NewDealdemocrat — China, not automation, is by far the biggest factor in the decline of prime age labor force participation

Perhaps the biggest mystery in economic analysis in the last few years has been trying to find an explanation for the big decline in labor force participation since 1999. A recent NBER working paper by Abraham and Kearney has posited the most comprehensive answer to date. Since it was summarized in this Washington Post article, I’m just going to quote a few paragraphs and suggest that you read the entire article....

Angry Bear
China, not automation, is by far the biggest factor in the decline of prime age labor force participation
NewDealdemocrat

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As is clear from the chart above, the employment-population ratio (the blue line) has collapsed from a high of 64.4 in 2000 to 59 in 2014 (and had risen to only 60.1 by the end of 2017).* During the same period, the average real incomes of the bottom 90 percent of Americans have stagnated—barely increasing from $37,541 to $37,886.

That should be indicator that the problem is on the demand side, that employers’ demand for workers’ labor power has decreased, and not the supply side, that workers are choosing to drop out of the labor force.

But, as I explained back in 2015, that hasn’t stopped mainstream economists from blaming workers themselves—especially women and young people, for being unwilling to work and turning instead to public assistance programs and raising children and being distracted by social media and digital technologies, as well as Baby-Boomers, who are choosing to retire instead of continuing to work....

Occasional Links & Commentary
Where have all the workers gone?
David F. Ruccio | Professor of Economics, University of Notre Dame

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EconoSpeak
Begun the Trade War Has
ProGrowthLiberal

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Michael Roberts Blog
Robots: what do they mean for jobs and incomes?
Michael Roberts

Marshall Auerback — The Fed’s Conundrum

Caught between a rock and a hard place. Maybe the folks in charge will eventually figure out that Keynes was right about effective demand after all, so the solution is fiscal and not monetary, as the numbers are shouting at them.

 Macrobits by Marshall Auerback
The Fed’s Conundrum
Marshall Auerback

Bill McBride — Goldman Sachs [Jan Hatzius] on the Labor Force Participation Rate

From Goldman Sachs chief economist Jan Hatzius:

• Since the start of the Great Recession in late 2007, the labor force participation rate has fallen by more than three percentage points, including a sharp drop in April back to the late-2013 lows. The extent of the decline has surprised many economists, ourselves included. What accounts for it, and will it continue?

 Hatzius is upbeat.

Calculated RiskGoldman Sachs on the Labor Force Participation Rate
Bill McBride

Heidi Shierholz — Number of Missing Workers Jumps to All-Time High

Falling unemployment rate. Cheering. Falling unemployment rate AND falling participation rate? Bronx cheer.

After a few months of the labor force participation rate (LFPR) showing what was hopefully early signs of strength, it dropped back down to its low of the recovery in March. The biggest drops in labor force participation in March were among young workers; the LFPR of workers under age 25 dropped 1.3 percentage points, from 55.6 percent to 54.3 percent. (However, these series are erratic due to small sample sizes, and the April decline in the under-25 LFPR was simply a reversal of its jump up in March.) The biggest drop in LFPR in April was among men under the age of 20. To my knowledge, data on unemployment insurance exhaustions by age don’t exist, but it is unlikely that young workers are a big proportion of exhaustions. This means that the April drop in labor force participation is likely not being driven by the expiration of federal unemployment insurance benefits last December as some have suggested, but simply by the weak labor market.

There is currently an all-time-high of 6.2 million missing workers (potential workers who are neither working nor actively seeking work due to the weak labor market). Almost a quarter of them (1.4 million) are under age 25. The figure below shows that the unemployment rate for young workers would be 18.4 percent instead of 12.8 percent if the missing young workers were in the labor force looking for work and thus counted as unemployed.

Working Economics
Number of Missing Workers Jumps to All-Time High
Heidi Shierholz | Economist, Economic Policy Institute
(h/t Mark Thoma at Economist's View)

Bruce Krasting — On The Labor Force Participation Rate

I was blown out by the Labor Force Participation Rate (LFPR) data released Friday. Down 4 tics to 62.8%. That sounds like no big deal, but it is. Either there is something out of whack with the data, and it will be revised, or there will have to be some serious rethinking by the folks who develop long-term economic models, and also at the Federal Reserve.
Consider the short term consequences. The Fed has hung its monetary hat on an unemployment rate of 6.5%. We have been told, time and again, that if the magic number of 6.5% unemployment is reached, the madness of US monetary policy will be relaxed. Should the LFPR continue to drop, the hurdle rate for changes to Fed policy will come sooner than is anticipated.

The Atlanta Fed has an interactive tool that looks at this (Link). It takes into consideration the variables of the unemployment picture and produces a report of how many jobs are needed per month over a given period, to achieve the 6.5% level....

I've looked at long-term forecasts for LFPR from CBO and BLS. They all have the participation rate dropping over time, but they do not have the drop occurring in the present. What if the 'New Normal' is a participation rate that hangs in the low 60% level for the next decade? It translates into much larger deficits at the Federal and State levels. It means that there will be less consumption as there will be fewer paychecks, and that means a much lower rate of growth of GDP.

So either the LFPR turns around and starts headed higher very soon (and stays higher for another decade), or the USA is in for a prolonged period of sub par growth and very high annual deficits.

On The Labor Force Participation Rate
Bruce Krasting