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Sunday, November 4, 2012

Do Republicans Want To Keep Older People Working?

Jack Welch, the ex-CEO of GE, is at it again, distorting and questioning the unemployment rate.
Jack Welch from Bloomberg

From Huffington Post:

WASHINGTON -- Former General Electric CEO Jack Welch rewrote economic history during a Saturday appearance on Fox News, criticizing President Barack Obama for "the 2009 recession," while offering a new metric by which unemployment would be 11 percent.
"The real unemployment rate, if you take the last 10 years prior to the 2009 recession, a 10-year average of what's called the participation rate -- how many people are working temporarily, full-time, and wanting to work -- if you take that number, and you take the 10-year average, and you run it now with this workforce, you would have an unemployment rate close to 11 percent," Welch said. 

There is, in fact, no specific "2009 recession." According to the National Bureau of Economic Research, the official committee that measures and studies economic cycles, the U.S. economy entered a recession in December 2007, which ended in June 2009. Recessions are categorized as periods in which gross domestic product -- a measure of economic output -- declines. The effects of this decline can reverberate in the labor market for years after growth resumes. By referring to "the 2009 recession," however, Welch creates a timeline in which Obama is the only president presiding over economic hardship.
We've Heard It Before 

There is nothing new with Welch's theory.  The Republicans have been promoting this or something similar everywhere for months.  As soon as the unemployment rate started to decline, they went to alternate unemployment rates:  Either the U-6 rate, which they suddenly declared was the "real" unemployment rate, or this alternate rate based on the labor participation rate.


The Definition of the Labor Participation Rate 

First of all, Welch doesn't seem to understand what the labor participation rate is.  It is the number of people who are employed, either full-time, part-time, temporary or permanent, PLUS the number of people who are ACTIVELY looking for work AS A PERCENTAGE of the "civilian non-institutional population aged 16 and over".   There is a special count of people who "want to work" but unless those people were out there in the last month actively looking for work, they are not counted as "actively looking for work".

Why the Labor Participation Rate Increases or Decreases 

Now, the labor participation rate goes up and down due to two things:  The economy and demographics.  Yes, the economy will send the labor participation rate down as people sit out a bad labor market and don't work and don't look for work.  Very often, as the economy improves, people who have been sitting out jump back in and start looking for work.  The labor participation rate will go up.. but the unemployment rate will go up as well.

But one of the biggest reasons that the labor participation rate has declined over the past dozen years is demographic:


The Baby Boomers are getting older.


They are retiring and leaving the labor force.  They may not be retiring as fast or as early as their parents, but they are leaving the labor market in droves.  We've added 40 million people to the "civilian non-institutional population 16+" (the base for which employment/unemployment numbers are calculated), and 27 million of those people are 55 or older.  The numbers are even more skewed when just looking at population changes since 2009.  We've added 9.2 million people to the "civilian non-institutional population 16+" and 9.1 million of them are 55 or over. 
Though the labor participation rate of people 55+ has increased over the past decade, it is still about half that of people 25-54.  And isn't that really the way that it should be?

Do We Really Want To Keep Older People from Retiring?

The only way to get that labor force participation up to where the Republicans THINK it should be is to keep older people from retiring.  Is that what they want?  Even as the economy picks up and adds jobs, as it has been, we shouldn't expect the labor force participation rate to increase much.   The last time the labor participation rate for people 55+ was as high as now was back in the late 50's/early 60's before Medicare was enacted and before Social Security really kicked in.  Remember, though, that the more people in the labor force (working or looking for work), the more employers can pick and choose and perhaps treat people badly, as many have been during this recession. 

A high labor participation rate is not necessarily the sign of a healthy economy or a healthy country, particularly among older people.

 

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