Friday, September 2, 2016

Labor Force Participation

A while back, I did several posts on labor force participation.  My general conclusion was that LFP wasn't as bad as it was generally made out to be for several reasons:

1) The hump and decline in LFP was largely due to a combination of (1) a one-time jump in female participation from the 70s to the 90s and (2) a long term secular decline across ages and gender.

2) When looking at male participation rates over the long term, there is a pretty stable slightly downward trend, except for the 16-19 and 55+ age groups, which have idiosyncratic movements based on cultural changes, etc.

3) LFP was above trend in 2007, so that forecasts tended to (1) start too high and (2) be flat or positive, which, in hindsight, was wildly optimistic, and contrary to half a century of experience.

So, LFP was a little bit below trend after the recession - not outside of historical norms, once the trend is accounted for.  Some of the downward trend of the 45-54 group is probably related to the way our disability programs induce people in that age group to leave the labor force, but that trend has been sloping downward for decades.  The 25-34 age group may have dropped by 1% or so in a way that will persist below the trend.

Within the working age groups, it looks like LFP has, more or less, recovered to expansion levels.  The 25-34 group might have some slack left.

This leaves a bit of a mystery for me, because I have been moving to an argument that we were deceptively in a sort of full employment recessionary condition by late 2006.  But, LFP moving above trend into late 2007 contradicts that idea.  This was a strange period, though.  Some of the growth in incomes was through rent inflation - most of which is imputed rent of owner-occupiers.  But, property values were flat or declining.  So, owners weren't getting any wealth effect from their properties, and in fact some were facing losses.  Owners had higher costs and incomes in a way that they would only know because the BEA told them they did.  Renters were transferring more of their incomes to landlords.  These amount to fractions of a percent of NGDP growth in a given year, but we are also talking about fractions of a percent of labor force participation.

It seems like there is something mysterious going on in the business cycle, when contraction is focused on housing, there is an increase in nominal production and income in a category that is mostly imputed - that requires no cash.  Wages rise.  Renters pay more of those wages to their landlords.  Owners pay themselves higher rents, though they don't know it.  So, a growing part of incomes is simply transfers on sunk costs to owners.  Does this create a boost in employment in the early part of the contraction?

In the current context, is employment even more of a lagging factor than it normally is?

1 comment:

  1. On the other hand, perhaps labor force participation rate "should" be rising for males, as the work becomes less physically demanding over the decades.