Wednesday, May 9, 2012

Both Male And Female Labor Force Participation Rate For 25-54 Year Olds Below Pre-Recession Level: Percentage Not In Labor Force But Want To Work Has Increased

From Federal Reserve Bank of Cleveland, Economic Trends, "Labor Markets: Glass Half Empty…Glass Half Empty" by Timothy Dunne and Kyle Fee:
looking at the labor force participation rate for prime-age workers, 25 to 54 years old. The labor force participation rate for prime-age workers should be less sensitive to schooling and retirement decisions, which often affect the labor force participation rates of younger and older cohorts. Even for males aged 25-54, we saw steady declines in participation rates not only during the recession, but also during the recovery. A recent Chicago Fed Letter by Daniel Aaronson, Jonathan Davis, Luojia Hu reports that only one-quarter of the decline in labor force participation rates in the period from 2008 to 2011 can be explained by demographic factors.

Each of these projections shows that the current labor force participation rate is well below the trend rate predicted from these official agency models, and it is likely the case that cyclical factors continue to play an important role in explaining the gap. In fact, a recent Kansas City Fed Economic Review article by Willem Van Zandweghe estimates that cyclical factors explain about a half of the decline in the labor force participation rate between 2007 and 2011. This suggests that if the economy improved, individuals that are not in the labor force (not counted in the unemployed) would re-enter the workforce—putting some upward pressure on unemployment rates, but also expanding the labor force.

And there is evidence that the number of individuals not in the labor force but available for work has increased. The Bureau of Labor of Statistics estimates that the number of individuals who are not in the labor force but want a job is roughly 6.3 million or 7.2 percent of the total number of people not in the labor force. This is up by roughly 1.5 million from before the recession. Still, the pace of economic growth will need to accelerate from the first quarter’s rate of 2.2 percent in order to generate the rise in labor demand needed to induce more individuals to re-enter the workforce.

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