more as paid employees or 15 hours or more as unpaid workers in a family-owned business or farm. It also includes those who had jobs or businesses, but didn't work that week because they were on vacation, sick, were on maternity or paternity leave, on strike, were in training, or had some other family or personal reasons they didn't work.

(Each worker is counted once, even if s/he held two or more jobs. Volunteer work doesn't count nor work at home.)

Unemployed =  Those age 16 or more who weren't employed, but were available for work and actively looked for a job within the past four weeks.

Note here: people who would LIKE to work, but haven't actually gotten out, pounded the pavement and LOOKED for work, aren't counted.  They are counted in the population, however, which means the more of them, the lower the calculated labor participation rate.   This also includes those who have stopped looking for work entirely because they don't believe there are any jobs for them, and the BLS calls these discouraged workers."

Obviously, not all of these folks are bums, and that includes workers that become ill - say from severe diabetes or leukemia and then need to go onto Social Security disability. In the March 4 Denver Post article, 'Fewer Americans Working But Why?', we learn for example that "the share of Americans working dropped about 6.8 million from 1999 to 2016."   Did all those people become "lazy bums" on welfare or Social Security disability? No, as the article explains:

"Between 50 to 70 percent of the decline was due to an aging population"  which is reinforced by another WSJ piece from February 15 (p. A17) 'As Boomers Go Gray, Even 2% Growth Will Be Hard To Sustain' noting: 

"Slower growth is less the fault of Trump than his generation. Forty percent of the people born in 1946 have left the workforce."

But let's be reasonable here. "Blame" cannot be part of the nomenclature at all, because at some point every human - at least in the US of A  - is going to want to retire and halt the grind. (Retired people aren't counted among the work force, but are counted in the population, hence the larger the number of retired the lower the LFPR.)  Especially those members of the graying generation who are already having to fend off ageism in even finding decent jobs -  by which I mean jobs paying enough to make the rent - and yeah, save for retirement. So you cannot "blame" oldsters for the leaving the workforce, say when they hit the big Seven Oh. You can't even blame those who may choose to leave at 55 or 60 if they have enough money saved for retirement to make it.  You may be pissed that you can't do it, but you can't blame them for doing so.

Anyway, this still leaves some 30- 50 percent of the decreased LFPR to account for - according to the D. Post piece. Thanks to robust research by Katharine Abraham and Melissa Kearney of the University of Maryland, some answers are forthcoming. Well, at least to the extent we now know what isn't driving the LFPR downward.   In a draft paper released by the National Bureau for Economic Research last month Abraham and Kearney found that trade with China and automation are responsible for millions of missing workers.  (And missing jobs).

Other typical scapegoats of the Right's scolds, e.g. immigrants, food stamps and "Obamacare" - didn't "move the needle".  Other related findings:

- Automation cost more jobs than it created and "robots likely cost the economy 1.4 million fewer workers"

- The number of people going onto Social Security Disability doubled from 1999 to 2016, from 4.9 million to 8.8 million.  The population did age, but that increase was still "1.64 million more people than there should have been", i.e. had rates remained steady for each age group.

VA Benefits:

The two economists estimated that 0.15 million more people didn't participate in work because of the expansion of VA disability insurance. (Between 2000 and 2013 the share of vets receiving such benefits rose from 9 percent to 18 percent).

One last factor was deemed a likely contributor to the lower labor participation rate: the inability to move from one location to another  to find work as was generally done in the past. The reason is that the home is usually Americans' biggest investment and it simply may not be possible to move from A to B if one's home either can't be sold for the price assessed, or there are no buyers. Then, it would take a real leap of faith to just move to  a new locale  without a firm job offer even lined up.

Beyond all the labor participation rate kerfuffle, what those like Jason Furman (WSJ piece) are really getting at is how difficult it will be to attain even a 3 percent growth rate and sustain it.  Furman, for example, points to last year's growth rate (2.5 %) which while greater than previous is still an aberration. It is an aberration because "more than half of it is based on cyclical factors".  These "have little or nothing left to contribute" since we're at or near full employment. (Which again makes one wonder why all the fuss about a low labor participation rate. Do the wonks really want it to become even tighter and possibly fuel inflation?)

Furman doesn't see the growth rate over the next 5-10 year getting much more than the pedestrian 5- 10 %.   He lays blame on all of us retired boomers, as well as needing  "bigger  productivity improvements".   I already dealt with how the latter can be achieved by ditching the GDP e.g.
  http://brane-space.blogspot.com/2018/02/why-labor-productivity-needs-to-be.html

Noting:

"If the GDP is in error or doesn't measure what is really needed, then the labor productivity will be off too. "

How to easily improve productivity even with all the retirees? Simply include home work into the productivity equation.  For example, a 2015 Forbes article highlighted how 40 million family caregivers in the U.S. are putting their own careers on hold to provide unpaid care — sometimes for decades.   The estimated  total value of the care has been put at nearly $1 trillion. This isn't reckoned into the GDP but IF it were,  the labor productivity cited in the WSJ would surely be much higher in the years since 2007 - maybe even double or (1.2%) x 2  2.4 %. Which would then exceed the rate cited since 1947.

What to use in place of GDP? The Index of Sustainable Economic Welfare which was first proposed by Eco-economist Herman Daly of the University of Maryland. is a prime alternative  Daly's point was that the GDP was too artificial and narrow an indicator of economic health. He argued that if one incorporated all the "externalities" usually dismissed or ignored by standard economic models, people would be more parsimonious in how they consume which would yield a better world.

But will the economist wonks take note and agree? That remains to be seen, but I am not optimistic. If they did agree they'd be out of work!

"Increase The Global Birth Rate to Fuel Economic Growth"? A Nutso Idea!

A recent clip of an NBC News interview with a middle-aged German in Berlin didn't draw the response that the interviewer expected. He pointed to assorted migrants standing in line for assistance and told the Berliner: "You know, these people  - these new migrants - could help bring much needed economic growth and also help to support Germany's pension system. What do you say to that?"

The Berliner laughed, then said in highly accented English: "That is rubbish! We already have five million unemployed Germans here in Germany! So how about we get them to work first to support pensions!"

In many instances, this is the same problem for many advanced nations as well as newly minted prosperous ones, including India and China. But still, one sees and reads the siren calls for "more people" to propel economic growth for nations whose GDP is slipping, or "to help support all the burgeoning gray beards".

The late, noted science writer and biochemist Isaac Asimov- in various essays written over decades- never bought this balderdash at all. Indeed, he repeatedly warned of severe constraints on humanity's use of resources, particularly in terms of how population growth impinges on finite resources and sets limits to growth. Asimov was probably also the first to use the term "carrying capacity" which he estimated to be 3 billion humans for this limited world.

Most upsetting to him and others was the pseudo- justification for increasing  birth rates (such as in the U.S.) "to support the elderly and Social Security". This idiotic meme was originally germinated in Ben Wattenberg's 1987 book, 'The Birth Dearth' and is still echoed, regurgitated by many.

For example, in a WSJ piece last month ('How The Birth Dearth Saps Economic Growth', Sept. 24)  Ruchir Sharma lamented at length what he referred to as the "plummet" and "collapse of global population growth" from 2 percent in the decades after World War II  to 1 percent at present. No remote clue that nearly  all the problems plaguing our world, including fouled water, polluted air and soil, melting glaciers, severe crowding - not to mention mass panic migrations (such as claimed over 850 lives this week) arise from overpopulation.

Nor any cognizance of the fact that multiple lines of research have already questioned the UN estimates that project a global population of 10.9 billion by 2100. Especially if women - mainly in the poorest nations and without access to contraceptives-   have even  0.5 more offspring each  (than projected)  that 2100 estimate could turn into 12.3 billion or even 15.8 billion, e.g.



Where will all these people go? What will they do? Well, the fact is most of them - given they are overpopulating areas with limited resources (like Africa), will be trying to escape and migrate to more beneficent regions - with more potential jobs, as well as social supports. The trouble is the areas they wish to move to are already struggling under the burdens of lower economic growth - not because of smaller populations - but because of the ongoing degradation of efficiency and 'pop' in our fossil fuel energy sources. See e.g.

http://brane-space.blogspot.com/2013/09/44-trillion-in-deficits-by-2024-minus.html

Apart from that, these airy fairy "two percenters",  who call for increased global growth to that level,  aren't even remotely aware of what they are asking. A population growing at 2 percent annually doubles every 35 years.  Hence, if we had a global population of 6 billion in 2000 and it were to have kept growing at the 2 percent rate advocated (to support pension systems in the 'graying world') then by 2100 there'd be 40 billion people on Earth! So, uh, you've successfully supported the pensions of maybe 500 million, but now have to support the life needs of 30 billion extra!

This despite the fact that even now, with the Earth supporting 7.3 billion people, and a 1 percent birth rate, we humans are currently consuming the equivalent resources of 1.5 Earths per year, which is clearly unsustainable. In fact, it is now approaching 1.6 Earths per year consumed because of the added humans - more than eighty million per year (1 million added every 4.5 days according to Alan Weisman).

Do these economic growth numbskulls process any of this?   But it gets worse: continuing at the same 2 percent per annum growth rate the population would be 320 billion by 2200 (if humans manage to survive so long with the runaway greenhouse effect) . There is no way, in a practical sense, any technology could cope with that. And then, to add to this idiocy, we have these "longevity" freaks writing and talking about extending the human lifespan to 140.

Haven't they ever heard that there is a good age to die (one scientist recently put it at "75:) , and further humans in a limited resource world were never meant to live that long?

As it is, the population here in the U.S. is growing by almost 1 percent annually because of some of the highest sustained immigration rates in the nation's history. This is not to play into "the Donna's" hands but only to note that any economic egghead that blabbers about adding more to increase that rate "for economic growth"  - given we already have 3.5 million unemployed  and 22 million under-employed  - is a moron.

The same goes for advocating such increases in India or China. Basically, then, calling for higher birth rates to support existing graying populations' pensions is a mammoth Ponzi scheme. Because - at the end of the day - WHO is going to support all those pensions of the millions of extra birthed people? Huh? Are you going to bring in Martians?

In the case of the U.S., the increased population from higher immigration (and this includes immigrants' higher birth rates)  will result in going from 322 million now in 2015, to 400 million sometime after 2050, and to more than 500 million by 2100.  WHERE will all the tens of millions of jobs come from to support even half of this population? Especially as degraded energy sources immediately impacts job creation.

It is easy to spout bull pockey when it comes to economic growth, especially by those who haven't done the math, but we need to hold them accountable and force them to back off. The bottom line is that growing human numbers to support oldsters is not a plan that can work, now or ever.

Instead, how about we put all those millions of unemployed and under-employed people to work? Especially as the U.S. current "labor participation rate" is barely 63 percent.

American Moving Inertia: A Reason for Persistent Unemployment?

Leaving out stupid or ignorant "reasons" for persistent unemployment (e.g. "the unemployed refuse to take jobs they think are beneath them") offered by knuckle-draggers, the question does emerge of what's behind the stats. Most recently, the BLS delivered an unemployment rate a few ticks lower than last month but the labor participation rate was also lower, at 62.4 percent. Also, the number of jobs created -at 74,000 - was significantly below the 200,000 needed to feel the unemployment situation is improved.

Economists are therefore looking now from a different angle: mobility. As they often state in research, Americans' geographic mobility is tied to economic mobility. If you can't move to where the jobs actually are, then logically you won't find the jobs, including the ones best suited to your skill set.  In this sense, the Census stats show the lowest proportion of Americans (since post WWII)  moving in the last few years.

According to Census Bureau data from 2013, about 4.8 million Americans moved across state lines in the previous year. This is down from 5.7 million in 2006 and 7.5 million in 1999. Taken collectively, the percentage of Americans moving across state lines has dropped by half since the 1990s.  The stats also show that even immigrants who arrive on our shores are more likely to stay put than they were 30 years ago. All of this has an impact not only on finding jobs, but creating them.

Having said that, no one who is rational or sane can deny that the 2008 financial meltdown, credit crisis and stock crash - leading to a prolonged recession - also has impacted Americans' ability to move.  This is not advanced calculus or rocket science: You can't move for a job if no job exists, and you can't buy a new house if no one gives you a mortgage .....or you are unable to sell your existing home to be able to make a move.  In other words, this 'trifecta' of risk made it many times more difficult to move since the recession, than in times past Given also the recession was of the "balance sheet" form, it spawned an endemic or system inertia that in many cases remains even today. In many places, for example, people are still "under water" - meaning they owe more in their mortgage than the home is worth. How can they move? They can't! How can they move to get a job? They can't!

Another factor contributing to the lower moving rates must be the age of the population. It is axiomatic that older people tend to move much less than younger folks. This also isn't rocket science or advanced calc: it's damned hard to pack up all your stuff and move across country - as wifey and I learned when we left Maryland for Colorado in 2000. Needless to say, it's a move we'd likely not make again unless really extreme circumstances arose, say like fracking wells being set up next door and the fumes, polluted water driving us out.

Rising costs of living can also dent the yen to move, even among the young. A case in point is the San Francisco area where the home prices are now so sky high teachers are having to move many miles away to lower cost communities. This means teachers have less time to spend with the students, tutoring or in after school activities, because of the long commute.

Those who've just graduated from college are also finding the jobs hard to come by. They may have taken out loans in excess of $30,000 to pay for their college education, and can only obtain jobs - say at Mickey D's or Starbucks - that pay barely $8 to 9.50 an hour. This won't pay for a car loan, far less a home - so they have to live with mom and pop. 

This means that the military , with all other avenues of job opportunity closed, becomes the default employer. No surprise then that all too many young people hike to the nearest Army station to enlist and commence a military career, with the hope of having most of their college paid for later. Of course, the recruiters never tell these kids they may get wounded by IEDs or brain-damaged in some new fangled "war" (occupation) first, say in Iran, Syria or wherever the military industrial complex sees fit to next meddle.

Barbara  Ehrenreich notes ('This Land is THEIR Land', p. 61):

"Market forces ensure that a volunteer army will necessarily be an army of the poor. The trouble is that enlistment doesn't do a lot to brighten one's economic future".

Yes, they do get benefits, but these enable families to barely keep heads above water. Also, as Ehrenreich notes, many service men and women have had to use credit cards in years past to purchase kevlar or other protective vests because the Army couldn't afford them.
The dynamic then generates an enormous military jobs program while the domestic (private) jobs program is left to suck salt. This military jobs program is also not cheap. It is passing incredible that too many Rightist  knuckle draggers don't see the irony of carping against an infrastructure maintenance program (which is REALLY needed, to repair the crumbling water mains, sewer lines and bridges) but express no money worries by funding a monstrous military jobs program. Especially given the latter will always be used to invoke ever more interventions. ("After all, if yuh got the Army why let it go to waste?" )

Anyway, back to other ironies pertaining to job mobility. Jed Kolko, chief economist at Trulia (real estate website) did an analysis and found on indexing the 100 largest metro areas by affordability - San Fran and New York City were at the bottom, while 'hollowed out' less affluent communities wee at the top. The problem? Many fewer jobs were available in the latter, than the former. However, when Americans did move to these municipal  'backwaters' they justified their decision by noting the cheaper living costs outweighed less economic-job opportunity. In other words, it was a trade off. In hardly any cases, except for graduated 1-percenter  scions hailing from top private universities, was the situation 'win-win'.

Another explanation to account for the job mobility inertia comes from Greg Kaplan or Princeton University and Samuel Schulhofer- Wohl of the Minneapolis Federal Reserve Bank. They theorize that there is no longer any upside to moving because labor market have become more homogeneous. Because earnings have been leveled across the country, there's a lot less incentive to move from one location to another, say in search of a raise. In addition, the spread of fast food franchises and the service industry are ubiquitous across the country. Moving to any location to find such a job is essentially pointless, especially if one can't count on the property taxes remaining lower. The solution could only be to raise the minimum wage, say to at least $15 an hour. But the knuckle draggers will never let this happen.

The effect is that  economic inequality grows, partly as a result of too low taxes (especially on the 'upper crust') and partly on account of the best jobs shipped overseas (with the concomitant decline of domestic manufacturing) along with the growth of the low wage service industry. It is no wonder then that the middle class is being slowly eviscerated, while the upper 1 % have more money than they know what to do with, although they can opt for weekends in St. Kitts to get rose wine wraps, e.g.

By one measure, as reported by Barbara Ehrenreich ('This Land is THEIR Land', p. 23): "the share of pre-tax income going to the top 1 percent of American households has risen to 16 percent. At the same time, the share of income going to the bottom 80 percent has fallen by 7 percentage points."

But it's worse than that! Those top 1 percent of people and indeed the top 5 %, have made out like bandits since the Bush tax cuts were passed in 2001. As a result, there has been an average transference of $7,000 every year from lower and middle income earners to the top.

According to a New York Times piece cited by Ehrenreich: "It's as if every household in the bottom 80% is writing a check for $7,000 every year and sending it to the top 1 percent".


Left unsaid in all this, is how capital has come to dominate over labor in this country. The dirty little secret, seldom broadcast by the MSM,  is that low inflation (such as Bernanke has incited with his $4 trillion cheap money infusion program) increases stock prices - which makes more money available to business (though not to their employees, since profits are always invested in new capital - i.e. issuing more shares, rather than labor). The end result is that there is an enormous impetus to eliminate as many good jobs and workers as possible - to maximize a company's stock prices, and enhance capital.

In other words, capital is opted for over labor, and this was the topic of The Judas Economy: The Triumph of Capital and the Betrayal of Work, by William Wolman and Anne Colamosca.


The point is then, that labor is devalued precisely because we live in a "Judas Economy" where capital is revered over it. One of the most disgusting indices as the authors note, is that productivity in relation to GDP has increased more than 40% in the interval since 1973 even as wages-salaries have remained almost stagnant. Of course, one major reason is how "greater productivity" is attained. Often by firing a number of workers and ditching their benefits, and making the remaining force do their work plus that of the downsized ones. OR- tossing out 80% of a workforce and replacing them all with automation.

These observations suggest Americans haven't stopped moving because of housing prices, or cost of living or other financial concerns but because they simply don't see the need to. Since the entire country is royally fucked in terms of metastasizing inequality and lack of  job opportunity - it doesn't matter which part of the 'ship' you high tail it to if the whole ship is sinking.  Uneducated or semi-educated troglodytes can sit in their own little comfy dens - high on their own gov't benefits - and bemoan the "laziness" or "selfishness" of the long term unemployed, but they have no room to talk. The fact remains our long term unemployment problem is systemic and structural and no amount of 'moving chairs on the Titanic' will change that. Until economic inequality is addressed. This can only be done by raising taxes which will increase genuine productivity as well as job creation, as the authors of The Indebted Society have shown.