Friday, September 6, 2013

Weak participation rate haunts US labor markets

Weakening labor force participation remains the key problem for US labor markets. Using a fixed age group of 25-54 in order to account for the aging population shows a substantial and a nearly linear decline since the start of the Great Recession. We haven't seen participation rates this low in almost 30 years.

A material portion of the decline in the headline unemployment rate can be traced to lower participation. For example, according to the ISI Group, if we brought the total labor force participation to where it was at the end of 2011 (64% vs. 63.2%), the unemployment rate would be 8.4% rather than the latest 7.3%.

The Fed is keenly aware of the situation, but there is no real evidence that any of the three rounds of quantitative easing have slowed the decline in labor participation. And there is an expression for doing more of the same thing while expecting different results ...
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