Which Way Employment?

February 26th, 2016 by Leave a Comment

By Harold Brown                                            

Harold Brown, Senior Fellow, Georgia Public Policy Foundation
Harold Brown

A person who wants a job and doesn’t have one knows exactly what unemployment means. Sadly, most of us who depend on the media to tell us about the nation’s unemployment don’t quite know.

The “unemployment rate” supposedly tells us the proportion of people unemployed, and is often presented as the whole story.  But there is much more to it: The official “unemployment rate” is the percentage of people in the labor force who don’t have a job and are seeking one.

What about changes in the size of the labor force? The labor force is not a fixed group. The focus may on the unemployment rate, but changing demographics affect the labor force as much as, or more than, the recent recession.

The Labor Force Participation Rate – the percentage of the civilian, non-institutionalized population working or seeking a job rose from an average of 60 percent in the 1950s to a peak of 67 in 2000. This increase was, in large part, because of increases in working women and the large “baby boom” generation coming of age.

At the beginning of the recent recession in 2008, the rate had already declined to 66 percent. By 2014 it was 62.9 percent, its lowest level since 1977.

Participation by women in the labor force increased from 43 percent of the civilian population in 1970 to 60 percent in 2000. That dropped to 57 percent by 2014. Participation by men decreased steadily from 80 percent in 1970 to 69.2 percent in 2014.

Percentages are too vague for the recent change. The civilian, non-institutional population grew by 14 million from 2008 to 2014, but the civilian labor force grew by 1.6 million. Those outside the labor force accounted for the rest: about 12.5 million, or 89 percent of the increase.

The declining participation isn’t expected to reverse in the near future, according to a 2013 the Bureau of Labor Statistics publication, “Labor force projections to 2022: the labor force participation rate continues to fall.”

Looking at numbers makes it clearer. From 2012 to 2022, about 8.5 million are expected to be added to the labor force. That is 22.5 million fewer than were added in the 1970s, when our population was much smaller, and 5.5 million fewer than were added in the 1990s.

The U.S. Labor Department calculates an “Economic Dependency Ratio,” which is the number of people not in the work force (including the Armed Forces and children) per 100 people in the work force. That ratio was 92 in 1992. It rose to 102 in 2012, and is predicted to be 106 in 2022.

Aging of the population is a large factor in the current and future labor situation. Retirement reduces the labor force and the beginning retirement of “baby boomers” makes it more of a factor (the first of them turned 62 in 2008). The Council of Economic Advisers attributes about half of the decline in labor force participation from 2007 to 2014 to aging of the population.

Individuals 55 years and older make up a growing proportion of the civilian population (excluding 16 years and younger) and labor force – about 38 percent in 2022 compared with 22 percent in 1992. As labor force participants, however, their rate is 26 percent in 2022 versus 12 percent in 1992.

Older people leaving the work force need to be balanced by young people entering it, but current trends in birth rates are in the opposite direction. News reports of record-low birth rates for the United States began in 2009, many guessing that it was caused by the recession. However, there has been a new record low each year since then, meaning smaller numbers entering the work force in following decades.

Other trends also are pertinent to the work force balance. One solution being considered, according to a 2014 publication from the Office of the President: “Probably the most significant policy response to falling labor force participation rates is immigration reform …”

The 2013 Labor Department publication shows past and projected ethnic trends in the civilian labor force. For each of the 10-year periods analyzed, 1992-2002, 2002-2012, and 2012-2022, workers of Hispanic origin increase by about 6.5 million. Meanwhile, non-Hispanic workers increase by 10.1 million, 3.7 million and 1.7 million. Changes for non-Hispanic whites are plus 4.6 million, minus 1.5 million and minus 2.5 million.

The aging population and falling birth rates appear to make the undocumented immigrant population an attractive solution. But could it aggravate the labor force participation problem?

Many other factors, including technology, education and overseas competition, complicate the unemployment situation and prospects. Private initiative innovation, enterprise and free trade offer the best solutions. Additional government management or interference won’t simplify it.

University of Georgia Professor Emeritus Harold Brown is a Senior Fellow with the Georgia Public Policy Foundation and author of, “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.” The Georgia Public Policy Foundation is an independent, state-focused think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (February 26, 2016). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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