Despite the arguments being made over the past 5 years, that older workers make up a great part of the decline in the labor force (which has been in a long decline since 2000), this post shows that it's mostly prime-age workers and "non-starters" (those attempting to enter the work force for the very first time) that make up the greatest part of "discouraged workers" and others who are "not in the labor force" — and that it's mostly because of a lack of jobs, and nothing more.
Forget that the population "growth" in the U.S. has slowed, but imagine if the U.S. had ZERO population growth going forward from this day on (from both births and immigration) — it still might take another 20 years to get back to full employment again. And it's only because there aren't enough jobs — and NOT because of "demographics" (aka "an aging work force"). If the population began declining today, the number of workers would eventually catch up to the number of jobs available (and wages would also rise). Currently the U.S. already has 3 million young people within the current population who are graduating from high school every year, while only 1 million older workers have been retiring (more details about this subject further on in this post below).
At one time, there were enough jobs for all those "older workers" (that is, those who are old now), and back then there were also enough new jobs being created for those first entering the job market. But if job growth had REALLY kept up with population growth, demographics wouldn't be an issue (or an excuse) today for any "slack" in the labor market. Automation, robotics and offshoring have eliminated so many jobs that, now, there simply are not enough jobs for everyone who is seeking work (or for those who are no longer looking, but still want a job). Just in lost manufacturing jobs alone, and with the multiplier effect, that could account for millions of lost jobs — jobs that would have otherwise went to those currently unemployed.
Many economists, media pundits and government officials have been saying “older workers” have been leaving the workforce, and that that’s one of the biggest reasons for the declining labor force participation rate (LFPR). While others like myself, have vehemently disputed this, and have been saying that older workers weren't "leaving", but were being "forced out" of the labor market. Especially if they had the bad fortune to be laid off (or were between jobs) during the Great Recession — because they were continually passed over for re-employment when the job market eventually picked up again after June 2009. Many, who managed to reach the age of 62 in 2008 (the first Baby Boomers), have since been forced to take early Social Security retirements with reduced benefits (because no one would hire them).
Sutton's Law states that when diagnosing, one should first consider the obvious. Such as: Is the labor force declining in proportion to the population because older workers are retiring? Or do we have "slack" in the labor market (too many people unemployed) because older workers are NOT leaving the work force (and retiring) to create more "churn" in the labor market? Which is it? Economists and the government wants to report both explanations. Earlier this year I suggested we use Sutton's Law to consider the obvious: It's because America's "job creators" haven't been creating enough jobs in the United States, for both older workers and younger people exiting high school and college (as either grads or dropouts).
Recently from The Hill : "Aging Population, Discouraged Workers Weigh on Labor Market Size". They referenced a CBO report titled "Slack in the Labor Market in 2014" that only focused on the decline since the recession began in 2007. Let's be clear: The long decline in the labor force participation rate began falling since April of 2000. I took issue with the CBO before on two other occasions: (March 1, 2014) CBO Wrong on Labor Force Participation Rate and (February 7, 2014) 2014 CBO Report on Labor Force—Debunked.
In a recent release, the Bureau of Labor Statistics (BLS) reports, "From January 2011 through December 2013, 4.3 million workers were displaced from jobs they had held for at least 3 years ... In January 2014, 61 percent of workers displaced from 2011 to 2013 were reemployed." I find it odd that the BLS only went back to 2011 — because, going back to the “official” end of the recession in June 2009, we actually have over 11 million more that are not in the labor force. And the way the BLS presented the numbers, they made it appear as though a larger percentage of those who left the work force were older workers. (See a screenshot from their report below with my notations in red. Click to enlarge.)
So getting back to the present debate: Some economists are saying that older workers aren't leaving the work force and are working longer to recoup losses in their home equity and retirement funds (several AARP polls have confirmed this). But that same BLS release also shows 36.3% of those 65 and older are still working.
Below is a sampling of what some people are reporting about "older workers" leaving the work force, even though younger workers are complaining that older folks aren't leaving fast enough to make room for them.
CBS (by Mark Thoma) - "During the Great Recession, many people dropped out of the labor force. Some of the exits were due to demographic factors and our aging workforce, and some were due to the economic downturn as workers got discouraged and quit seeking work. Determining the number of workers who will return to the workforce as conditions improve has been difficult, and most estimates have a strong measure of uncertainty. But recent economic research suggests that many long-term unemployed might never find a path back into the labor force." (*Because my rebuttal to his post, and others I listed below, was so long, I decided to post it here at my blog with all the statistics and sources.)
Wall Street Journal - Don’t Blame Shrinking Work Force Participation on Great Recession: "A decline in the share of Americans holding or seeking jobs is largely the product of longer-term factors such as a rising number of retirees rather than the aftermath of a particularly awful recession, economists at the Federal Reserve board say in a new paper."
Reuters - Drop in U.S. workforce due to aging, not weak economy: "The drop in U.S. workforce participation since the financial crisis is largely due to the aging of the American population and will not reverse even if labor markets improve, a paper to be presented at a Brookings Institution conference on Friday says."
The Heritage Foundation: Not Looking for Work: Why Labor Force Participation Has Fallen During the Recovery: "In addition to more than 6 percent unemployment five years after the recession officially ended, labor force participation has fallen sharply since the recession began in December 2007. Today, 6.9 million fewer Americans are working or searching for work. The drop in unemployment since 2009 is almost entirely due to the fact that those not looking for work do not count as unemployed. Demographic factors explain less than one-quarter of the decreased labor force participation. The rest comes from increased school enrollment and more people collecting disability benefits. Over 6 percent of U.S. adults are now on Social Security Disability Insurance." (* Note: I dispute the Heritage Foundation about disability rates and their other false claims further below.)
Antonio Fatas: "The crisis might have raised awareness that demographic trends (aging) combined with weaker productivity growth will be unable to deliver the same growth rates as before. This is bad news but if this is what is going on, then we need to accept it or find ways to reverse those trends (increasing retirement age, finding levers for faster innovation...)." (* Note: I guess they feel the same way in Italy as they do here in the U.S. — Their retirement age was just about the same as ours (until they raised it). And for a long time the Republicans have wanted to raise ours to 70, even though there aren't enough jobs for older workers as it is now.)
I can't speak for Italy, but in the U.S. (despite what the Fed, the CBO, the BLS, the White House, the media, and all of our esteemed economists have been saying) an "aging work force" has ABSOLUTELY NOTHING AT ALL to do with "slack" that is currently in the labor market. It's a lack of jobs. Period. Let me explain:
Before the recession "officially" ended in June 2009, since 2008 we've had about 1 million working-age Americans every year retiring on Social Security — and another 3 million a year graduating from high school; and this doesn't include college grads, who are taking jobs that don't require college degrees and are displacing those with only a high school education or a GED (At this rate, one would eventually need a PhD to flip burgers, work for the sanitation department or join the Army).
Lets look at a few simple numbers and do some basic math: According to the Bureau of Labor Statistics, there are currently over 6.3 million working-age Americans not counted in the unemployment rate (and who are not in the labor force) but WANT A JOB NOW. I posted about this here: 6.3 Million Unemployed not Counted in "Jobs Recovery"
* 2nd source: St. Louis Fed - http://research.stlouisfed.org/fred2/series/NILFWJN
* 3rd source: The Bureau of Labor Statistics - http://data.bls.gov/timeseries/LNS15026639
SOME OTHER BASIC FACTS TO CONSIDER: Stats below are for June 2009 (end of the recession) to August 2014:
1) From June 2009 to August 2014, the U.S. has had an additional 11.2 million people "not in the labor force", but not counted as "unemployed". (* Source: Bureau of Labor Statistics - http://www.bls.gov/webapps/legacy/cpsatab16.htm)
2) As of August 2014, we currently have 9.6 million counted as "unemployed", but are also still counted as part of the labor force. (* Source: Bureau of Labor Statistics - http://www.bls.gov/news.release/empsit.nr0.htm)
3) The U.S. had 9.7 million net new jobs created from June 2009 to August 2014. (* Source: Bureau of Labor Statistics - http://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth)
4) From the end of June 2009 to the end of August 2014 (62 months) the U.S. had a monthly average of 12.8 million workers unemployed. (* Source: Bureau of Labor Statistics - http://www.bls.gov/webapps/legacy/cpsatab1.htm) NOTE: There are actually more people unemployed today in September 2014 than there were in October 2009 when the New York Times reported "U.S. Unemployment Rate Hits 10.2%, Highest in 26 Years". Back then, it was 15.9 million Americans "officially" counted as unemployed — more than at the peak of the Great Depression in the early 30s. So how many are REALLY out of work today? Hmmmmmm?
5) From June 2009 to August 2014 the U.S. has had an additional 7 million workers in payment status for Social Security retirement and disability. They are counted as "not in the labor force" and not counted in the unemployment rate. (* Source: Social Security Administration - http://www.ssa.gov/oact/ProgData/icp.html)
* Note: It's not older workers slithering off into retirement that's driving the declining labor force. There are many more that are unemployed — such as those who have been laid off since 2008 and have never found work again (and are not counted in the U-3 or U-6 rates). They were already labeled "long-term unemployed" long before the recession ended in June 2009 — and then they were counted as "discouraged workers" for being unable to find a non-existent job, and then they were relegated to the government statistics as "not in the labor force". That's one reason why the unemployment rate has dropped. There were also those who were forced into early retirements, because they couldn't find work either.
From Two Reports: Studies by the Urban Institute for 2008-2011 and the Government Accountability Office for 2007-2011 show that there are more older workers now because they need the money after the values of their homes and retirement savings plummeted ... Just a third of those 62 and older found a job within a year after becoming unemployed ... but when they turned 62, about half of them initially gave up their job search and opted for early Social Security benefits (getting 25 percent less that if they could have waited until their full retirement age.)
- Report (8 pages) Urban Institute:
- Study (90 pages) U.S. Government Accountability Office:
- Links found at AARP:
And yes, some people went on disability, but many of them (retired and disabled alike) would have also preferred to work (if they had been offered a job). Despite what others like the Heritage Foundation says, very little of the decline in the labor force has to do with those going on disability either. The number has increased, but only in proportion to the work force; and while although "claims" have risen since the recession (like they always do during economic turndowns), actual "awards" have declined, while "terminations" have also increased. The number of people in payment status in the disability program make up only a tiny share of those who left the labor force when compared to "discouraged workers" (mostly prime-age workers) and "retirees" since 2008. (See my posts: 8.9 Million on Disability vs. 92.5 Million not in Labor Force and Older Workers, Retirees, Disabled, Boomers and the Declining Labor Force
6) Since the Great Recession "officially" ended, from June 2009 to August 2014 (during six school years), we also had a total of 15.7 million new high school graduates — not counting dropouts. (* Source: The National Center for Education Statistics - http://nces.ed.gov/programs/projections/projections2021/tables/table_13.asp?referrer=list)
* Note: College students, who choose not to work, are also counted as "not in the labor force". We can assume for every high school grad who goes on to college, we also have another college grad (or a college dropout) exiting school to enter the job market (usually for the first time), canceling out each high school statistic. But economists use "young people going to school" as part of the reason for a declining labor force participation rate. But what about all those who go to school AND work (or want to)?
Now consider this: From 2008 to the end of 2013, almost 24 million long-term unemployed Americans were out of work at least 6 months and received federal extended unemployment benefits during that time. Over 7 million unemployed Americans (at one time, during several consecutive months) received these benefits — and called themselves the 99ers — and had protested for a "Tier Five" extension in these benefits after being out of work longer than 99 weeks without ever finding work again. Where did they all go? There weren't that many jobs created! (* Source: White House Report - http://www.whitehouse.gov/sites/default/files/docs/uireport-2013-12-4.pdf)
So instead of saying older worker ARE (or ARE NOT) leaving the work force, or that more young people are going on to college, or that high school kids aren't getting the on-the-job training that they need to work (even though they're not), or that our work force lacks the necessary skills (which they don't), why not just say the truth (and the most obvious): America's "job creators" aren't creating enough jobs (in the United States); and it's because their profits are already at record highs and they see no real need to repatriate profits from overseas or to reinvest them (or risk them) here at home. They have been doing "more with less" and will continue to offshore, downsize, automate and robotize whenever they can to increase profits. That is just the nature of our capitalist economy.
The first electric car was just made with a 3-D printer. How long will it be before all human labor is obsolete? When will the job creators start being taxed to pay all the displaced workers a Basic Income? (See my post titled Cash Transfers vs. Quantitative Easing)
The employment-population ratio is at a 30 year low and the labor force participation rate is at a 35 year low — and both the Fed and the BLS project a further decline going in to 2022. But it's not because we have too many old people not participating in the work force. And we don't have too much "slack" in the labor market because not enough old people are retiring. It's because we don't have enough jobs. PERIOD. Maybe after all the Baby Boomers die (and with ZERO population growth), maybe then there will be enough jobs for everyone. But until then, expect this:
The Daily Beast: 'Made in China' Now Being Made in Africa - "The cost of labor in China is going up, so manufacturers are moving to Africa, and they’re playing all the angles."
* NOTE: The labor force has been in decline since 2000, but the first Baby Boomer didn't retire until 2008 at the age of 62 (Meet the very first Baby Boomer here). Since the beginning of 2001 until the end of 2012, the U.S. has lost 64,037 manufacturing facilities, mostly due to offshoring. The chart below (click to enlarge) is the labor force participation rate (solid) and estimated trend component (dashed) since 1976 (Source: Federal Reserve -- Aaronson, et. al. 2014).
The Fiscal Times: The Threat That Could Scar the Economy for Decades - "More than five years after the recession ended the U.S. economy is only one-third to half the way to fully recovered."