Tuesday, December 10, 2013

Falsely Blaming Baby Boomers for Smaller Labor Force

For the past 5 years, the U.S. has had more "non-starters" than "quitters" in the labor force. So tell the Wall Street Journal to get off my damn back! ~ A Baby Boomer

Ever since the owner of Fox News bought the Wall Street Journal in 2007, it appears that the once esteemed and unquestionable newspaper appears to be much more ideological these days. Rather than just reporting "news" that would be significant to use when business leaders, economists, lawmakers and public policy advocates are attempting to make well-informed decisions, the WSJ often appears more bent in a political propaganda in an attempt to sway outcomes and public opinion, rather than just reporting what's actually happening.

Fox News, who regularly blames the jobless and the poor for being jobless and poor, now has their sister company, the Wall Street Journal, blaming Social Security, older workers, retirees and the disabled for a 35-year record low in the labor force participation rate. And as soon as the almighty Wall Street Journal publishes something, everyone else in the media (without fact-checking) regularly jumps on their band wagon and just regurgitates their inaccurate bile. (On the face, this appears to be another back-door attempt by the WSJ to use generational warfare to divide young and old on the subject of Social Security).

As of today, the labor force participation rate is the lowest it's been since February 1978 when Jimmy Carter was president. But it's not just because the Baby Boomers have been retiring, that the work force is shrinking, this has been going on since late in the Clinton administration. The first Baby Boomer, who born in 1946 (and who became eligible in 2011 to retire at the age of 65) didn't retire until 2008 when she turned 62.

The labor force participation rate, according to data from the Bureau of labor Statistics:

Labor force participation rate -- 2000 to 2013

Labor force participation rate -- 1946 to 2013

The share of Americans 25 to 54 years old (who are in the labor force, either by working or actively looking for work), have also been dropping out of the labor force. The participation rate fell during the 2001 recession and has never recovered since then. Another slide began because of the 2008 financial crisis. But this trend among prime-working-age Americans cannot be simply explained away by retiring Baby Boomers, as the Wall Street Journal claims.

What the Wall Street Journal also never mentions, nor do the Fed studies that they cite, is the lack of new entrants into the labor force to re-supply any retirees (Boomers or otherwise).

According to the National Center for Education Statistics, the U.S. has had over 3 million high school graduates every year during the Obama administration --- those who would be potentially entering the work force for the very first time, even if they go on to also enroll in college.

So on average, theoretically, the U.S. would need to have 3 million retirees and disabled people every year going on the Social Security "dole" to necessarily break even on the labor force participation rate. But that hasn't been happening.

According to data from the Social Security Administration, as of January 2009 when Obama first took office, the U.S. had a total of 39,927,185 retired and disabled workers receiving a monthly Social Security benefit --- 32,484,808 retired and 7,442,377 disabled.

Almost 5 years later, as of November 2013, the U.S. had a total of 46,775,537 retired and disabled workers --- 37,833,877 retired and 8,941,660 disabled --- for a net gain of 6,848,352 retired and disabled workers (5,349,069 that retired and 1,499,283 who were awarded on a disability claim).

* It's also worth noting that, while disability "claims" were up in the aftermath of the Great Recession, a Congressional Budget Office study says claims are always up during recessions. But actual disability "awards" are down. Source: SSA (See the full post with data here)

Social Security disability awards

As for the high school graduating classes of 2008 through 2013, the U.S. has had an estimated 15,403,905 high school graduates --- a difference of 8,555,553 who might otherwise be in the labor force when compared to the additional 6,848,352 retired and disabled workers during that same period of time.

The Bureau of Labor Statistics reports that only 48.8 percent of the 3.2 million youth who graduated from high school (just from last year alone) were "in the labor force". In a 14-page report by Rutgers, they noted a whopping 44% of high school students were unemployed ----- meaning:

Since Obama's first year in office, the U.S. has had more "non-starters" than "quitters" in the labor force.

Last year, in a study by the Kansas City Fed (that the Wall Street Journal had cited) they reported:

"An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years. Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment."

And from the most recent study by the Philly Fed (dated November 19, 2013) that the Wall Street Journal had also cited:

"As of the first half of 2013, roughly 5 percent to 6 percent of individuals in the working-age population are out of the labor force because of disability, 16 percent to 17 percent are out of the labor force because of retirement, and the rest have left the labor force for other reasons."

Shigeru Fujita at the Philly Fed noted that the nonparticipation in the labor force (due to disability) raised the overall nonparticipation rate by 1.4 percent (between the beginning of 2000 and the end of 2011); but he also adds, "In the last two years or so, however, it has been flat, thus making no contribution to the overall decline in the participation rate." (In other words, not since the first Baby Boomer retired last year.)

However, his study also noted that, "Nonparticipation due to retirement did not rise until the end of the Great Recession, but started to increase significantly in 2010. Since the start of 2012, it has been the only component that has contributed to the increase in the nonparticipation rate."

While although Shigeru Fujita doesn't specifically say so, I would also note that this increase for retirees was also because many older workers who lost jobs in 2008/09, had collected unemployment benefits until 2010 (when federal extended benefits were available up to 99 weeks in some states). But then when those UI benefits were exhausted (and after not finding work again), with no other options available to them, many of these long-term unemployed Baby Boomers were forced to take early Social Security retirements at the age of 62 (and/or prematurely raided their pension funds and 401ks). And many of those who were not old enough, applied for programs such as food stamps, TANF and Medicaid.

Older workers who were NOT laid off during the recession, were delaying retirements and working longer than expected to recoup losses in retirement plans and home equity values. Much of the churn rate has been because people were being laid off and then rehired again, and not just because older workers were leaving the work force (making room for new people) or because other workers were moving on to better jobs. (See the hires and separations in the Bureau of Labor Statistics JOLTS report.)

The study by Shigeru Fujita for the Philly Fed also goes on to say that "the number of disabled persons has been steadily rising". Yes, but as previously mentioned, only in proportion to the population, whereas, although disability "claims" have risen, actual wards have actually declined last year. When disabled people (after sometimes being out of the labor force for 3 years or longer while appealing their claims), and who are eventually denied for SSDI benefits, are STILL remaining out of the work force.

It's also important to note in the Philly Fed's study:

"There is no question that more workers dropped out of the labor force due to discouragement during and after the Great Recession and that there are more discouraged workers now than before the recession. These facts clearly reflect the continued weakness of the U.S. labor market."

So, as people are retiring (or being forced into early retirement), naturally this would also proportionately increase the share of older people "leaving" the labor force, but also because not enough new people are entering the labor force (providing a healthy churn rate) to fill the empty gaps left by older retiring workers.

In the conclusion of the Philly Fed's study --- in the very last lines of the very last paragraph --- Shigeru Fujita finally reveals:

"Lastly, unfortunately, I could not pin down an underlying cause of the increase in nonparticipation among those who do not want a job. This appears to be an important area for future research."

But yet, the Wall Street Journal has concluded the research for him, in the title of their recent article "Work Force Is Shrinking Because of Retiring Boomers".

* I do have one argument with Shigeru Fujita though --- when he says, "among those who do not want a job" ---- because discouraged workers who drop out of the labor force, do so, because they think (and rightly so) that they won't be able to find a job, and not because they don't want one. From the Bureau of Labor Statistics:

"Discouraged workers are a subset of persons marginally attached to the labor force...who want and are available for work, and who have looked for a job sometime in the prior 12 months" --- but who gave up looking for imaginary and non-existent jobs.

At the very end of the article in the Wall Street Journal, we notice that they are mostly concerned about the Fed curbing its bond-buying stimulus program at its policy meeting next week.

Also from the Wall Street Journal: Confessions of a Quantitative Easer:

"I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time."

Quantitative easing defined by Aljazeera: Real Money Matters --- Since November 2008, the Fed has pumped roughly $3 trillion into the economy, and two-thirds of it is sitting in the Federal System earning interest for big banks. The majority of the funds created by QE are gathering dust in the Federal Reserve System as excess reserves over and above what commercial banks are required to hold to protect against loan defaults. Excess Reserves of Depository Institutions have exploded from $267 billion in October 2008 to $2.2 trillion in September 2013. Banks aren’t willing to lend the money out or because there simply isn’t the demand for the loans that could be created. Either way, the banks don’t have to lend excess reserves to realize a return because the Federal Reserve pays 0.25% interest on them.

Ohhhhhhhhhhhhhh, but the Wall Street Journal wants to blame Baby Boomers for a bad job market.

5 comments:

  1. As an afterthought --- this makes me wonder --- how many busy people just scan the headlines, or quickly preview the abbreviated news feeds, without actually reading the entire article, let alone researching the content within these bogus op-ed pieces. The author of the article said "the Fed said" when the Fed said said no such thing. The Wall Street Journal engages in too much sensationalism and yellow journalism. The editors should be ashamed of themselves (if they had any shame at all).

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  2. Fox News was caught paying another top exec in 'Hush Money' for not spilling the beans. The owner of the Wall Street Journal would have had to "ok" this bribe.

    http://www.huffingtonpost.com/2013/12/09/fox-news-brian-lewis-payment_n_4414656.html

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  3. Re: The First Baby Boomer, "She retired in 2008 at age 62"

    Thanks, and yes --- but she would have been at full retirement at age 65 in 2011 (I also mentioned early retirees) -- and the Fed report said "flat" for the last two years (since 2011) -- so maybe I should have re-worded it differently --- because if EVERY Baby Boomer had retired early at age 62 starting in 2008, maybe then we could blame the Boomers for a declining participation rate --- but only then for the last 5 years, even though it's been in decline for the past 14 years.

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  4. Below I linked to a graphic illustration of the fact that QE asset purchases, while zooming the broad measure of money supply, have also zoomed excess reserves, and thus have not significantly increased money in circulation, which would be actual, like... 'money printing'. The banks have not been lending out those funds because first, loan demand has remained low and second, significant debt has been extinguished by businesses and individuals trying to right balance sheets. Most of those QE funds sit in the form of computer 0s and 1s on depository institutions' mainframe computers.

    http://research.stlouisfed.org/fred2/graph/?g=oyz

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  5. Robert Reich (November 2014)

    "People with college degrees continue to earn far more than people without them. And that college “premium” keeps rising. Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees. In the early 1980s, graduates earned 64 percent more [but] a college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping. In fact, it’s likely that new college graduates will spend some years in jobs for which they’re overqualified. According to the Federal Reserve Bank of New York, 46 percent of recent college graduates are now working in jobs that don’t require college degrees. Employers still choose college grads over non-college grads on the assumption that more education is better than less. As a result, non-grads are being pushed into ever more menial work, if they can get work at all. For years we’ve been told globalization and technological advances increase the demand for well-educated workers. This was correct until around 2000. But since then two things have reversed the trend. First, millions of people in developing nations are now far better educated, and the Internet has given them an easy way to sell their skills in advanced economies like the United States. Hence, more and more complex work is being outsourced to them. Second, advanced software is taking over many tasks that had been done by well-educated professionals. As a result, the demand for well-educated workers in the United States seems to have peaked around 2000 and fallen since. But the supply of well-educated workers has continued to grow. The New York Times calls them "Generation Limbo" --- well-educated young adults “whose careers are stuck in neutral, coping with dead-end jobs and listless prospects.” A record number are living at home. Given all this, a college degree is worth the cost because it at least enables a young person to tread water. Without the degree, young people can easily drown." (MY NOTE: I guess that at this rate, one day they'll need a PhD to mops floors.)

    http://robertreich.org/post/103472733520

    Timothy Taylor (November 2014)

    "The age group with by far the biggest rise in those saying they don't want a job since 2000 is the 16-24 age group ... We are in the midst of a social change in which 16-24 year-olds are less likely to want jobs. Some of this is related to more students going on to higher education, as well as to a pattern where fewer high school and college student are looking for work. I do worry about this trend. For many folks of my generation, some evenings and summers spent in low-paid service jobs was part of our acculturation to the world of work. As I've noted in the past, I would also favor a more active program of apprenticeships to help young people become connected to the world of work.

    http://conversableeconomist.blogspot.com/2014/11/underutilized-labor-in-us-economy.html

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