Nums: Labor Force Participation Rate is down b/c old folks are retiring … well, not exactly!

Here’s some stuff that you won’t see other places …

OK, everybody knows that – despite paltry job growth — the unemployment rate dropped from 7.7% to 7.6%.

Why?

Because about 500,000 people dropped out of the labor force.

The “Labor Force Participation Rate” dropped to 63.2%

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= = = = =
Note that in the past couple of years the labor force participation rate has dropped about 3 percentage points … from over 66% to 63.2%

So, why is the Labor Force Participation Rate dropping?

Dr. Alan Krueger — Chairman of President Barack Obama’s Council of Economic Advisers – asserted on CNBC that the decline in the labor force participation rate is simply demographics.

Old people are an increasing part of the population and they are retiring.

Hmmm.

Nobody challenged him because it’s obviously true, right?

Not so fast.

Now, here are the nums that you probably won’t see any place else ….

A 5-minute analysis based on  BLS data reveals Dr. Krueger’s unchallenged assertion to be somewhere between misleading and flat out wrong.

First, interestingly, labor force participation among folks 65 and over has been increasing for a couple of years … and is continuing to increase.

Based on my quick scan of the data, this is the only age group with an increasing rate of labor force participation.

image

Makes sense to me …

With home values still depressed, tax rates rising, and Social Security uncertain … many folks who might have retired are hanging on for dear life … waiting for things to settle down

OK, but that’s only part of the story.

What about the “mix” ?

The number of old folks is skyrocketing, right?

Well, old folks have, in fact, increased as a percentage of the total over the past couple of years … by about 1-1/2 percentage points

image

Let’s put the factors together … the over 65 group is about 17% of the population and their labor force participation is about 18.5%.

Doing some basic arithmetic, that means that the population between 16 and 65 is 83% of the total … and that their labor force participation must be about 72.4% to get to the overall 62.3% average.

image

So, each time the population mix shifts 1 percentage point towards the over 65 group, the overall labor force participation rate bumps down by about 1/2% … since the over 65 participation rate is about 50 percentage points less than the rest of the population.

Let’s pretend that the over 65 crowd was still only about 15-1/2% of the population.

What would the overall labor force participation rate be today?

Answer: About 64%

image

In other words, less than 1/3 of the 3 percentage point drop in the labor force participation rate is due to simple demographics … i.e. more old people retiring.

That leaves 2/3s attributable to something else.

Hmmm.

Let’s look at another age group … the 25 to 29 year olds.

Their rate of labor force participation has dropped 3 points (sound familiar?) … to a new low in March 2013.

image

Remember, these aren’t the folks classified as unemployed … they’re the ones who aren’t looking for work.

My bet is that these folks aren’t retiring early.

Maybe government programs have gotten so lucrative that deadbeats are deciding that work is way over-rated.

Hmmm.

* * * * *
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One Response to “Nums: Labor Force Participation Rate is down b/c old folks are retiring … well, not exactly!”

  1. Nums: Still, blaming the declining LFPR on seniors retiring … | The Homa Files Says:

    […] See Nums: Labor Force Participation Rate is down b/c old folks are retiring … well, not exactly! […]

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