The decline in the labor force participation rate helps explain the substantial decline in the US unemployment rate over the past couple of years. That decline has helped bring the Federal Reserve to the point that a December rate hike is thought to be extremely likely barring a significant disappointment at the end of the week with the November jobs report.
This Great Graphic was posted on Ritholtz’s Big Picture Blog and was compiled by Deutsche Bank’s Torsten Slok from BLS data. It is based on last year’s data.It shows the various reasons why people of different ages are not in the labor market. Two reasons stand out.
For the youngest age cohort, the blue bar illustrates a role of education. It keeps young people out of the labor market. Although spending on education is classified as consumption, most people seem to regard it as an investment. If secondary education expenditures would be classified as investment, US investment and especially savings are much closer to other high income countries (as a percentage of GDP).
For the older cohorts, the gray bar shows retirement. It becomes evident at the 51-55 age group and grows as one might expect. The early onset reflects early retirement pressures. Separate studies have suggested that many of the men who are opting for early retirement have wives that work (and maybe covered for health care benefits from her employer).
The color of the bar (red)for those who have left the work force due to disability makes it stand out. Of course, older people have more health issues that younger workers and as the workforce ages, there may be something natural about this. However, there have been some rules changes, making it easier to qualify for disability insurance and the payout has increased.
Congress widened the definition of disability, though not recently. The legislative history goes back to at least 1980. Carter had signed the Disability Amendments Act of 1980, which encouraged tighter oversight of Social Security disability benefits.
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