Has the Labor Market Tanked Under Obama?

As part of my series analyzing the article suggesting that Obama has changed the economy for the worse, let’s now move on to the third claim: the labor participation rate is near a 40-year low (with the implication that this is an indicator of an unhealthy labor market).

Indeed, according to the Bureau of Labor Statistics, the current Civilian Labor Participation Rate is 62.9%.

Over the last year we’ve hovered around the lowest value for this metric since 1978. The metric peaked in 1999 and has been slowly declining since then – so we can rate the letter of this claim TRUE – but let’s evaluate the spirit of this claim (that our declining labor participation rate is an indicator of an unhealthy labor market) by examining what this metric even means.

Civilian Labor Force Participation Rate == (# employed + # unemployed-and-looking) / (population 16 and older)

so it basically measures the percentage of the work-eligible population that either has a job or is actively looking for one – sounds reasonable enough.  However, some portions of the population aren’t ones we really care about looking for jobs – students, for example, so the calculation can be further broken down to:

(# employed + # unemployed-and-looking) / (# employed + #unemployed-and-looking + # in school + #unemployed-and-not-looking)

And of those not looking for work, there again are some we don’t really care about (at least to assess the health of the job market – retirees, for example:

(# employed + # unemployed-and-looking) / (# employed + #unemployed-and-looking + in school + retired + #unemployed-and-not-looking-and-in-prime-working-age)

And then even some people who are of prime working age but not looking for jobs may deliberately have taken themselves off the job market – stay at home parents, for example:

(# employed + # unemployed-and-looking) / (# employed + #unemployed-and-looking + in school + retired + stay at home parents + #unemployed-and-not-looking-and-in-prime-working-age-and-not-a-stay-at-home-parent)

You can see how a lot of nuance gets lost in a big, hairy, single metric – and finding detailed data for each of those subcomponents is hard.

The BLS projections through 2024 has some decent tabular data and the St. Louis Fed has some good analysis/projections as well. This White House report has much more detail (including on some trends in specific minority segments) but may be biased to make the administration look good.

The best nonpartisan anlysis I found is an article at FiveThirtyEight. TL;DR: about half of the decline in labor participation rate can be explained by demographic trends (baby boomers retiring) and has been expected/predicted for decades. The youngest segment is attending school at a higher rate than ever but isn’t large enough to move the needle much on this metric. There may be 2-4 million people without jobs that are attributable to a weak economy rather than to demographic trends that began long before Obama took office.

CONCLUSION: it is misleading to point to the labor participation rate as if it’s a dire indicator of a terrible economy; metrics like harmonised unemployment rate (currently 6.17%) are more useful. Still, there is certainly room for improvement in our job market and this should be a focus of our next administration. HOW best to stimulate that job market (and with the right kinds of jobs) is, of course, up for debate.

P.S. Given the rate at which the basic tasks of maintaining society are being automated, I think we need to prepare to look beyond jobs as a success metric for the economy – but that is a separate topic!

Published by Bryan Guido Hassin

These are the musings of a global cleantech entrepreneur. This blog began as a way to document my experience during the IMD MBA in Switzerland and now is the place where I publish eclectic thoughts on business, politics, fitness, entertainment, travel, wine, sports, and . . . whatever else is top of mind.

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