Civilian Labor Force Participation:
Should we be concerned?
The Bureau of Labor Statisticshttp://www.bls.gov/opub/mlr/2013/article/labor-force-projections-to-2022-the-labor-force-participation-rate-continues-to-fall-1.htm reported that the civilian Labor Force Participation rate is at the lowest rate in decades. The labor force participation rate is at 63 percent,a low not seen since April, 1978. What are the reasons for this and should we be concerned?
First we need to consider the definitions which are used.
The definition of the civilian Labor Force is all persons in the civilian non-institutional population classified as either employed or unemployed. To be unemployed one must report that they are looking for work rather than they have dropped out of the work force.
The civilian non institutional population is all persons 16 years of age and older residing in the 50 states and the District of Columbia, who are not inmates of institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.
The first and most obvious reason for the decline in labor force participation rate is the aging of the population. Since everyone over 16 is considered part of the civilian non institutional that means that people in the 80’s and 90’s (one of the fastest growing cohorts) are included in the labor force. And as everyone knows, 10,000 people turn 65 every day. Despite an increase in the work force over 65 a larger portion of the population is in the retirement years.
However, recent reports raise questions about who is leaving the work force. It appears that participation rates are increasing among those over 55 which has seen a 4.6 percent increase in people in the work force. This may be because this age group was hit particularly hard in the 2007 recession and have had to continue to work because they can not afford retirement. This age group is the most likely to be engaged in the formal economy.
The biggest puzzle in the data is the decline in labor force participation among those 16 to 24 which has fallen from 62 percent in 2003 to 55 percent in 2013. The obvious explanation is that they are in school investing in education. But the percent of young people attending college has not increased significantly since 2003. So where are they? Perhaps fewer have taken part time jobs while in school and perhaps many are engaged in the informal economy… doing odd jobs, caring for parents.
But this is a mystery that needs to be solved because work patterns are established quite early and a generation that is not working at full capacity will have serious implications for the economy in the future.