Thursday, October 23, 2014

The Fed's Lyin' Eyes (Labor Force Partcipation Rate)

QE = $233,000 per job

The reasons the Fed has been giving us for the falling labor force participation rate have been utterly ludicrous — "an aging work force", "retirements", "young people going to school", "those on disability" and those who choose to "stay home to take care of family or home". While these factors may contribute to the decline, they don't significantly, and they aren't the main reason. Millions of Americans already know from personal experience that it's mostly because of  "a lack of jobs" (and mainly for younger people trying to enter the labor market).

The Humphrey–Hawkins Full Employment Act of 1978 had 4 goals: full employment, growth in production, price stability, and the balance of trade and the budget. Overall, the Act sought to formalize (and to expand Congress's role in) the economic policy process, as governed by the Federal Reserve and the President.

Did quantitative easing (QE) help to create jobs? The total U.S. treasury and mortgage-backed securities held by the Federal Reserve from December 2007 to the present is 2.4 trillion — and the net new jobs created during that period of time is 10.3 million — for a cost of $233,000 per job.

Assuming all those jobs are not permanent and full-time, and they do not have a lifetime span of 44 years (from high school graduation until early Social Security retirement), but instead, those jobs only lasted 7 years (say from 2007 to 2014) — then those 10.3 million jobs would have had to pay an annual wage of $33,285 a year (or $16 an hour for a 40-hour-week). But did most of those new jobs come even close to paying that much?

And how many people got a job, then were laid off, and then got another job? (Meaning, 2 jobs were created for 1 worker.) Or how many people took a secondary job? Again, 2 jobs created for 1 worker. Currently we have 7.1 million "multiple job holders". Did 10.3 million "people" get 10.3 million "jobs"? And of those 10.3 million jobs created, how many were part-time? Currently 6.7 million people work part-time because they can't find full-time work — or because their hours were cut. (Editor's note: All the numbers were crunched with sources here.)

* BLS JOLTS: "Over the 12 months ending in August 2014, hires totaled 56.2 million and separations totaled 53.6 million, yielding a net employment gain of 2.5 million. These figures include workers who may have been hired and separated more than once during the year."

And what about "growth in production"? Real (not value-added) GDP is currently very sluggish, especially when our rate of growth for GDP is compared to China's. Since the early 1970s real GDP per capita in the US has doubled, but just since 1990, GDP per person in China has doubled and then redoubled.

China vs US GDP

And what about our "balance of trade and budget" — we still have our huge trade deficits (mostly with China). And have we really had real "price stability"? Inflation is somewhat higher since the Act was passed in 1978 (chart below), creating two generations of dual- and multiple-income households to keep up with the high cost of living.

Historical CPI

Have any of the 4 goals of the Humphrey–Hawkins Full Employment Act of 1978 ever been accomplished? And if so, compared to what other alternative?

The Big Lie: The Labor Force Participation Rate

Now the Federal Reserve has been attempting to explain away the declining labor force participation rate (sometimes, in very contradictory ways, and using "word salad" to boot.) The Atlanta Fed claimed in a recent post titled "Labor Force Participation Dynamics":

A larger share of older Americans are staying in the labor force than in the past. All else being equal, if those older than 60 were just as likely to retire as they were in 2007, the labor force participation rate would be about 1.0 percentage point lower than it is today. Other factors bringing down the overall labor force participation rate include an increased incidence of people saying they are unable to work due to disability or illness, increased school attendance among the young, and decreased participation among individuals 25 to 54—the age group with the greatest attachment to the labor force...

Some effects of the recession are clear. For example, the aging of the population will continue to put downward pressure on the overall number, even if labor force participation rates among those over 60 returns to its longer-term upward trend. The future directions of other factors are more difficult to call. Will school attendance among the young continue to rise even as the labor market recovers? To what extent has prime-age participation permanently declined? Undoubtedly, some people will enter or reenter the labor market as it strengthens further, especially those who left to undertake additional training. But for others, the prospect of not finding a satisfactory job may have caused a more permanent detachment from the labor market. For example, there is a very low probability that the individuals citing disability as their primary reason for not participating in the labor will return, even as economic conditions improve...

The Atlanta Fed makes the preposterous claim that the reasons why the labor force participation rate is in decline is because: After people graduate from high school, they go to college; then after they graduate (or drop out) from college, they stay home to take care of family or home — and they do this until they are either 50 (and then go on disability), or until they are 60 (and retire).

The Atlanta Fed claims: "Young people [18 to 25] who are not in the labor force mostly cite school as their main activity."

* Note: If everybody went to college after high school, then everybody would (sooner or later) either graduate from college or drop out of school to look for work (and don't college students also work — and especially with the high cost of tuition these days?) So after they graduate from college (or drop out), according to the Fed, the next step would put them in the "25 to 50" group (see directly below).

The Atlanta Fed claims: "Individuals 25 to 50 years old who are not in the labor force are mostly taking care of their family or home."

* Note: Oh really? The Fed is telling us that the majority of those who are not in the labor force are not those who might have once been "discouraged workers", or those who never entered the labor market for the very first time after high school or college, and are not mostly unemployed because they can't find jobs. (Who believes that fairy tale?)

The Atlanta Fed claims: "After age 50, disability or illness becomes the primary reason people do not want to work."

* Note: The number of people who were approved for disability since the end of the recession is TINY compared to those went to school or retired. And many people on disability would actually PREFER to work (rather than living on their meager monthly allotments), but they also couldn't find work (just like healthy prime-age Americans could not find jobs). And while disability "claims" may have risen (like they always have during previous recessions), actual "awards" have declined (as have "terminations" increased", resulting in a slow net increase — and only in proportion to the labor force). Attributing disabled people as a significant factor for any decline in the labor pool is a total fiction deliberately created by our central bank (and ironically, even their own data proves this claim to be a myth! So their bizarre claim can only be ideologically and/or politically motivated.)

The Atlanta Fed goes on to claim these people (if not disabled) care for family "until around age 60, when retirement begins to dominate."

* Note: Most people don't retire until they are eligible for Social Security (some early, at the age 62) and/or until they can take a pension. Because of the recession, an estimated 1.4 million were forced to take an early retirement with reduced benefits at age 62 because they couldn't find work.

So essentially, the Fed is saying that, from their parents' nest, all throughout their life until retirement age (from the age of 18 to at least 60) most people who aren't working now (those who are not in the labor force) is because they are "mostly taking care of their family or home." Now THAT is total BS!

The National Center for Education Statistics shows that we've had over 16 million high school graduates from 2009 to 2014. During that same period of time, the Social Security Administration shows we've had an additional 5.7 million retirees (as many as 1.4 million were forced into early retirement). And we've also an additional 1.4 million disabled workers in payment status for benefits. Yet, during that same time span, we've also had more than 11 million additional people "not in the labor force" — of which 6 million who are not counted in the unemployment rate (and who are "not in the labor force") also say they want a job — and many are disabled or retired (but most likely because they're over 50, employers wouldn't hire them.)

Click on the link in this page that's titled "Labor Force Participation on Age" and the Atlanta Fed says:

The rate of labor force participation had been declining among young and prime-age workers and increasing among older workers for several years leading up to the Great Recession. That trend has continued for the young and prime-aged, but the participation rate for older workers has flattened out.

* Note: AARP polls showed older workers, who were not laid off during the recession and not rejected for jobs because of age, were working longer than ever to recover losses in home equity and pension plans — thereby creating less "churn" in the labor force to make room for younger workers to enter the labor force.

On that same page, but this time, click on the link titled "Labor Force Participation Over Time" and the Atlanta Fed also says:

Participation rose rapidly during the 1970s and 1980s and peaked in the late 1990s as women became more likely to participate. But by 2007, participation had declined by about a percentage point. Since then, participation has declined even more rapidly, and by mid-2014, participation was at its lowest level since 1978.

Note: Actually, the LFPR peaked in April 2000, and has been in decline ever since (most likely because of increased offshoring). And women became more likely to participate in the labor force long before the late 1990s because since the 1970s*, we've had a great increase of dual-income households to keep up with the cost of living (see the first chart above for CPI). Yes, there was a slight "bump" in retirements and disabilities after the recession (see the first chart below), but retirements are more or less back on track with the previous trend leading up to the recession (for the reasons I mentioned: forced early retirements for lack of jobs.) And the second chart below that shows the decline in the participation rate is also back on its previous trend after the acute drop during 2009/2010 period (when the unemployment rate had peaked).

* Source: Bureau of Labor Statistics, "Dual-earner couples are swiftly replacing the traditional married-couple model of a "breadwinner" husband and "homemaker" wife. From 1970 to 1993, the proportion of dual-earner couples increased from 39 percent to 61 percent of all married couples."

Social Security receipts since the labor force participation rate began its long decline in April of 2000 (red line is trend)
Social Security receipts since 2000

The labor force participation rate since it began its long decline in April of 2000 (red line is trend)
Labor force participation rate since 2000

The Federal Reserve has mostly focused on the labor force participation rate since 2007 to try and attribute most of the decline to "an aging work force" or "retirements" or "young people going to school" or "those on disability" or because working-age Americans prefer to "stay home to take care of family or home"— but all the Fed's excuses/reasons are just pure BS (bogus sh*t). The main reason is because of a lack of jobs for younger people trying to enter the labor market. Plain and simple.

Some economists have been saying we don't have enough "churn" in the labor market (older workers leaving the labor force to make room for younger workers), which is most likely true. And a great many of those new jobs that the Fed bought for $2.2 trillion in QE aren't paying $16 an hour in full-time work, but are paying minimum wages in part-time temp jobs.

So, besides falling short at their job of achieving those 4 goals (full employment, growth in production, price stability, and balance of trade and budget), they've also been lying through their teeth. The St. Louis Fed's chart below shows the LFPR for two age groups. Notice that the Atlanta Fed said (under the section titled "Executive Summary"), "the participation rate for older workers has flattened out" — yes they have, after rising! — but the Fed had also previously said "an older work force is contributing to the decline". (That's like saying "light" contributes to the sky's color.)

The labor force participation rate by age group since it began its long decline in April of 2000
Labor force participation rate by age group

So if the Fed doesn't have Lyin Eyes, then they must be blind — meaning, if they aren't deliberately misleading us, then they must be incredibly naive. For just once, can we hear the Fed say:

"For the past 14 years the U.S. has lacked enough jobs for everyone who wants one — and that's the most significant reason why we've had a declining labor force participation rate since April of 2000 — and that was most likely caused by bad trade deals and bad tax policies — which in turn, have enabled the offshoring of so many domestic jobs. And for that, we're very sorry."


  1. Wall Street Journal: Don’t Blame Central Banks for Wealth Gap

    (Regarding QE) A senior Bank of England official pushed back against critics who claim central bank policies only benefit the wealthy. Those critics say ultralow interest rates and central-bank asset purchases have fueled a surge in asset prices without spurring durable economic growth, benefiting the rich yet doing little for the wider economy.

    One reader comment: The natural rate is a convenient central banker invention to diffuse criticisms of rate mismanagement. It’s quite a feat for an all powerful central bank to convince everyone that it’s some deus-ex-machina running the rate and not itself and have people actually eat this up. The other grotesque statement is that asset owners preexisted. That flies in the face of the fact that leveraged asset buyers who buy assets on margin become the main game in town when central banks promise to cut rates and keep them low for years.

  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?