Friday, January 10, 2014

The Labor Force is Shrinking for Lack of Jobs

And not because baby boomers are shuffling into retirement.

Bud Meyers

I get my "news" from many various sources. I like to cross reference the information I gather and come to informed conclusions. I often read the New York Times as well, and I like many of the op-ed pieces by their editorial board. I especially like Paul Krugman — and I even enjoyed the articles by Bruce Bartlett (A Reaganite) on corporate taxes:

But two people who write for the New York Times REALLY get under my skin. Not only do they offend me personally, but they also offend the average American's intelligence. One is Binyamin Applelbaum, an economic hack who is constantly writing false stories about Social Security disability and unemployment.

And Casey B. Mulligan is the other hack, who also must have an ideological agenda. He wrote an article implying that ObamaCare was an "incentive" for people to only work part-time, because if they aren't earning enough, they'd be better compensated by the lack of a penalty and by obtaining free (or government subsidized) healthcare --- as if paying the rent wasn't enough of a incentive. In another outrageous article he wrote, Policies That Discourage Full-Time Work, he says, "Expansions of the food stamp program, known as SNAP, made part-time work increasingly attractive for those who would face the program’s income limit if working full time."

What really disturbs me though, is that these people are getting paid for writing their garbage. And who exactly is paying them anyway, and for what exactly? I assume they are intelligent and educated people, so what they are writing can only be nefarious disinformation, and not just sloppy misinformation.

The Shrinking Labor Market

Today in an article titled Debating Why the Work Force Is Shrinking, Binyamin Applelbaum writes, "People keep leaving the labor explanation is that baby boomers are shuffling into retirement. The trend is demographic rather than economic. People are not working because they are old. Another explanation is that people have abandoned hope of finding jobs. Both explanations are true for some people. What we don't know are the proportions."

Maybe Binyamin Applelbaum doesn't know the proportions, but others have made calculations. A study by Shigeru Fujita at the Philly Fed (dated November 19, 2013) says:

"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....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."

But oddly, Binyamin Applelbaum cites the same exactly study and writes, "According to an analysis by Shigeru Fujita, an economist at the Federal Reserve Bank of Philadelphia, the aging of the American population accounts for about two-thirds of the decline in labor force participation since 2000." 

What am I missing here? First Applelbaum says we don't know the proportions, then he claims two thirds are from an aging population. Some people blame the record low labor participation rates on more people retiring and/or more young people going to school; but as the Economic Populist shows us, that's simply not true — and provides tons of data debunking the myth. But please allow me to put in my two cents as well. The reason for the low labor participation rate is simply because: l-a-c-k-o-f-j-o-b-s.

So why is this? Where did they go?

Where are the Jobs?

They went to places like China, Cambodia, India, Vietnam (the list is endless). --- The offshoring of jobs has been going on for the past 40 years, and that doesn't even include the multiplier effect* when considering the additional jobs lost. And a study shows that almost 1/3 of all current domestic jobs are still prone to being outsourced or offshored.

Manufacturing has a larger multiplier effect than any other major economic activity. According to one article, as factories get "smarter" and more advanced, the multiplier increases significantly. In some advanced manufacturing sectors, such as electronic computer manufacturing, the multiplier effect can be as high as 16-to-1 (meaning that every manufacturing job could support 15 other jobs).

According to the Bureau of Labor Statistics, there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001. By the end of 2012 there were 334,800 --- or 64,087 less from 12 years ago. Meaning, the U.S. has lost an average of 5,340 factories during each of those 12 years --- or almost 15 every single day since 2001.

More U.S. Economists See Half-Full Glass - In another New York Times article, Steve Blitz, chief economist at ITG Investment Research says, "Employers still have the upper hand, with unemployment at 7 percent, so there is little pressure to increase wages or enrich benefits for workers relieved just to have a job."

Don’t Blame the Work Force - The editorial board of the New York Times writes, "When there are many more applicants than jobs, employers tend to impose overexacting criteria and then wait for the perfect match. They also offer tightfisted pay packages."

The other day Jim Cramer (of Mad Money on CNBC) was being interviewed on MSNBC and said the best way corporations can earn profits is to fire people. In an over-saturated job market, it's a "buyer's market" for employers. They get to pick and choose more diligently because they aren't desperate for help."

Why is the labor force participation rate so low?

The reason for the low labor participation rate is simply because: l-a-c-k-o-f-j-o-b-s.

Today Jared Bernstein was on MSNBC and said that Baby Boomers were only "a small part of the decline in the labor force participation rate", and that it was primarily because of those "dropping out" of the labor force because they can't find jobs. And in his blog today he wrote: "The unemployment once again fell — from 7% to 6.7% — but for mostly the wrong reason: people leaving the job market versus finding work."

The Bureau of Labor Statistics reports that a combination of demographic, structural, and cyclical factors has affected the overall labor force participation rate. In their December 2013 (16-page) report the BLS projects that, as has been the case for the last 10 years or so, these factors will exert downward pressure on the overall labor force participation rate over the 2012–2022 period — and that the rate will gradually decline further, to 61.6 percent by 2022.

The BLS also says that because of the decreasing labor force participation rate of youths and the prime age group, the overall labor force participation rate is expected to decline, and that the participation rates of older workers are also projected to increase, but remain significantly lower than those of the prime age group. (See more here)

So why blame the Baby Boomers?

As I noted in an earlier post, over the past 5 years we've had a net gain of 6.9 million retired and disabled workers who went on Social Security (5.4 million retired and 1.5 million disabled) and we also had 15.4 million high school graduates during that same period — meaning, the employment-population ratio has had more "non-starters" than "quitters" who were participating in the labor force.

Just a note: 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.

Full Disclosure: I am 58 years old today. I was forced out of the labor market in 2008 when I was laid off from my job. I looked for work for two years without ever being rehired again. I didn't officially "drop out" of the labor force until January 2011, and that was after I had already lost everything (including my car) and went on food stamps — because no one was hiring older workers. The long-term unemployed and over 50 have the least chance of finding work again. I'm too young for an early Social Security retirement, nor am I eligible for my union pension until I'm 62 years old — meaning, I am a Baby Boomer who did not "shuffle into retirement". Besides, older workers (who didn't lose their jobs) have put off retiring and have been working longer to recoup their losses in 401ks and home equity values.

  • Yahoo News: "Some 82 percent of workers 50 and older say it is at least somewhat likely they will work for pay in retirement. And 47 percent of them now expect to retire later than they previously thought."
  • L.A. Times: More older workers making up labor force: Many seniors are staying on the job or returning to the workforce, leaving less room for younger workers.

The labor force participation rate will continue to fall until 2022, but it had already peaked at 67.3% in April of 2000, before it's long decline to 62.8% today --- and long before the first Boomer retired in 2008. Remember, we now have 64,087 less factories than we did since 2001. (The graphs below from the Bureau of Labor Statistics)

labor force participation rate

The employment-population ratio peaked at 64.7% in April 2000, but it has since declined to 58.6% as of today. The big DIP shown in the graph below shows that from December 2007 to June 2009, the Great Recession initially accounted for 8.7 million lost jobs (not including the government jobs lost since then) --- and why it has since dragged along bottom ever since then — because: l-a-c-k-o-f-j-o-b-s.

employment-population ratio

Today, Dean Baker from the Center for Economic and Policy Research, weighs in on the jobs report:

"The drop was almost entirely due to people leaving the labor force...there was also a decline in the index of average weekly hours. This suggests that the economy may be weaker than some of the more recent optimistic accounts indicated."

But some people keep saying it's because of an "aging population" or an "aging demographic" or because of "retired and disabled people" --- or as Binyamin Applelbaum said, because "people are not working because they are old".

There's no debate as to why the labor force is shrinking. So allow me spell it out for Mister Applelbaum: The reason for the low labor participation rate is simply because: l-a-c-k-o-f-j-o-b-s — not because baby boomers are shuffling into retirement. Maybe it hacks like Binyamin Applelbaum Casey B. Mulligan who should retire.



    Economic Populist ---

    "For those claiming the low labor participation rate is just people retired, we proved that false by analyzing labor participation rates by age...Bottom line, the dramatic increase of those not in the labor force is not due to baby boomer's retiring. People are not finding jobs and dropping off of the unemployed radar map...There were not that many babies born in 1943 to explain the steep 2008 increase...people who are not being counted in the unemployment statistics and official unemployment rate [and when asked] if they want a job. the number who answer yes currently stands at 6,111,000."

  2. Much has been made of the offshoring of jobs to China, and the economic decline, population loss and urban decay of American towns due to the shrinking of our once powerful manufacturing sector. You will be happy to know that now it is China's turn to face the same problems! Hallelujah!

    China Rongsheng ghost town reflects shipbuilder's struggle to survive.

  3. American multinationals move from State to State and from country to country to maximize profits at the determent of ordinary working people and their local economies, so I don't wish hardship on ordinary Chinese workers who are just trying to eke out a living, but I do criticize American companies for putting profits before the well-being of American citizens.