The issue: An analysis of demographics offers some answers
One of the economic puzzles of the recent recession is the decline in labor-force participation, from 66 percent at the start of the recession to 63.6 percent as of last month, the lowest level since 1979.
However, even with the major economic indicators trending upward and the unemployment rate down to 7.6 percent, the workforce still declined by half a million, bringing to 6.4 million the number of “missing” workers.
TWO EXPLANATIONS suggest themselves, both bad. First, the underlying labor market could be far weaker than previously believed; second, that large numbers of unemployed workers have completely given up and are unlikely to return to the workforce even as hiring continues to pick up.
They don’t just disappear. They work off the books for cash in the gray economy; they take early retirement; or, as 8.9 million of them have done, they go on disability insurance, up from 7.1 million at the start of the recession.
However, The Wall Street Journal says, “A close look at the numbers suggests both fears, though real, may be exaggerated.” The explanation, at least part of it, is as plain as the wrinkles on our faces.
Labor-force participation has been in long-term decline through both recession and recovery, and the trend would have continued regardless. Explains the Journal, “The main reason is demographics: Americans are much more likely to work between the ages of 25 and 54 than when they are older or younger.”
The baby boomers are aging and retiring, and the youngest of their children are not yet in the prime of their working lives. The older and younger segments of the population are the fastest-growing. “Adjust for the changing population and the ‘missing’ workforce shrinks to about 4.3 million,” notes the Journal.
YOUNG PEOPLE make up an increasing percentage of the population, but they increasingly choose to go to college, and employers, with more experienced workers applying for jobs, are less inclined to hire youths.
The recession and greater life expectancy have prompted many older workers to put off retirement, leaving fewer vacancies. Put it all together, the Journal says, and the labor force is missing only about 3 million workers. That’s not so good if you’re one of the 3 million, but in an economy as large as ours, 3 million is a manageable number.