Revisiting Labor Participation

January 31, 2018

After years of pummeling this largely insignificant statistic into some soft minds, paper trained partisans have begun to wonder why the Labor Force Participation Rate hasn't risen, after all of this job growth we've had. Millions have been taught by "economic commentators" that this was a mark of failure, and now they're left wondering where the cheese went. Labor Force Participation has been range bound for almost five years now.

 

 

The simple reason, as most readers know, is that unemployment and participation are not the least bit correlated.

 

 

 

From 1948 to the present day, the Unemployment Rate (Blue) has had absolutely no meaning for Participation (Red). It's all demographics. Probably even more galling for those pining for the old days of smokestacks and Studebakers, participation is higher today than it was throughout the 1950s, 1960s, all the way to 1977.

 

So, LFPR remains "sticky" at these levels, but there's something of an accepted wisdom that the aging of the population has something to do with Participation's decline. That's true to a certain extent, but it isn't as big a factor as some think.

 

This is the Participation Rate for those Age 65 and older:

 

 

 

It's actually GROWING in share, and some think it's because people can't afford to retire. They're right, but for the wrong reasons. It's one thing to think you have enough money to retire at age 65 when life expectancy is only at 67, as it was in 1970. Now, it's about 76.4, and if you're in good health through these years, you'll probably live beyond that number. So if you're expecting a nest egg to last you through retirement, the calculus quickly changes when "retirement" stretches on for well over a decade. Aside from that, people are far more vital and energetic in their older years these days, and ending the social and monetary benefits from work may not hold much appeal for many.

 

This reminds me how French railroad workers used to get extremely generous retirement packages from the government while they were still in their 50s. They retired at full salary at that age, which may seem to be the height of Socialist excess. Unfortunately, after years of backbreaking work wrenching on steam engines and inhaling coal dust, those men didn't last too long, and many were laid to rest by the time they hit 60. The Government could afford to be generous. Today, an "engineer" is more likely to sit behind a computerized control panel in air conditioned comfort. They no longer get those benefits.

 

 

 

 

 

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Donald R. Davret, Investment Advisor Representative

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