NewsWire: 11/15/21
- In the latest October jobs report, labor force participation remained flat at 61.6%. This was despite falling unemployment and rising jobs numbers. (The New York Times)
- NH: The October jobs report is out. And according to the media, the results are good news. Payrolls increased by +531K, and the unemployment rate fell to 4.6%.
- But don’t pop the champagne cork. At least not just yet.
- The labor force participation rate still didn’t improve. Since June 2020, the LFP rate has hovered between 61.4% and 61.7%. In October, it remained unchanged at 61.6%. That's -1.7 percentage points lower than February 2020.
- This is a big deal because it's the LFP rate, not the unemployment rate, that is going to have to change to raise total employment in a major way.
- Even if the unemployment rate declines from 4.6% to its pre-pandemic level of 3.5%, reached in February 2020, employment would only increase by +1.8M people. That would fill only 29% of the 6.2M total employment decline that we have experienced (as a share of the population) since the pandemic began.
- What are the odds of getting unemployment back to 3.5%? No one knows. But I do know that 3.5% was the lowest unemployment rate in 52 years (since 1968-69). And to get to anything substantially lower than that, you need to go back 67 years to the Korean War.
- What's more, a good argument can be made that the current unemployment rate is underestimating the temperature of the labor market due to the high quit rate. Many of today's unemployed are not really "jobless" in the classic understanding of that term. They've got all kinds of options. They're just window shopping for something better. (See "Will the Great Resignation Last?") The ratio of job openings per unemployed people is the highest since the BLS started the JOLTS series 21 years ago.
- We have written several NewsWires on reasons why people are leaving the workforce. Here is a list with links to our past stories:
- Early Retirements: The Dallas Fed estimates there have been 1.5M more retirements than expected since February 2020. (See "Is Labor Force Participation Down for Good?")
- Long Covid: A global study found that 22% of people with Long Covid were unable to work at all due to their symptoms. (See "The Long Shadow of Long Covid.")
- Changing Work Values: People have reconsidered what’s important to them, and working for pay has moved down a few notches. (See “Why Wealthy Nations Can’t Find Workers”)
- Children: Virtual schooling and lack of childcare have forced many women out of the workforce--some of whom have decided to stay out. (See “Is Homeschooling Holding Down the Labor Supply?”)
- We aren’t the only ones raising this concern: Even the Fed is acknowledging that the LFP rate won’t return to pre-pandemic levels. At a recent news conference, Jerome Powell told reporters: “The temptation at the beginning of the recovery was to look at the data in February of 2020 and say, well, that’s the goal.... I think there's room for a whole lot of humility here as we try to think about what maximum employment would be.”
- Some employment optimists say the LFP will return to where it was--it will just take a bit longer than we originally figured. But the medium- and long-term outlook presents its own challenges. The overall long-term trend in the LFP rate has been a gradual decline since 2000. Much of this is due to falling LFP among men since the 1960s and falling LFP among married women since the mid-2000s. (See "The Missing Male Worker.")
- In the 2020s, this falling trend will speed up, not slow down, due to one further driver: the aging of the large Boomer population after they move past age 65. Yes, Boomers are workaholics, but even they want a rest. Between age 65 and 74, the LFP rate is still around 30%. But at age 75+, it drops to 10%. This year, in 2021, the first large 1946-born cohort is hitting age 75. And from now on, every year will bring this large horde ever further from their time clocks and keyboards and ever closer to their lakeside cottages.
- In the current BLS projection of future LFP rates, which also points to an ongoing decline, BLS analysts make precisely this point--that aging itself will become a new driver pushing LFP lower.
- In 2030, the BLS projects the LFP rate at 60.4--down roughly 0.2 pp per year from its annual 2019 value (63.1). Measured in millions, the BLS projects the labor force at 169.6M in 2030. That's a CAGR from 2019 of only +0.33%. Which is half the historical growth rate from 2010 to 2019 (+0.67%). Which is itself half the historical growth rate from 1990 to 2000 (+1.25%). And yes--I just can't stop--even this is half of what it was from 1970 to 1980 (+2.60%).
- You just can't miss the second derivative here. It's negative, not positive. We're an aging society. And when you juxtapose today's immediate pandemic drivers with America's long-term demographic drivers, any window of full LFP recovery is likely to be very brief if it happens at all.
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