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Home Publications Blogs Beat the Press The Missing Workforce: It's Worse Than the Post Says

The Missing Workforce: It's Worse Than the Post Says

Sunday, 07 April 2013 08:55

The Post had a good piece noting the large number of people dropping out of the workforce, presumably because they can't find jobs in the weak economy. However the problem is likely worse than the piece indicates.

There are a large number of people who do not respond to the Bureau of Labor Statistics' Current Population Survey (CPS), the standard survey used to measure labor force participation. In recent years the non-response rate overall has been close to 12 percent, as opposed to just 5 percent three decades ago. The non-response rate varies hugely by demographic group. For older white men and women it is 1-2 percent. By contrast, for young African American men it is close to one-third.

The Bureau of Labor Statistics effectively assumes that the people who don't get picked up in the CPS are just like the people who do. This assumption may not be plausible. The people who don't respond may be more transient or may have legal issues that make them less willing to speak to a government survey taker. For these reasons they may be less likely to be employed than the people who do respond to the survey.

My colleague, John Schmitt, examined this issue by looking at the 2000 Census (which has a 99 percent response rate) and comparing the employment rates overall and for different demographic groups in the CPS and the Census for the months when the Census was conducted. He found that the overall employment rate was 1.0 percentage point higher in the CPS. For groups with high non-response rates the gap was larger, with a gap of 8 percentage points for young African American men.

These results imply that the problem of people dropping out of the labor force is likely much worse than is generally recognized. The problem is that many of those who are dropping out are not responding to the surveys we use to measure the problem.



I forget to mention, the reason that so many people are just dropping out of the workforce now is the shortening of the period of extended unemployment benefits. As long as people are receiving unemployment insurance they have to be looking for work. When their period of eligibility ends, most people just drop out of the labor force. The period of extended benefits was shortened in most states at the end of 2012. As a result, many people went from being classified as unemployed (no job, but looking for work) to being out of the labor force (no job and not looking for work). This was reflected in a sharp drop in January in both the average and median duration of unemployment spells, since many of the people who had been out of work longest were no longer counted as unemployed.

Comments (11)Add Comment
written by Chris Engel, April 07, 2013 9:23
The element of shame is completely forgotten by economists.

People who have a job and are doing well respond to a survey gladly and say they're employed.

If you're unemployed, you blame yourself. Few people know about the system and can understand that they're being squeezed by bad policy.

Instead, they just assume it's their own fault, they get depressed, they drink (Dean has referenced the problem of alcoholism and unemployment many times). What they don't do is respond to surveys and say "YEA IM UNEMPLOYED", no, they're ashamed.

The human aspect is totally lost on most economists (Dean excluded of course).
written by AlanInAz, April 07, 2013 12:03

The linked chart shows labor force participation for ages 25-54 since 1946. My interpretation is that we have been in a slow steady decline over the last two decades except during the two major bubbles - stock market in the 90's and housing in the 2000's.

The rise in participation from 1946 to 1990 is impressive.

The linked chart was tweeted by Matt Yglesias.

written by LSTB, April 07, 2013 12:51

Most of the postwar rise is due to women entering the workforce. I hope Yglesias pointed that out.

This FRED chart captures it both sexes, but it doesn't have an age limit so it probably includes a lot of retirees who're living longer:

written by AlanInAz, April 07, 2013 1:40

AS your chart shows, it is obvious that the rise in participation is due to women entering the work force, however, I am still impressed that so many job openings were created for the women (albeit many at low wages).

Yglesias speculated in another tweet that perhaps we have been in a labor participation bubble over the last twenty/thirty years. I do think that we have not had a sustaining full employment economy in that time period without some type of bubble.
written by urban legend, April 07, 2013 2:20
We know from the highest employment period we have had in modern times, with 2000 data from a high-education, low-poverty state (Minnesota) that at least 73% of the civilian non-institutional population will take jobs when they are plentiful. (This kind of percentage is also seen in Northern European countries.) We are at 58.6% now in the national employee-to-population ratio. With the national working age population at 245 million now, that means we are under-performing the potential by 35 million jobs. That number is modestly reduced by escalating baby boom retirements, but we also would be advancing towards it as educational levels in the Deep South states keeps improving.

After protecting us from foreign aggression, the first order of government -- "our" government, by the people and for the people -- should be making sure everyone has something to do.
everyone back to work, as in the 30s!
written by pete, April 07, 2013 3:05
In the 30s, the CCC paid $1 a day (plus free room and board) and workers lived in simple camps building stuff like Skyline drive. That would work today. $1 a day then is like $18 a day now...I can see folks lining up now. Where's Roosevelt when you need him?
Example of a Flawed Supply Side Interpretation of the Missing Workforce
written by Last Mover, April 07, 2013 3:52

From this link it's worthwhile to take a sample of how declining labor force participation is interpreted in sharp contrast to Dean Baker, from the supply side by Richard Vedder, an economist quoted in selections below from a WSJ article on Jan 15th of this year:

From the mid-17th century to the late 20th century, the American economy grew roughly 3.5% a year. That growth rate has since declined significantly. When the final figures are in for 2012, the annual rate of real output growth for the first dozen years of this century is likely to be about 1.81%. ...

... The decline [in growth since 2000] matters more than you may suppose. If today the country had the same proportion of persons of working age employed as it did in 2000, the U.S. would have almost 14 million more people contributing to the economy. Even assuming that these additional workers would be 25% less productive on average than the existing labor force, U.S. gross domestic product would still be more than 5% higher ($800 billion, or about $2,600 more per person) than it actually is. The annual growth rate of GDP would be 2.2%, not 1.81%. The retreat from working, in short, has had a real impact.

Vedder goes on to cite four primary reasons for the decline in growth since 2000: food stamps, SS disability payments, Pell Grants and Extended unemployment benefits.

A retreat from working? What? It's all voluntary? Because said government benefits are more attractive than earning a living wage that's not to be found? Conversely, what's to be found is so paltry one would require several of these jobs just to get by, impossible on its face for most. And benefits slightly less paltry are blamed for encouraging 14 million potential employees not to seek work at all?

This is like saying the 14 million should jump into the fire instead of staying in the frying pan. It's akin to an engineer explaining that the capacity factor of the labor force is just too unnecessarily low. It's circular. Because the ratio of run time to down time could be higher, then it should be higher, run more with "forced participation" to improve total output and efficiency.

Never mind that many if not most of the 14 million have already made the rational decision not to take jobs that actually make them worse off, even with no government benefits, while attempting ad nauseum to get even a bottom feeder survival job with no luck through endless applications and dead end interviews.

According to Vedder, the 14 million who dropped out of the workforce should wean themselves off the government dole and go back to work simply by creating the necessary demand that will apparently simultaneously employ them.

Imagine that. Says Law lives after all these years despite getting debunked by Keynes. Supply indeed creates its own demand.
written by LSTB, April 07, 2013 5:58

In light of the comments subsequent to yours, you can imagine where I think Yglesias should put his "labor participation bubble."

@Last Mover:

According to Vedder, the 14 million who dropped out of the workforce should wean themselves off the government dole and go back to work simply by creating the necessary demand that will apparently simultaneously employ them.

What are you saying Last Mover? That the primary block preventing 14 million people from finding work is rich people hoarding currency?? Impossible! Any explanation of depressions that doesn't place the blame on the poor or government programs serving them is necessarily deficient.

In seriousness, Vedder is probably right about higher ed. and student loans, but otherwise he's a crank.
written by liberal, April 08, 2013 8:14
pete wrote,
...building stuff like Skyline drive.

Actually useful stuff.
written by pete, April 08, 2013 9:27
well, i know Rachel maddow likes ribbons of highways and the hoover damming up the rivers etc., but there are alternatives, like mass transit. and talk about a bridge to nowhere...the golden gate bridge links an exclusive county, marin, with very little development (no water) to SF. essentially a private highway for the rich and famous.

without the massive highways in and to our national parks, they would be much more pristine and less crowded. thank goodness there are roadless wilderness areas.

Natural employment rate
written by Noni Mausa, April 08, 2013 10:21
From this and other charts, it looks like there is a "natural" employment rate around 60%. From the chart of male and female employment rates in the comments here, I calculated that the total M/F rates since 1950 were:

1950 M 87% F 32 T 59
1960 M 83 F 38 T 60.5
1970 M 80 F 43 T 61.5
1980 M 77 F 52 T 64.5
1990 M 76 F 58 T 67
2000 M 74 F 60 T 67
2010 M 72 F 60 T 66
~ 2013 M 70 F 58 T 64

It was after 1980 that the ratio rose dramatically above 60%. Is this perhaps a hint that 60% is the norm and we shouldn't be looking for a higher employment population ratio?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.