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Decline in labor force driven by retirement, not discouragement

There’s a persistent lie making its way through popular media — and often twisted through social media. Like any good lie it starts with a kernel of truth but gradually becomes a clear and open lie.

The truth — the labor force participation rate is at a 40 year low, down to 63% from a high over 67%.
The lie — that this is the result of people giving up looking for work, a sign that the “recovery” is weak (which can be blamed on President Obama).

We’ve discussed this before, but it’s important to confront the lie as clearly as possible. Yes, the labor force is shrinking — but this has been due to retirement of Baby Boomers for the last two year. And yes, the trend will continue. More importantly, this is an opportunity that will help us when the dust finally settles on the working careers of the Baby Boom.

First we need a statement of the truth, and it is shown clearly in this graph. The percentage of people in the civilian labor force (those over 16 who are not in jail or another institution, which is to say capable of working) who have a job is dropping rapidly:

By taking these data back to 1948 you can see the rise of the Baby Boom that got us to a high participation rate as they entered the workforce in large numbers starting in 1965 — but the chart doesn’t take off until 1968. It levels off in the 1990s once that generation was absorbed and then starts to fall off in waves with the start of the current depression in 2000.

That’s the truth, the reality. The lie is that this is a new thing.

The lie starts through implication more than direct falsehood. “This Obama economy is holding people back. The workforce participation rate is the lowest that it’s been in 40 years,” according to Rep. Lynn Jenkins of Kansas. There is one sentence of clear fact following a statement of supposition and politics. They don’t belong together.

Take it from the Philadelphia Federal Reserve, which published the most complete paper on the topic on 19 November 2013:

The decline in the participation rate since the first quarter of 2012 is entirely accounted for by increases in nonparticipation due to retirement.

In 1947 the Baby Boom started — 3.9M kids were born, versus only 2.8M at most for any year during the war. They turned 65 years old in 2012, and many of them who had been working retired. This will accelerate as we hit the peak years of the Baby Boom — from 1952 to 1957 3.9M-4.3M were born every year. As they retire, jobs are opening up for the next generation and things should change dramatically once they are 65 in 2017.

That doesn’t explain the entire graph, of course. The Philadelphia Fed saw what happened in 2000:

Between the first quarter of 2000 and the second quarter of 2013, the participation rate declined 3.9 percentage points. Roughly 65 percent of the decline is accounted for by retirement and disability. The increase in nonparticipation due to retirement has occurred only after 2010, while nonparticipation due to disability has been steadily increasing over the last 13 years, except for the last few years.

This is best shown in the graph from the same report, showing the reason for leaving the workforce by year:

Disability rises constantly, which may be explained by the aging workforce ahead of being eligible for retirement. But the category “other” — including becoming a full-time student, parent, or just a bum — rises at first and then levels off after 2010. It’s not about people leaving the workforce because they can’t find a job.

That means that you can’t blame Obama for it.

There are articles that lean heavily towards the lie and insist that this has to be Obama’s fault. Most do not directly lie, but people linking to the articles on various social media sites get the message — people can’t find work and don’t count anymore, right? No, that’s not right. But it’s clearly the message that is actively being spread as the economy generally rebounds slowly.

Where did this persistent lie come from? Rush Limbaugh is trying to take credit for first floating the declining workforce participation in February 2011, and that seems to be the earliest reference. He may be the origin of this lie.

That’s not to say that with the 4M jobs created in the last two years all is rosy. Barataria has been focused carefully on the unemployment rate among 20-24 year olds, which has declined from 14% to 11% in the last two years. That’s still terribly high, but it’s easily explained. Youth unemployment is a problem throughout the developed world, running as high as 50% in Spain and Greece. Job growth has come largely at small to medium companies who are looking for experience to fill very specific needs — something not easily filled by a kid right out of college. But more importantly, the decline in manufacturing jobs has been devastating since 2000, declining as much as 1/3 of the total jobs before weakly recovering:

The 5.4M manufacturing jobs lost between 2000-2010 are important, because they are good jobs for people right out of high school with few skills. Often, they pay people to learn on the job and rise through the ranks as they become more skilled. They are a great opportunity for many young people who don’t yet know what they want to do. Losing these jobs has been devastating — and a defining feature of our economy since 2000.

There is a big problem, and it long predates both Obama and Bush. It’s an economic cycle, a particularly destructive one, that Barataria calls “The Managed Depression.”

Restructuring an economy takes time after a depression, given that there has to be new faith where opportunity has been missing for a long time. The euphemism “Great Recession” has only served to mask the depth of this problem, putting the focus on 2008 as the down year — which is far from when everything started. The economy is getting better and hope is returning — but slowly.

The lie that people are hopeless and giving up looking for work is not supported by the data. The truth is a lot more complicated, and it shows that we’ve all been lied to for a lot longer than timeline given by Rush Limbaugh for this particular lie. But it is a lie — the decline in workforce participation lately has been entirely due to the retirement of aging Baby Boomers, and the losses before that are deeply troubling and point to an underlying weakness decades in the making.

Please help stop this terrible lie from circulating. Thank you.

This post was written by Erik Hare and originally published on Barataria. Follow Erik on Twitter: @wabbitoid.

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Comments (4)

  1. Submitted by Paul Brandon on 01/13/2014 - 11:01 am.

    A couple of questions

    You are identifying potential workers as people over 16 who are not in jail or other institutions. I don’t see any upper limit.
    If you restricted the age group to prime workers aged 18-55 would you see the pattern?
    To what extent are people retiring early to take advantage of pensions that might not be there in a few years (certainly public employees are doing this)?
    Are there subpopulations more likely to be dropping out than the general population?
    As you say — the truth is complex.

  2. Submitted by Arvonne Fraser on 01/13/2014 - 11:23 am.

    women in labor force

    Agreed, the statistics that identify potential workers as people over 16 who are not in jail, does distort the employtment picture because of increases in life span. Also, women joined the labor force in great numbers in the 1970s and continue to be employed so that also distorts the figures and is not mentioned in this article. Still, I agree the conservatives are using these statistics to blame Obama for not solving the employment problem. And also, the writer is right in that employers are demanding more experience from potential employees and thus contributing to the decline in youth employment. Thanks for doing this article. We need more serious analysis of this nation’s employment problem rather than political gamesmanship which too much our media concentrates on, thus adding to the distortion.

  3. Submitted by Dennis Tester on 01/13/2014 - 12:34 pm.

    25-to-54-years-olds

    “The drop in labor force participation was sharpest for African Americans, who saw a decline of 0.3 percentage points to 60.2 percent, the lowest rate since December of 1977. The rate for African American men fell 0.7 percentage points to 65.6 percent, the lowest on record. The decline in labor force participation was associated with a drop in the overall African American unemployment rate of 0.5 percentage points to 11.9, and a drop of 0.6 percentage points to 11.6 percent for African American men.”

    Baker, Co-Director of the Center for Economic and Policy Research, told PBS’s Judy Woodruff Friday that contrary to those who spin the falling labor force participation rate as mainly coming from retiring Baby Boomers, young workers are dropping out by the millions.

    “…it is easy to see the big falloff in labor force participation is among prime age workers, 25-to-54-years-olds. That is down by four full percentage points. That is equivalent to five million people in their prime ages. They are not retiring at age 50.”

    http://www.pbs.org/newshour/bb/business/jan-june14/jobs_01-10.html

    I’m a baby boomer and I don’t know anyone my age, even the government employees, who are retiring now. They’re afraid to.

    • Submitted by Paul Brandon on 01/13/2014 - 03:31 pm.

      Significance

      The numbers on African Americans that you cite (drops of about one half of one percent) are probably not statistically significant. The best conclusion is ‘no change’.
      The PBS interviews that you cite have a lot of vague generalizations, and deal with a very restricted age group of workers (25-to-54-years-olds). One would expect less of a retirement effect than a study with no upper cut off, or one of 65 years. Since most workers work into their sixties, this would appear to be a biased choice.
      They also don’t consider underemployment: remaining employed but at reduced hours, benefits or pay rates.

      Their most significant conclusion is at the end, and is not new: this is a ‘recovery’ that has boosted profits but not wages.

      Finally, I’m quite willing to agree that you’re unique! 😉

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