Economy — Disrupting America

Everything is Fine with the Economy, Right?

Tom Landquist Economy 0 Comments

Unemployement has been the statistic used for decades to measure economic health, but what about a less used statistic? The labor force participation rate. Let’s take a sloppy cannonball into the deep end today, and try to make sense of this topic.

Currently, our unemployment rate sits at a healthy 4.6%, which is a number we have not seen since august 2007. You know, just before all hell broke loose.

However, our current labor participation rate is at 62.7% and has hovered around 63% the last few years. For perspective, in 1948 when the statistics started to be more closely monitored the participation rate was at 58.6% and did not exceed the 63% mark until 1978. From 1990-2008 the percentage shifted around, but usually hovered somewhere around 66% as a general rule.

Unemployment has dropped roughly 5% since 2009 while the labor force participation rate has seen approximately a 3% decline. What this means, is that while unemployment is dropping, indicating an upswing in our economic fortunes, the decline in our workforce participation deserves further consideration, and is obviously a factor in the declining unemployment rate.

How Big of  Deal Is The Declining Labor Participation Rate?

Considering our current participation is at its lowest avg. since the late 70s through early 80s, it is a cause for concern. But perhaps there are some explanations outside of the obvious “people are just lazy” declaration we might have assumed was coming.

Between 2000-2010, the number of Americans over the age of 65 has grown by 5 million, and there are currently around 75 million baby boomers entering or about to enter retirement. The percentage of Americans over the age of 65 is expected to increase 5% in proportion to the the rest of the population by 2030. This trend towards baby boomer retirements is an obvious example of the complex nature of this statistic.

College participation has also greatly increased in our culture, and in turn the amount of fully employed young adults has declined as their school schedules have become the driving force in their lives. From 2006-2012 the percentage of non-working college students went from 5.8% to 7.1%. This figure demonstrates a predictable effect the focus of college education is having on our work force, particularly in relation to young adults not holding full time jobs.

In many cases, these aren’t poor people getting by through tax-funded programs, they are children of the more well-off members of our society, who simply have no need to work and can focus on their studies. The promising part of this statistic is that even though we may be lowering workforce participation marginally, we are also pumping out more employable people, who will be statistically less likely to need assistance in the future.

Everything Is Fine Then?

Look at how we asked that question. Total lead in to a nope.

Most of the gains in employment have come in lower wage jobs, and between retirement, increased claims of disability from younger demographics than previous generations, and increased focuses on automation and international trade, our workforce is far from secure. We have a lot of challenges to face in both the near and distant futures, but none of them are unmanageable, they just require awareness and focus.

The dropping unemployment rate is absolutely good news, especially given the context of the global financial struggles over the last decade. However, critics pointing at the declining labor participation rates have highlighted an area of concern, we would be fools to ignore. It may not be the simple answer either side painted it out to be using one statistic or the other, but the truth in this case, and almost always, lies somewhere in the middle of those explanations for our current state of affairs.

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