A Tale of Two Charts? Is Labor Force Participation Really a Problem?

Labor Force Participation vs. Average Weekly Wage for Workers?  Hmmm... 

Republicans and Republican sympathizers have been all over President Obama and the Democrats about the "labor force participation rate"(*definition at bottom of page) over the last months, which has continued to decline even though the number of jobs has increased.

As I pulled up some graphs today, I noticed something that was not quite clear before... Now I should spend the time to put these graphs on top of each other, on the same graph, but I won't do that now; I think my point is clear just by looking at these two graphs:

Average inflation-adjusted weekly wages really rising?

Average Weekly Earnings (Inflation adjusted) of Non-Supervisory Private Sector Employees
 BLS data series CES0500000031.

Labor Force Participation Rate All Employees BLS Series LNS11000000

A

First of all, notice the pattern in the top graph of inflation-adjusted wages for non-supervisory and production workers (excludes most of the rich guys and managers):  Notice that those wages rose in the late 60's, peaked in the early 70's, and fell until the mid 90's.  They climbed during those "glorious Clinton years", then meandered up and down, and only now, after the recession, have they again started to go up.  (Yes, inflation-adjusted weekly and hourly wages for production and non-supervisory workers have started to go up.)  They are now about where they were in the late 1970's or early 1980's.  Hard for some to believe, but this data comes from employers, and they aren't going to lie on the high side about what they pay their employees.

Compare inflation-adjusted wages and labor force participation.  Do you see it? 

Now look at both graphs:  What happened to inflation-adjusted wages as labor force participation rates went up?  And what has started to happen to wages as labor force participation rates have started to go down?  (Yes, there was a time in the late 1990's when both the average wage AND the labor force participation rate were going up, so I'm not trying to say that a drop in the labor force participation rate caused a rise in wages; I'm sure the relationship is more complex.)

Labor Force Participation:  The Good and the Bad 

I just read this comment at Facebook; the person was quoting Bloomberg, but provided no specific link:

I remembered it correctly - this from Bloomberg. (not who I first heard it from) "The share of the working-age population either employed or seeking a job declined in April for the first time this year, helping drive the unemployment rate down to 6.3 percent, the lowest since September 2008. At 62.8 percent, the so-called participation rate matches the lowest since March 1978. A shrinking workforce saps the U.S. of the manpower needed to boost the expansion to a higher level, keeping the world’s largest economy merely plodding along. It also undercuts the theory that sustained growth alone will be enough to attract more Americans, from students to people discouraged over employment prospects, back into the hunt for jobs. "

But a shrinking work force also forces companies to make their wages and benefits more competitive to attract the best and the brightest.. and to attract people back INTO the work force.  Now, if you are not in the labor force that means you aren't working nor are you looking for work.  If that is your situation, you (or a spouse or family member) must have some source of income.. or adequate assets, right?  I don't know of anyone who doesn't have assets or income who is not either working or looking for work.  You can't buy food or keep a roof over your head if you don't have some form of assets or income.  Perhaps some of those people would be enticed to go back into the labor market by decent wages or working conditions.  

It was pretty easy to get a job in the 1960's.

If you are older you may well remember how robust the economy was back in the 60's.  I often tell the story of my mother who returned to the working world when her kids were in junior high.  She had not worked for 13 years; she had no extra school, no certificates, nothing; she had helped our school as a Room Mother and through the PTA.  She looked through the ads, walked two blocks down to a small company, filled out a short application, perhaps took a typing test, and was hired the same day.  No credit checks.  No background checks.  No check of references, and, as I said, she hadn't worked or looked for work for about 13 years.  The labor force participation rate was much lower than it is now, employers really needed workers, and that was a good thing for workers.

Now looking for work is painfully difficult.  Not only are prospective workers still confronted with employers who have dozens of applicants for almost every job, but the hoops that prospective employees must jump through are absurd:  Many rounds of interviews, sometimes with panels of interviewers, background checks and more background checks, reviews of your online "reputation", then waits of weeks to months as the requisite checks and evaluations are made.  Unless you really have to work (as in no assets or income), it might just be a lot easier to stay home with your family, to retire, to go back to school.   

Good heavens, people:  They're RETIRING!

Remember also that the most of the decline in the labor force participation now is due to PEOPLE RETIRING.  The BLS keeps track of people leaving and entering the labor force.  In September, for every ONE unemployed person who "dropped out" and stopped looking for work, about TWO people who were EMPLOYED left the labor force.  Now why doesn't Fox (or Bloomberg for that matter) mention that to their readers?

Not only that, but for every ONE person who was unemployed and "dropped out" and stopped looking for work in September, about THREE people actually ENTERED the labor force and started either working or looking for work!

Yes, three times as many people are entering the work force as are "dropping out" of the labor force because they have "given up" looking for work.  Fox news won't tell you that either.

Definition of labor force participation rate:  The labor force participation rate is the percentage of people in the civilian non-institutional population aged 16+ who are either employed or actively looking for work. The civilian non-institutional population includes young people in high school and college, people who are retired, people who are disabled as long as they live at home or with relatives.