Fed, Fishing, Labor Data

Bob Eisenbeis weighed in on the unemployment questions addressed by Philippa Dunne and Doug Henwood in our Sunday morning piece:

“I have long argued that looking at new claims without reference to the size of the labor force gives a misleading picture. Yes, the number of initial claims in relation to the size of the labor force is at a historical low. But on the flip side, if the economy created jobs at the same rate today that it did between 1960 and 1970, the jobs number should be four times what it is. Similarly, moving the reference date to 1983–2006, the number should be two times what it is now.”

My conversation with Philippa Dunne focused on the falling labor participation rate. Why is it falling? Where is it headed? I asked if we could see an unemployment rate below 3% while the participation rate trends down to 60%. Those would be remarkable numbers. Ten years ago we would have thought them impossible. Now we are getting close. So, at the suggestion of Bob, we went digging deeply into the weeds. Our effort yielded some interesting numbers.

Readers are invited to look at the changes in the labor force participation rate when examined by gender and by age. The changes are revealing. Folks above 50 have a rising participation rate while young folks have a falling rate. Here is the link to the fully detailed table at the Bureau of Labor Statistics.

Bob and I considered this question: How can we measure something (like the U3 Unemployment rate) and base policy on it when we do not understand what is going on? (I’m referring to the shift in the participation rate for those above age 55.) Here’s Bob’s observation:

“Men have been slipping from the labor force since the end of WWII while Women were entering and then began to slack off – not just after the financial crisis but long before 1998. There are a lot of explanations, but there doesn’t seem to be a “natural participation rate,” hence all the demographic explanations.