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Wolf Richter: “This Chart Is A True Representation Of The Employment Crisis In This Country”

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Yves here. Wolf’s latest post gives a crisp overview of how bad things are in job land. Among other things, he highlights the catastrophically high unemployment levels among young people, and how financially stressed older workers are hanging on to jobs much more than they used to in the past.

But there’s another layer to this picture. Heretofore, the pattern among employers in a downturn in managing the non-executive/senior managerial workforce was to push out higher-cost older workers in favor of cheap, high energy, less set-in-their-ways new hires. People in my age cohort and a bit older will attest that they know lots of people over 40 who were given the heave-ho. Some eventually found work at much lower pay, some became self-employed (it’s a lot harder than the business press lets on; 9 out of every 10 new businesses fail in the first three years), and some retired, living more modestly than they had wanted to.

So why are more middle aged and old people hanging on? The fact that they can suggests strongly that employers are no longer paying a premium for experienced workers. It would make sense all day to hire young people if their wage rates really were lower. But most employers aren’t willing to invest in training. I’ve been reading on the tech site Slashdot for at least the last ten years of the dearth of entry-level jobs. To the extent that there is yeoman’s work that served as a way to train young professionals, like preparing legal briefs, that is increasingly sent overseas. And I’d hazard employers are either more willing to hire (or keep on) “overqualified” workers, or in a more competitive job market, those “overqualified” candidates have gotten smarter about dumbing down their resumes.

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.

The civilian labor force in the US has been causing bouts of hand-wringing and head-scratching. It represents the official number of people working or looking for work. It’s what the official unemployment rate (U-3) is based on. If labor force participation drops – if for whatever reason, millions of people are no longer counted as part of the labor force, as is the case in the US – it’s a troublesome indicator for the economy and the real employment picture.

It also makes the unemployment rate, now 7.3%, look a lot less awful: if you’re not counted in the labor force, and you don’t have a job, you’re not counted as unemployed. There are millions of people in that category. And their numbers are growing, not diminishing.

“The irony of the U-3 unemployment statistic is the fact that while unemployment has gone down 30% since its 2009 peak, we have the lowest labor force participation rate in over 3 decades,” observed Ralph Dillon, Vice President at Global Financial Data, in an email. “The markets and politicians celebrate the official unemployment rate, but you have to be concerned with the trend that is most indicative of the health of the employment situation in this country: the downward trend of those who want to work and can’t.”

Before the financial crisis, the unemployment rate and the labor force participation rate weren’t correlated. Unemployment would jump up and down, based on the economy, but labor force participation moved to its own drummer:

“During the 1970s and 1980s, the labor force grew vigorously as women’s labor force participation rates surged and the baby-boom generation entered the labor market,” explained the Bureau of Labor Statistics. The labor force participation rate hit an all-time peak in early 2000 of 67.3%. “However, the dynamic demographic, economic, and social forces that once spurred the level, growth, and composition of the labor force have changed….” And labor force participation has since dropped to 63%.

The chart (Global Financial Data) juxtaposes the unemployment rate and the labor force participation rate since 1980. After the financial crisis, suddenly, for the first time in history, they both started moving in lockstep. Downward.

US-LaborForce-Participation-v-total-unemployment-rate

“This chart is a true representation of the crisis of employment in this country,” Dillon wrote. The diminishing labor force participation rate – the officially available labor pool, however unrealistic it might be – has been driving down the unemployment rate for the first time in history.

But beneath the overall numbers, it’s even worse. This chart by the BLS depicts labor force participation rates in 1992, 2002, and 2012, with an estimate for 2022:

US-LaborForce-Participation-by-age-year-1992_2022

People 55 to 64 years old, the first forget-about-retirement generation, are staying in the labor force to an ever greater degree. In 1992, only 56.2% were still in the labor force, in 2012, 64.5% were. Similar for older folks. The participation rate for people 65 to 74 years old jumped from 16.3% to 26.8%. Reality is this: fewer people can afford to retire.

But who is not making it into the labor force? Young folks. The participation rate for those 16 to 19 has plunged from 51.3% in 1992 to 34.3% in 2012. OK, the BLS explains that by an increase in school attendance, and that would be a good thing. But the 25 to 54 year olds? Even among them, participation rates dropped from 83.3% in 2002 to 81.4% a decade later.

Among the 18 to 34 year old “Millennials,” those lucky ones who’re official counted in the labor force, unemployment has been a nightmare, with double digit unemployment rates, still, nearly 6 years after the financial crisis, reported the youth advocacy group Young Invincibles. It’s even worse for the 16 to 24 year olds, whose official unemployment rate is still 15%!

In prior downturns, the employment rate for young adults nearly reached pre-recession levels within 5 years. In the Great Recession, young adult employment had not even recovered halfway by the same point. A quarter of all job losses for young adults came after the Great Recession was officially over. The lack of jobs had driven many discouraged young people from the labor force altogether. A recent report by Opportunity Nation estimates that 5.8 million young adults are neither working nor in school.

Sure, companies have been creating jobs since the Great Recession, but only at the growth rate of the working-age population, as evidenced by the BLS’s dreary employment-population ratio. It peaked in April 2000 at 64.7%, crashed during the Great Recession, and has been skittering along the bottom ever since. At 58.6%, it’s lower than it was during most of 2009! And the 30% improvement in the official unemployment rate – where the heck did that come from? The chart has the answer: people 54 and younger being statistically purged from the labor force.   

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22 comments

  1. Andrea

    One should also consider working hours….

    The average hours worked in the week is under 35 (34.5 for Nov 2013) and has been so for ages. It was down to 33 at some point iirc.

    http://www.bls.gov/news.release/empsit.t18.htm

    In effect US working adults work 3/4 time jobs with a little extra, on average (with wild variation.) Roughly, 3 full-time jobs are ‘shared’ by 4 people.

    1. JC48

      Just to add the reverse to that– 3 Salaried people are working 4 and 5 full-time jobs. They are being drained of every last ounce of energy available.

      I believe we can really thank NAFTA for this grand job drain, which was every corporation’s dream come true! Now the corporations can outsource our jobs and get tax benefits from doing that? Isn’t all this wonderful, though, for the oligarchs! Their stocks are skyrocketing as work is outsourced at 10% (or whatever) of what the American worker would have been paid–while steadily pressuring the current American worker to take smaller and smaller wages and fewer and fewer benefits. Clinton said that NAFTA would elevate other countries’ workers wages, but he was wrong. NAFTA has simply made all workers slaves. Thanks Clinton.

  2. Katniss Everdeen

    So, let’s start here. Points plotted on a graph over a 22 year time frame. Dots connected. Several different presidential administrations involved serving or purporting to serve several different masters. Several different agendas. Conclusions drawn.

    Were each of the dots generated in EXACTLY the same way? Were each of the sample sizes, sample criteria, analyses, assumptions, adjustments, definitions and general methods EXACTLY the same each year for the last 22 years?

    I think everyone knows the answer. For those more trusting, the answer is NO.

    As long as one dot is not EXACTLY like the others, the famous “apple and orange rule” applies.

    1. Philip

      Katniss, you might seek to cast out the orange from your own conclusions before castigating the debatably blemished apples among the conclusions of another who might actually have done a little research. Unfair

  3. washunate

    Thanks for highlighting this. The lack of decent employment opportunities for new workers has been one of the biggest warning signs for a couple decades now about the inherent instability in extreme inequality.

  4. F. Beard

    We should be happy that so few workers are required. Isn’t a life of comfortable leisure most people’s desire?

    The problem is that the need for workers has been automated away with the worker’s own stolen purchasing power via the government-enabled credit cartel, the banking system. Therefore, restitution and a share in profits is required, not silly, unjust make-work.

    1. steelhead23

      Beard – What precisely is “make-work”? I hesitate to bring up the concepts of human nature and morality, but I believe there is both an innate desire to be useful in most humans and a psychological reward for doing so. Further, there is much that could be done to better our society – that is, there is work to do. Hence, I strongly disagree. Especially for young people, I would support a system of guaranteed employment with off-ramps for those who demonstrate their uselessness. The concept of a free-market generating employment for all is a fairy tale.

  5. j gibbs

    Numerical analysis of employment/unemployment ignores qualitative issues. The most important employment change involves the character and prospects of the jobs being offered. Our corporations now sell us dreck manufactured in low wage countries; and they sell us customer service from these countries too. What they still use American workers for is waiting on us and manipulating us and entertaining us and fleecing us. So much for job creation. It was always lame but it has gotten worse. Industry and business are not the same thing.

  6. armchair

    When politicians and other policy makers tout progress on official unemployment numbers, they should also add exclamations for the triumph of manipulation, prestidigitation and deception over reality.

  7. Hugh

    I had been thinking about writing on this. There has been a spate of articles revisiting the participation rate, the recession, and Baby Boomers beginning to hit 65. There is a major problem all of these articles have to overcome. The participation rate peaked in 2001 and has been on the decline since. So what is the problem? Boomers only began hitting 65 in 2011. Some 70% of the decline in the participation rate has taken place before Boomers began to retire.

    So we get all these bogus explanations that don’t really explain anything. Women’s participation rate peaked here. The young are staying in school longer. Older workers are staying on the job longer. The truth is Yves is exactly right. There are no jobs. Certainly no good ones. There haven’t been for 13 years now. Commentators are, cynically or no, mistaking the effect for the cause. Young people are staying in school longer because this delays them looking for jobs that don’t exist or are crap. Older people are staying in the labor force, even at crap jobs, because they can’t retire or because they need to supplement their retirement, including Social Security. Parenthetically, if you are working part time and drawing Social Security, you are considered a voluntary part timer, like you had some choice in the matter.

    What never gets mentioned are all the millions of jobs that have been shipped overseas. Static wages and falling hours also don’t get a mention. Nor does the crapification, in general, of American jobs. The big push is to describe all this as inevitable due to impersonal, agentless, demographic shifts.

    1. run75441

      Hugh:

      Jobs do go overseas as we all have witnessed. At the same time Productivity Gains are skewed to capital and away from Labor or Labor intensive Investments. As one Fed member wrote retirement for baby-boomers started roughly about 2010 and is responsible for the decreases in Part. Rate since then. There are a lot of reasons for a low Part. Rate. I would like to read yours also.

    2. neo-realist

      Attrition is very much in vogue in the corporate sector—-when employees leave, rather than replace them, their responsibilities are assumed by other employees, who in many cases already have their hands full resulting in this phenomenon of workers doing the work of 1.5-2 people.

    3. Washunate

      Spot on Hugh. One question, do you think that shipping jobs overseas is a big factor? It appears to me as largely a distraction, a way to shift blame away from domestic actors. If aggregate wealth was actually leaving the US, it wouldn’t be so expensive to live here.

  8. curlydan

    Great article. I read that BLS paper a few weeks ago, and it was very interesting.

    I suspect the projected 65+ participation rate in 2022 is too low. There will be lots of people who just can’t afford to retire. If so, it probably will squeeze the 16-24 participation rate because crappy jobs for the elderly will squeeze crappy jobs for the young.

  9. active participant

    I recall an article somewhere around 1999, perhaps in Baron’s, that had some economists and others discussing the future globalization of trade. All were talking favorably about how good it will be for markets, the economy and all involved. Towards the end of the article, the interviewer asked if such globalization wouldn’t shift the economic powers to other areas. The matter of fact response was, oh yes, your children will probably learn Chinese and move there for a better life. So none of this should be a surprise.

    I more recently read that they are now producing robots that are as cost effective as a Chinese factory worker, so those jobs can be brought back to the US. They just won’t be filled by humans.

  10. Tim Gawne

    We are creating plenty of jobs.

    It’s just that we are importing so many foreign nationals that we can’t keep up.

    Either attack our current cheap-labor-uber-alles immigration policy, or stop this fake pretense that you care about working-class Americans. Period.

    1. Jeff

      Tim,
      Any numbers or citations to back that up? I believe that it is part of the problem, but I have a hard time believing that it’s a substantial component.
      Seems to me that it’s the loss of the middle class manufacturing jobs that go overseas that is the single most significant problem.
      If the US were to continue to invent and innovate, then manufacture those new goods (and services), the whole country would be much better off.
      I live this firsthand as I am in database development/maintenance and have to compete with companies/staff overseas. Sure there are local companies with foreign workers, but the greater challenge is with companies/staff that are overseas.

  11. Ed

    What I don’t think anyone clearly has recognized for younger workers is their entry into the workforce is blocked. Why does anyone think a living wage should be earned by anyone but management at McDonalds, Walmart, Target, Grocery Stores, etc… these are all minimum wage jobs that our young people (in college) and older workers (on social security) should be doing. Why is a 34 yr old father of 3 working at Walmart full-time punching buttons on a cash register? Simple, he can’t find a job and unemployment ran out. I can understand a full time parent working at Target part time because flexible hours and some extra money for holidays. But full time? Really?

    As for the graphs, the 2008 crisis here is borrowing money from China to pay for the goods they are selling us. Where do you think the government found money for QE. They are borrowing it from China and in return the Chinese have unfettered access to our markets. Go to the department store (macys dillards, sears, penny’s) and try to goods made in the USA. There is a large sucking noise as the wealth of the country leaves to feed the 1 billion Chinese citizens making your frying pan, egg beater, couch, rocking chair, underwear, eyeglasses, wallet, smartphone, tablet, shoes …. check the labels when your shopping over the month and you will really understand the issue. NAFTA was between US, Mexico and Canada, not US and China. I see nothing I buy coming from Mexico except automobile parts and tomatoes.

    Advice for young people “Find an internship doing something like you want to do. Even if you have to knock on the door of (and work for free) a small startup business. You’ll have leg up over the person been bagging groceries when you both apply for the same entry level job of your chosen profession.” Then focus in November 2014 and 2016 voting for your Legislature in the House and Senate. Read their resumes first just like anyone you’d consider hiring (voting is like hiring, right?).

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