Saturday, March 1, 2014

CBO Wrong on Labor Force Participation Rate (LFPR)

I have serious concerns about the CBO's analysis of the labor force participation rate. According to David Brauer and Charles Whalen in the CBO’s Macroeconomic Analysis Division:

Of the roughly 3 percentage-point net decline in the labor force participation rate between the end of 2007 and the end of 2013, the portions that can be attributed to different factors are shown in the table below.
  • About 1½ [percentage-point net decline] Long-term trends (primarily aging of the population).
  • About 1 [percentage-point net decline] Cyclical weakness in job prospects and wages.
  • About ½ [ percentage-point net decline] Discouraged workers who have dropped out of the labor force permanently.

The percentage attributable to the "aging population" in this CBO post is entirely inaccurate. Some at the Fed also made similar claims, while others at the Fed says it's mostly prime-age discouraged workers. Actually, there have been more young "non-starters" rather than older "quitters" that have been driving down the labor force participation rate (recently, by almost 3:1). Prime-age discouraged workers who can't find work and young "non-starters" make up the vast majority of the decline in the LFPR, and not primarily the aging population as the recent CBO post claims. Look at the table below:

- Year Social Security Retirees High School Grads
Boomers turned 62 in 2008 2008 748,047 3,001,337
2009 1,239,768 3,039,015
2010 1,079,409 3,068,550
Boomers turned 65 in 2011 2011 1,006,724 3,103,540
2012 1,120,242 3,100,510
2013 1,171,737 3,092,290

The NET number of people going on disability (claims vs. actual awards) is too small to reference; and the number of high school grads that continue on to college are cancelled out by the number of college grads who are also looking to enter the labor force.

The decline in the LFPR (beginning in April 2000) is most likely attributed to the offshoring of jobs—and primarily the offshoring of manufacturing jobs, which contributes the most to the multiplier effect.

All data and the links to original sources can be found here

As an aside: I also noticed in that CBO post that the authors used the number "6 million" for jobs short, which is also the number the Economic Policy Institute says we have for "missing workers". There are no missing workers. They are unemployed (discouraged) workers who can't find a job—and are mostly long-term unemployed (over 6 months).

And these long-term unemployed workers are far more numerous than the Bureau of Labor Statistics reports (It's most likely around 7 or 8 million, meaning the bulk of the number of jobs lost during the Great Recession).

It should also be noted that most of the NET new job creation excluded the rehiring of middle-aged workers who were too young to take an early Social Security retirement at age 62 (which also contributed to the declining LFPR). Meaning, they didn't drop out of the labor force or casually shuffle off into retirement. They were forced out of the labor force, including many who qualified for disability, who would have continued working had they been given the chance (after all, wages usually pay much more than disability benefits).

(STUDY) Household Wealth Still Down 14 Percent Since Recession:

Those who suffered the most were people aged 35 to 54, Olsen said. In 2012, they were 27 percent below their peak net worth recorded in 2006. "What we're seeing in these middle-aged people is very disheartening, because they are in what should be their peak earning years, when they should be accumulating assets before retirement," he said. "We might be seeing people who have lost their jobs and are forced to spend their assets because they can't find work. Some of them may have given up looking."

Of the 92 million NOT in the labor force, an estimated 50% would like a full-time job now. The real unemployment rate is nearer to 20% (to say 6.6% would almost be laughable if unemployment were not a national crisis). Myself and a small group of people have been following this trend very closely (almost daily) for the past 5 years


  1. UPDATE:

    Two more points I'd like to make...

    When the CBO says "An unusually large number of people have stopped looking for work", let me say, "A person can't find something that doesn't exist".

    And the same thing can be said when the CBO claims that the stigma of being long-term unemployed and eroding skills has made it difficult for them to find new work. If there were enough jobs available, and employers needed workers, they would have no choice but to hire long-term unemployed workers with eroding skills. There are simply not enough jobs because our manufacturing infrastructure has been sent to Asia.

  2. UPDATE November 2014..............


    "Contrary to the pervasive and erroneous propaganda, the collapse in the labor force has little to do with the alleged millions of retiring baby boomers (quite the contrary: as a result of ZIRP crushing their lifetime savings, baby boomers have been forced to remain in the workforce in ever greater numbers) and everything to do with the lack of employment opportunities, or perhaps an unwillingness to work, for young Americans."

    (Zerohedge links to Pew Research below)

    More and more Americans are outside the labor force entirely. Who are they?