Losing participation points

July 17, 2014

Not signed up for the Counterparties newsletter yet? Click here.

Today, the White House tried to answer one of the thorniest questions about the U.S.’s post-recession economy: why, despite the recovery, has the percentage of working-age Americans that are either working or looking for work steadily fallen? At the beginning of the recession in December 2007, what economists call the labor force participation rate was 66%. It is currently 62.8%, the lowest it’s been since the 1970’s.

About half the answer, the Council of Economic Advisors says, is that America’s workforce is getting older and “older individuals participate in the labor force at lower rates than younger workers.” Another third of the drop is due to pre-recession trends like declining participation by so-called prime age workers, plus the particularly nasty but inchoate effects of the Great Recession, like a big rise in the ranks of the long-term unemployed (economists think this pushes down the participation rate but are not completely sure why). Another sixth of the decline is due cyclical factors (the normal ups and downs of the economy).

Business Insider’s Myles Udland points out that the White House is chiming in on a highly politicized debate regarding just how strong the labor market is. The Obama administration is saying, the WSJ’s Josh Zumburn writes, that “only one-sixth of the decline is clearly attributable to the weak economy.”

Matt Yglesias thinks the most important issue for ordinary people isn’t about demographics or business cycles, but about what the paper calls the “residual”: the fall in the participation rate that we can’t quite figure out. Unfortunately, he says the study doesn’t come up with any firm answers about what’s causing this chunk of the decline. As Felix Salmon pointed out in 2012, the last time the participation rate was this low, trends like women joining the workforce en masse were still unfolding. Other factors are at work now, and are part of the reason why the US is in the midst of its weakest post-war recovery. — Ben Walsh

On to today’s links:

Possibly Useless Data
Business is looking up for at least one Spanish bespoke tailor – Bloomberg

Russians hacked the NASDAQ – Bloomberg Businessweek

Americans have no good reasons to complain about food prices – AEI

Billionaire Whimsy
William Koch claims victory in his fight for consumers against a “dark industry” (wine auctioneers) – Reuters

Please Update Your Records
The $400 million ISIS bank robbery may never have happened – FT

True Truisms
The best way to make cities safer for pedestrians and cyclists: slow down cars – Mike the Mad Biologist

Shadow Stats is complete nonsense. Ignore anyone who cites it – Matt O’Brien

“Microsoft’s strategy is… [11 paragraphs later] an estimated reduction of 12,500 employees” – Business Insider

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/