Should We Be Surprised By the Decline In Labor Force Participation?

One of the hobgoblins of the last few years is declining participation of adults in the labor force (recall that this means either working or looking for work).

Over the years, this blog has taken a strong position that this is mostly demographics: the population is aging, the baby boomers are starting to retire, the baby bust (of the 1970’s and 1980’s) is in their working prime, and the echo boom of this century hasn’t hit the job market in full force yet (and shouldn’t be expected to for a decade or so).

Here’s Bill McBride making a similar point at Calculated Risk. He’s more focused: is it a problem that so many middle-aged people are out of the labor force? Here’s a chart of labor force participation of 41 to 45 year old men:

I’ve blown up the image, so it’s a little hard to read the dates: the horizontal axis here goes back to 1976! So, it’s reasonable to conclude that the low labor force participation that we grouse about today (with Republicans saying it’s all Obama’s fault, and Democrats blaming it on … hmmm … just about anything that deflects attention from themselves) could have been predicted by anyone looking at the trends a generation ago. So, if this is a problem — and I’m not sure that it is — it is far broader than the policies of presidents and parties.

Calculated Risk goes a little further. Here’s the chart for all 5 year wide cohorts of men between 25 and 55:

Hmmm. Whatever is going on is also happening across all age groups.

Going one more step, realistically we should scale the vertical axis starting at zero, and scaled up so that the top of the chart matches the highest level we ever achieved. That’s the way most people assume a graph is made, and most don’t actually check. Here’s what we get:

Interesting. There’s definitely a decline, but frankly … this doesn’t look like much of a problem.

So, what’s the takeaway from this? I’m not sure myself. What I can say is that most men still work — so there hasn’t been much change. But a growing minority of men don’t work. That portion was small, and still is small. To me this does not indicate a pervasive problem with America. Instead, it indicates that there are two groups: participators and non-participators. And on the margin, we’re doing something over the scale of generations that is shifting marginal participators into marginal non-participators. That sounds like a gradual shift in the border between when work makes sense and when it doesn’t. Since recessions are marked clearly, I think we can casually dismiss that this shift is coming from the private sector. That leaves slow escalation in government benefits — over decades — as the likely cause. That suggests that the problem isn’t party policies, but the bureaucracy. Perhaps we need to think more about whether bureaucrats have a vested interest in shifting people out of participation.

Via Econbrowser.