Labor Force Participation And Drinking The Koolaid

I so would love FOX news to pause from all the foot stomping and finger pointing "the labor force participation rate continues to drop under Obama and his failed Presidency!" to respond to this post from Ritholtz but that will never happen............because it doesn't boost ratings.  If you drink the FOX koolaid, please take a look at this research and do some of your own. 

Is it Obama's "failed policies"....or a good percentage merely a matter of aging demographics AND was it foretold?  Yes it was - over a decade ago.  Of course riling people up brings in viewers and sells newspapers.  Hype sells, peiod.  Telling people they knew it was going to happen but didn't bother to warn you...........well, not so good.  Its easier to point at a President and say's "it's all his fault" than to admit that aging baby boomers coupled with increased automation and outsourcing to help companies bottom line (stock price) are the main culprits. 

By the way, while they're pouring kerosene on your smouldering flame, it nicely distracts you from our crumbling infrastructure, failing education system, cutting VA benefits even further,  ordering more missiles, permanently extended Corporate tax breaks and pushing for Social Security/Medicare/Medicaid cuts.

Pay no attention to the man behind the curtain!

The truth doesn't sell.  Making you angry while being misleading and telling you half truths..........does.

  From Ritholtz:

More curious still is why any of this is so “extremely startling” to anyone. I have found research back to 2002 – and I’m sure I could find even earlier – that foretold of a decline in our LFPR due to our demographics which, unlike variables such as policy making, are carved in stone. Yes, to be sure, the decline was exacerbated by the severity of the recession, but this story was essentially written between 1946 and 1964 when the Boomers made their collective entrance.

For example, here is a chart from a 2006 piece The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply:

LFPR Projection from 2006 Fed Paper

So, eight years after that paper was written, how have things played out? Let’s have a look:

[Source: St. Louis Fed. Series: CIVPART rendered quarterly to match preceding graph.]

Further more, they expect the Labor Force Participation Rate to continue dropping.

St. Louis Fed President James Bullard gave an excellent speech on the LFPR in February:

I have reviewed some of the available literature on this topic. My view of the literature is that carefully constructed empirical models of the hump-shaped trend in the U.S. labor force participation rate do a good job of explaining the data. These models suggest that the current participation rate is not far from the predicted trend. This means, in turn, that the cyclical component in labor force participation is likely to be relatively small.

Translation: It’s mostly demographics with a touch of recession.

Said BLS in its December 2013 forecasts (emphasis mine):

Of note is the fact that the drop in the labor force participation rate was just 0.6 percentage point during the 2007–2009 economic downturn whereas, between 2009 and 2012, since the end of the recession, the rate declined by another 1.7 percentage points. A major factor responsible for this downward pressure on the overall labor force participation rate is the aging of the baby-boom generation.

Further reading (and for the purpose of memorializing these links):

Age-Adjusted Labor Force Participation Rates 1960-2045
Employment outlook: 2012–22
Labor force projections to 2022: the labor force participation rate continues to fall
Visual Essay: Long-term labor force
Projections of the labor force to 2050: a visual essay
Employment outlook: 2010–20
Labor force projections to 2020: a more slowly growing workforce
Labor force participation:
A behavioral model for projecting the labor force participation rate
Employment outlook: 2008–18
Labor force projections to 2018: older workers staying more active
Employment outlook: 2006–16
Labor force projections to 2016: more workers in their golden years
Long-term labor force
A new look at long-term labor force projections to 2050
Employment outlook: 2004–14
Labor force projections to 2014: Retiring boomers
Employment outlook: 2002–12
Labor force projections to 2012: the graying of the U.S. workforce
Consumer Spending
Consumer spending: an engine for U.S. job growth
Long-term labor force
A century of change: the U.S. labor force, 1950–2050
Employment outlook: 2000–10
Labor force projections to 2010: steady growth and changing composition

In addition the following  are some interesting articles from different researchers on the labor force participation rate.

-Kansas City Fed
-Richmond Fed
-Journal of Economic Perspectives
-St. Louis Fed

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