Sunday, July 5, 2015

Millennials: Don't Blame all Baby Boomers, just Clinton

Editor's Note: This post covers Baby Boomers, Retirees, those on Social Security Disability, the Unemployed, High School and College Graduates, those Not in Labor Force, and the Labor Force Participation Rate.

Opening Remarks

I'd like to make the case that 1) the unemployment rate is lower now than it was 7 years ago only because a lot of people are no longer counted as part of the labor force. 2) The reason that so many people are no longer in the labor force is because there aren't enough jobs. 3) One big reason why there aren't enough jobs is because of past trade deals that has allowed our job creators to offshore too many jobs.

One legal strategy for winning a case is, if the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like Hell. But I'm not going to pound the table or yell like Hell. I'm just going to make my case with mostly facts — and only a few opinions. (Then, if you feel like it, you can pound the table.)

I'll start here: Below are the Labor Force Participation Rates (LFPR) for different age groups (via the St. Louis Federal Reserve) going back to the time when Bill Clinton gave "permanent normal trade relations" to China (PNTR).

  • All ages 16 and over (From January 2000 to June 2015) DOWN from 67.3% to 62.6% — a 4.7% decline for all ages combined.
  • 25 to 54 years old — (From January 2000 to June 2015) DOWN from 84.3% to 80.6% — a 3.7% decline for 25-to-54 year olds.
  • 55 and over — (From January 2000 to June 2015) UP from 32.3% to 39.9% — a 7.6% increase for older workers*

* It's been known for a while that older workers (if they weren't laid off during the Great Recession) had put off retirements to work longer than they had initially planned — many, to help recoup losses they suffered from the housing market crash and from losses in their 401ks and other retirement plans. Whereas, some older workers (who were laid off during the Great Recession) were forced to take early retirements because they couldn't get re-hired (usually due to age discrimination in a tight labor market).

Via the Atlanta Fed, the participation rate for 16-to-24 year-olds has also been in decline. The charts below are from St. Louis Fed via the links above (Click to enlarge.)
Labor Force Participation Rates - ALL - 2000  to present

The overall U.S. labor force participation rate peaked in 2000 and has been in decline ever since. Last year Diana Furchtgott-Roth at the Manhattan Institute (former chief economist at the Department of Labor) noted in a post at Real Clear Markets titled: Who Is Dropping Out Of The Labor Force, and Why?

"A popular view is that labor force participation is declining because older people are retiring. But since 2000 the labor force participation rates of workers 55 and over have been rising steadily, and the labor force participation rates of workers between 16 and 54 have been declining."

The Bureau of Labor Statistics notes: "The increasing shares of workers in the older age groups of the labor force and the retirement of baby boomers, as well as slow economic growth, were responsible for the post-recession fall in the labor force participation rates." NOTE: The first Baby Boomer didn't retire until 2008 — and they retired early at the age of 62. The BLS also notes:

"BLS projects that the U.S. labor force in 2022 will be 163.5 million, an increase of 8.5 million over the 2012 level. The downward pressure on the overall labor force participation rate is expected to continue over the 2012–2022 period, and the rate will gradually decline to 61.6 percent in 2022." [Currently it's 62.6 percent — and wage data from Social Security for 2013 shows 155.8 million "wage earners" — 7.7 million shy of the BLS 2022 projection.]

But here is the most honest admission to date from the BLS in their report: Labor Force Projections to 2022:

"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. The participation rates of older workers are projected to increase, but remain significantly lower than those of the prime age group. A combination of a slower growth of the civilian noninstitutional population and falling participation rates will lower labor force growth to a projected 0.5 percent annually."

Following that article at Real Clear Markets was another article at Forbes titled: Retirees Are Not The Labor Exodus Problem. They noted that if older Americans were not working longer, the labor force participation rate would be even lower than it already is. (Sometimes, common sense does prevail).

And government statistics shows this to be true — older Americans are NOT the people driving down the labor force participation rate. So why are so many people still debating the issue by claiming that "an aging population" (aka retirees / Baby Boomers) and those on disability are the people who are driving down the labor force participation rate? And — as it was noted at Forbes — if more people retired, that would only create more churn in the labor market, thereby making more jobs available for those who are already currently unemployed.

But many economists at political think tanks have been saying (especially since the onset of the Great recession) that it has been older workers who have been dropping out of the labor force, and that's why the labor force participation rate has been declining. As but one example, the American Enterprise Institute (described as a "center-right" think tank in Washington D.C.) reports:

"The US labor force participation rate has fallen by about three percentage points since the Great Recession. Of that decline, Barclays thinks two points are due to population aging."

From the end of the recession (June 2009) to the present (June 2015), yes, the overall LFPR for all age groups is down 3.1% — but not mostly because Baby Boomers have been retiring. And as the chart from the St. Louis Fed below clearly shows, since the Great Recession it's been mostly "prime-age" workers (the red line) who are driving the decline — just as they have been for the past 15 years — ever since 2000.

Old people rock!

The reasons can be debated as to "why" the LFPR has been in decline for prime-age Americans (e.g. they can't find jobs, they don't want to work for low wages, etc.); but using demographics to explain away retirees as the reason for the declining labor force appears to be deliberately misleading. IMHO, the biggest reason is most likely because of a lack of jobs, but no one wants to say so because then they'd have to explain why there aren't enough jobs. (Hint: Bad trade deals that offshore jobs are probably one of the biggest factors.)

Ever since Bill Clinton gave PNTR to China in 2000, the labor force has been in decline. A coincidence? We have 64,000 less manufacturing firms today than we did in 2000 (probably forcing a lot of older workers into retiring before they had planned). Another coincidence?

We also have other proposed trade deals pending, such as TPP, TTIP and TiSA — known as the triple trade treaty threat. Recently Obama just won a narrow vote to get "fast track" for passing these trade agreements — with 81% of Republicans in Congress in favor of fast-track and 80% of Democrats opposed.

But for whatever other reason, it's not Baby Boomers retiring that is the main force driving the decline of the labor force participation rate. But if someone doesn't believe the charts above from the St. Louis Federal Reserve (via the Bureau of Labor Statistics) as to what group of Americans most contributes to the declining labor force, they can also look at the actual numbers from government statistics below (beginning with the onset of the Great Recession).

The Numbers from 2007 to 2014 (with Sources)

13,660,000 The number of workers who dropped out of labor force between December 2007 at the start of recession until the end of last year. (Source: Bureau of Labor Statistics)
9,336,836 Less the additional retirees and disabled workers over those same 7 years. (Source: SSA)
= 4,323,164 The difference (* Remember this figure later for a note below.)

So far (at first glance), just by judging these numbers, it might appear that retirees and disabled workers are indeed the main contributors to the decline in the participation rate. But wait, there's more, because we also have a growing population. But even if the population had remained stagnant since 2007, and no one had ever attempted to enter the work force for the very first time, we'd still have an additional 4,323,164 people who dropped out since 2007. But lots of new people enter the job market all the time, just as lots of people leave the job market (for many reasons). Some people enter and leave the work force regularly, like those who work temp jobs (link, link, link). From the latest JOLTS report from the Bureau of Labor Statistics:

"Over the 12 months ending in April 2015, hires totaled 60.0 million and separations totaled 57.2 million, yielding a net employment gain of 2.8 million. These totals include workers who may have been hired and separated more than once during the year."

So let's also look at all the new possible entrants to the job market, and the number of NET new jobs that have been created since the onset of the Great Recession to accommodate all those new entrants into the work force.

23,100,000 The number of additional high school and/or college graduates from 2007 to 2014. *See notes below. (Source NCES)
10,907,000 The number of net new jobs created from the end of 2007 until the end of 2014 surpassing the 8.7 million jobs lost during the Great Recession (Source Bureau of Labor Statistics)
= 12,193,000 The difference
4,323,164 As was noted from above (remember?). This is the number of people that had dropped out of the labor force that are NOT retired or went on disability.
= 7,869,836 This is what might be the remaining high school and/or college graduates (if all the rest had filled those net new jobs). They could still be in school and/or involuntarily unemployed...but more on that later.

Then there's the people who are currently counted as unemployed — and those not counted as "unemployed", but who also want a job...

8,300,000 The number of those who are still in the labor force but are reported as "unemployed". (Source Bureau of Labor Statistics)
+ 6,561,000 The number of those who are "Not in the Labor Force" but report they "Want a job". (Source Bureau of Labor Statistics)
= 14,861,000 Total number of those who are without a job that we assume wants to work. (Note #1)

Other additional factors to consider...

7,869,836 The number of remaining high school and/or college graduates (as was noted above).
+ 6,561,000 Those who are "Not in the Labor Force" but report they "Want a job" (as was also noted above).
= 14,430,836 (Note #2) Total who are currently without a job, who we assume still wants a job. They are most likely those whose jobless benefits ran out (who then dropped out of the labor force), and those who have never entered the work force for the very first time after graduating from high school or college, and those who once worked but are still counted as unemployed (and say they are still looking for work).

14,861,000 (From note #1 above)
14,430,836 (From note #2 above)
−−− 530,164 The difference here may possibly be additional people who are now working in the "shadow economy" (paid under the table) and aren't looking for work and not counted as "unemployed" but are also not "officially" counted as part of the labor force.

A Recap of those NOT in the Labor Force

92,898,000 Those who were Not in labor force at the end of 2014
79,238,000 Those who were Not in labor force at the end of 2007
= 13,660,000 Those who dropped out of labor force from Dec. 2007 to Dec. 2014

As of today, the number of people who dropped out of the labor force is now at an all-time record high of 93,626,000. Just over the last month alone, another 640,000 Americans dropped out (Source: Bureau of Labor Statistics).

During that same month, only 99,929 more people had retired on Social Security. There were also 1,068 LESS people on disability than there were the month before (Source: SSA). So it's hard to see how the Baby Boomers (or the disabled) have been causing any significant decline in the labor force participation rate — especially when compared to the "prime-age" population.


Now consider this: Just for this year alone (for the 2014/15 school year) we had a total of 7,090,080 students who received degrees from high school and college this summer (Sources below).

During that same period of time (from September 2014 to June 2015, while these students were attending school), we only had an additional 807,628 retirees on Social Security and 20,454 LESS people on disability (Source: SSA). Now compare that to 7,090,080 graduating students (who may, or may not, want to enter the labor market). That might also be something to think about.

So in the final analysis, maybe we can also conclude that over the past 10 months we had 807,628 Americans (mostly Baby Boomers) who had retired to create job openings for 807,628 of those 7,090,080 new graduates.

Final Thoughts

IMHO, I think some people want to blame retirees and disabled people as an excuse to cut Social Security — and also to distract from the real problem of trade deals to offshore more jobs. And IMHO, I think those same people would also like to make the debt scare using Social Security as the reason, rather than poor wages and low taxes revenues from wealthy individuals and large multi-national corporations. But then again, that's just my "opinion", and not necessarily a "fact". But if this were true, then we would have every reason to pound the table.

Your honor ... ladies and gentlemen of the jury ... I rest my case.

* Social Security Statistics from Dec. 2007 to Dec. 2014

2014 --- 39,008,771
2007 --- 31,525,098
7,483,673 Total gains in Social Security retirees over those 7 years.
Source SSA

2014 --- 8,954,518
2007 --- 7,101,355
1,853,163 Total gains in Social Security disability over those 7 years.
Source SSA

2014 --- 47,963,289
2007 --- 38,626,453
9,336,836 Total off all gains for both Social Security retirees and disability for those 7 years.

* Graduating classes for High School for school years 2007/08 through 2013/2014

23,100,000 high school graduates (based on 3.3 million a year average X 7 years) with about the same number for those who received college degrees (see numbers below)
Source NCES

* Graduating class of 2014/15 for High School and College

(This is the 7,090,080 students mentioned in the conclusion.)

  • 3,307,080 Total high school grads this year (Source NCES)
  • 3,783,000 Total receiving college degrees this year (Sources from NCES below)

--951,000 associate's degrees (table 32)
1,855,000 bachelor's degrees (table 33)
-- 798,000 master's degrees (table 34)
-- 179,000 doctor's degrees (table 35)

(More here...)

Bonus Chart of the Day

Today we have 646,000 LESS government workers under Obama than we did during George W. Bush's last day in office. That's about the same number of people who dropped out of the labor force last month — 640,000.

Government workers

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