Labor force smaller than before recession started

[eridani]

http://www.epi.org/publications/entry/labor_force_smaller_than_before_recession_started1/

The December jobs report shows continued improvements in the labor market, but they were modest. Payroll employment growth was just 103,000, average hours held steady at 34.3, and average hourly wages increased by only three cents. Though the unemployment rate dropped to 9.4%, around half of the improvement was due to 260,000 people dropping out of the labor force, leaving the labor force participation rate at 64.3%, a stunning new low for the recession. Incredibly, the U.S. labor force is now smaller than it was before the recession started, though it should have grown by over 4 million workers to keep up with working-age population growth over this period.

The good news in this report is that December caps an entire year of job gains in the private sector. The bad news is that – three full years after the recession officially began – the U.S. is still near the bottom of a deep crater. Where does the Great Recession, three years out, stack up historically? The accompanying figure, which compares the percent employment change by month from the start of each post-WWII recession, shows that the Great Recession is far outside the experience of any this country has seen in 70 years. Three years out, the labor market is still down a larger percentage of jobs (5.2%) than at the most severe point of any other postwar recession.

[eridani]

1. More disturbing labor force trends

I chose these bounds for the vertical axis, because the change is anything but negligible. At current population estimates, if the labor participation rate hadn't fallen since it peaked in late 2006, then there would be another 4.3 million Americans in the labor force. These people do not have jobs, but are not considered unemployed. If they were, it would raise the number of unemployed people from 14.5 million to 18.8 million. That would increase the national unemployment rate from 9.4% to 11.9%.

http://www.theatlantic.com/business/archive/2011/01/very-disturbing-employment-trends/69239/#

This is, however, probably a slight exaggeration. Some of those who have left the workforce may be gone for good. Considering that some baby boomers are beginning to retire, their relatively large numbers could be a factor in labor force shrinkage. But that probably isn't the story for most of these Americans. Some are technically discouraged (about 1.3 million), and some have other reasons for temporarily not looking for work. According to the Bureau of Labor Statistics, 6.2 million Americans who weren't considered part of the labor force wanted a job in December. So this the 4.3 million estimate above is probably a conservative guess.


That means we'll likely see many of these Americans rejoin the workforce in coming months or years. So when you think about the number of jobs that must be created to get unemployment down to a reasonable level of around 5%, there are likely a several million additional jobs needed that official statistics don't even account for.

The nature of long-term unemployment and the declining workforce aren't statistics you generally hear tossed around in superficial coverage of the unemployment problem. But they're both very significant. One shows the serious harm that the problem is causing a huge chunk of unemployed Americans, while the other shows that even the relatively ugly headline numbers are probably too optimistic.

[westerebus]

2. What's the old saying ?

There's lies, dam lies, and statistics.

How does the BLS just loose/misplace four million workers?

Well if the Pentagon can misplace $3.5 trillion, I guess I should not be surprised.

It must be the new New Math.

Like the new New Normal.

[pinqy]

3. Nobody was lost or misplaced

There are three categories for the population:
Employed: Worked for pay during the reference week (or temporarily absent)
Unemployed: Did not work but actively looked for work in previous 4 weeks.
Employed plus Unemployed = Labor Force

Everyone else...people who neither worked nor looked for work...are Not in the Labor Force.

So, from Nov to December, the number of Employed went up by approx 290,000, the number of Unemployed went down 550,000. That's a net loss to the Labor Force of 260,000. This means that while many of the unemployed got jobs, almost as many are no longer looking for work.

This has been getting worse, and the current Labor Force participation rate (the percent of the adult civilian non-institutional population in the Labor Force) has been going down.

But it is ridiculous to take any of the people not in the labor force and arbitrarily add them back in to say this is what the UE rate should be.

[jtuck004]

4. From the BLS report Jan 7, 2011

...
"About 2.6 million persons were marginally attached to the labor force
in December, little different than a year earlier. (The data are not
seasonally adjusted.) These individuals were not in the labor force,
wanted and were available for work, and had looked for a job sometime
in the prior 12 months. They were not counted as unemployed because
they had not searched for work in the 4 weeks preceding the survey.
(See table A-16.)

Among the marginally attached, there were 1.3 million discouraged
workers in December, an increase of 389,000 from December 2009. (The
data are not seasonally adjusted.) Discouraged workers are persons
not currently looking for work because they believe no jobs are
available for them. The remaining 1.3 million persons marginally
attached to the labor force had not searched for work in the 4 weeks
preceding the survey for reasons such as school attendance or family
responsibilities. (See table A-16.)"
...

So I don't think it is ridiculous at all. 1.3 million of them don't believe there are jobs, and that is an increase of 389,000 of our neighbors from a year before.

That's actually a powerful statement. Because we know from other sources that there are in fact 5 people looking for every open job (saw an estimate the other day by country where it was more like 30 for every opening) it tells us those people are in fact NOT going to find a job. So their perception is quite good and considering them among those who would work if there were jobs doesn't seem out of line at all.

And there's more...

Add that to the fact that the BLS thinks that people who have been unemployed - their word, implying that their normal state would be working, (else they would be lumped in with those who are not in the workforce and not counted as unemployed) - are being under counted and have added a new category for those who have been unemployed for 5 years, it adds to a picture of an economy which needs more than just waiting on Dollar General to open more stores.

What is nonsense is pandering to those who don't want to address the very real problems by persistently quoting an artificially contrived number as representative of an underlying and more serious issue. It lets us avoid discussion of the lack of action taken by those who are in a position to do more for the working people of this country, instead of the very wealthy, or other countries workers.

[pinqy]

7. 2011 changes

Add that to the fact that the BLS thinks that people who have been unemployed - their word, implying that their normal state would be working, (else they would be lumped in with those who are not in the workforce and not counted as unemployed) - are being under counted and have added a new category for those who have been unemployed for 5 years

That's not what they're doing. Until now, for the question "As of the end of last week, how long had you been looking for work?" the highest allowed entry was 2 years, regardless of how long the person had been looking. This does NOT mean they weren't counted, only that the data entry would be 2 years. They weren't undercounted, they just weren't distinguished for periods of longer than 2 years.

As for Discouraged...it's still too subjective. A person's perception may or may not be accurate. And perception can often change after reality. A person who isn't looking still won't find work regardless of any improvements in the economy. Looking at the U-4 is useful, but for looking at what the labor market is actually doing, rather than what people think conditions are, is the better baseline and official figure.

[jtuck004]

9. It does mean they weren't counted - among the long-term unemployed.

which is the whole point of the change.

And when they say they are still looking for work and have not looked in the past 4 weeks, you can talk all around the fact they there are no jobs for them - but none of that is important. They want to work, they are out of work, there are no jobs to apply for. The Census counts them and the BLS refers them as "discouraged". Good enough.

Not sure what the value is in belaboring the obious "A person who isn't looking still won't find work regardless of any improvements in the economy." - a person who is looking for something that isn't there isn't going to find anything either. And their odds are even worse if they happen to be jobs that can be shopped from country-to-country for the lowest rate.

So instead of a bunch of talk around it, we have around 30 million people who, mostly, want to work, not enough jobs.

There is likely only one solution that is big enough - really, really large government spending, outside the scope of what we have seen.

[Kat45]

10. So I guess my category is "Discouraged Worker"

I haven't sent out a resume in the last 4 weeks. I very rarely see a listing that interests me, but when I do, another reading of the ad tells me that they aren't going to call me--so I don't bother sending a resume. Employers are looking for the absolutely perfect person for each job, the person with 110% of the skills listed in the ad (the requirements and the also-would-likes.) I don't believe there is any job for which I'm the perfect candidate, despite my intelligence, 'elite' college education, and advanced degree. Even on the (rare) occasion that there is a job that I am well qualified for, I still don't necessarily get a call. I think the figures of 4 (or is it 5?) people for each job opening are vastly understated. I've applied for no-big-deal jobs that got over 100 resumes.

My last substantive job ended two years ago, and I've only had some part-time and temporary jobs since. I was not eligible for unemployment compensation because I had worked for a church. Not helping matters is the fact that I'm 55 years old. In my two years of un- and under-employment, I've had to spend much of my savings to make ends meet. With all the low paying jobs I've had through the years, my social security checks will be quite small--and I've got a lot of years until I will be able to collect. Being single also does not help, as it would be easier if there was another income in the household. So yeah, I'm a discouraged worker--and I'd say I have a good reason to be. I consider myself unemployed and very much wanting to work but the government does not count me as such.

[upi402]

13. And many are precluded from even chasing those few jobs

Since 9-11 no matter how many years have elapsed - ex felons can't work for most firms, on any school, government, or military base. People without the required education level get screened out upon intake at HR. People working part time are considered employed. People making half their usual wage are considered fully employed. And the discouraged worker isn't counted in unemployment stats.

Early and forced retirement is not considered unemployed.

Don't worry be happy statistics? I'd say so.
And 50% of all statistics are made up anyway - trust me!:evilgrin:

[westerebus]

5. Broader context.

When the BLS changes the model to get results acceptable to the Administration, the BLS forfeits credibility.

[pinqy]

6. If they were to do that, they would lose credibility

But they never have.

[westerebus]

11. 1994

Long term discouraged workers were eliminated from the methodology employed by the BLS prior to that date. There were Congressional hearings and more than one economist called it a sham.

In this case, the BLS simply retained the adjusted 1994 method and lessened the base number in the labor pool from 2006 by four million bodies. That 4.2 million is a skinny number. But why quibble over a few hundred thousand when the birth-death model takes care of that.

The choice is either the BLS numbers were wrong in 2006 or they are wrong now. That's not even changing their methodology.

If in fact the labor pool was lower in 2006 then wages and GDP were actually higher due to size of a smaller labor force. The evidence is that wages have not grown in the past decade and GDP is accurately reported. Nor was there major lay offs in 2006 compared to the 2008-09 down sizing as reflected in UE claims and extension of UE benefits.

An other way to look at this is productivity. Was 2006 more productive than 2009?

To surmise that 4 million workers retired out right is not supported by SS numbers. The numbers have increased in proportion to the age group reaching retirement age. There are a lot of boomer's retiring. While boomer's are taking the early option at 62 for economic reasons, they are still active in the labor force. Many are working marginally and show up in the U6. Working and retired is not a category that's reportable. Given the option they would still be working full time if there was a full time job to go to.

Which brings us to the 45-65 gap. The prime earning years. No one capable of employment would trade SS benefits for a prime earnings pay check. Unless they hit a jack pot somewhere somehow, became disabled or were laid off.

The complaint heard often is that the boomer's are not retiring. The younger folks can't find any jobs because the boomer's have them all. There are young people who have never held a job. There are thousands of graduates each year from colleges who can't find even part time employment. Those marginally employed are in the U6 number.

There is an inconsistency in the BLS numbers from 2006 to 2010 reflected in their reporting.

[pinqy]

12. The 1994 changes

were based on a 1979 commission. They weren't changes for the administration, they had been in the works for a a long time.

Long term discouraged weren't in the Labor Force prior to 1994, so they weren't eliminated from the labor force. Discouraged were only counted in the U-7 measurement (started in 1976) which was "total persons seeking full time jobs, plus one half of persons seeking part time jobs plus one half of persons employed part time for economic reasons plus discouraged workers as a percent of the civilian labor force plus discouraged workers less one half of the part time labor force." Here's a 1985 BLS article Implementing the Levitan Commission's recommendations to improve labor data

The National Commission on Employment and Unemployment Statistics made no recommendations for changing the basic labor force concepts and definitions . It did, however, recommend changes related to the identification and measurement of the relatively small number of persons outside the labor force commonly known as "discouraged workers." As currently defined, these are persons who want a job "now" but are not looking because they believe no job is available in their line of work or community. The Commission concluded that present cps procedures for identifying this group were too arbitrary and subjective." The procedures were considered too arbitrary because they exclude students and persons who cite home or family responsibilities as their reason for not searching for work even if such persons also indicate they believe no job is available. They were also considered too subjective because they depend on a person's stated desire for work, regardless of whether the person had, in fact, tested the job market recently.
The Commission recommended an alternative approach, one that is modeled after the Canadian Labor Force Survey. The new criteria would determine whether persons, who were neither working nor looking for work (during the most recent 4-week period), had, in fact, sought work in the previous 6 months . If so, they would be asked the reasons they were not presently looking for work, whether they were currently available for work, and whether they wanted a job. After much debate, the Commission also recommended continuation of the present practice of classifying discouraged workers as outside the labor force rather than making them part of the unemployment count. (Many critics believe the jobless figures are understated and that discouraged workers should be reflected in the unemployment figures.)

So it's clearly NOT a case of the Clinton administration making changes for political purposes. And the only people no longer counted as unemployed before 1994 and not after were those who had been hired, were waiting to start work, and had not looked for work in the previous 4 weks.

I'm not sure what changes in 2006 you're referring to. There were revisons to the Population data based on revised estimates, but that lowered the labor force by 130,000. And there is no birth death model used for the Current Population Survey. The birth death model is part of the Current Employment Statistics Survey and has nothing to do with the labor force (it only measures non-farm payroll employement).

[westerebus]

14. Explain to me the shift downward in the population estimates.

Take a look at eridani's post. The labor force population peaked in 2006? Where did the people go?

Thanks for the link.

[pinqy]

15. I see what you're asking now...

Brief run through of the concepts:
Population is the Adult Civilian Non-Institutional Population: Everyone 16 years and older, not in prison, a mental institute, or the military (the Levitan Commission reccomended including the military and that was done 1984-1994, but the figure including the military was usually ignored in favor of the civilian figures, so it was dropped).

Labor Force are those participating in the labor market: Employed and Unemployed, with Employed people who worked, and Unemployed people actively seeking work.

Not in the Labor Force is everyone else in the Population.

So the Labor Force participation rate is the percentage of the Population who are in the Labor Force. At its height in Dec 2006, there were 145,970,000 employed and 6,762,000 unemployed for a Labor Force of 152,732,000 and a Population of 230,108,000. 152,732,000/230,108,000= 0.664 66.4% With a Employment to Population ratio of 63.4% and an unemployment rate of (6,762,000/230,108,000= 0.44) 4.4%

For Dec 2010, there were 139,206,000 employed, 14,485,000 unemployed for a Labor Force of 153,690,000, higher than in 2006, but the Population grew to 238,889,000 giving a ratio of 153,690,000/238,889,000= 64.3% Employment to Population dropped more, to 58.3% and Unemployment rate is 9.4%

In short, while the population grew, employment went down, unemployment went up, and the labor force grew, but not by as much as the population. Definitely not a good thing as it means that as the population grew, fewer people were trying to work. What the OP is trying to do is say that IF the LF participation rate was still 66.4%, that would be a Labor Force of around 158,622,000 and if we assume that all the people we have to add in to the LF to get 66.4% were categorized as Unemployed, then the rate would be much higher.

Now all that's true, but misleading. For example, when my mother worked full time, she was a secondary earner to my father...she didn't really need to work, just worked a min wage job to get out of the house and have pocket money. She quit and became Not in the Labor Force. That kind of situation, and students and retirees with part time jobs etc, would definitely occur more often in a recession with people who don't necessarily need to work getting forced out of the labor market and not wanting to get back in. It's a bad assumption then, to add them back in as unemployed.

Let's look further...there are 6,471,000 people who are Not in the Labor Force but say they want a job. Adding them in would boost the UE rate to 13.1% and the LF participation rate to 67%. But not all those people could actually take a job if offered. And how many people are serious about wanting a job? If someone says they want to work, but aren't trying, is that really the same as someone actually trying? And because categories such as "want a job now" and "Discouraged" and "Marginally Attached" are so subjective...you can have 2 people in identical circumstances categorized differently solely on their perceptions/beliefs or just how they frame their response...the margin of error gets large (Labor force level is +-0.2%, want a job now is +-2.1%)

As for population controls...all these numbers are estimates, based on a sample of 60,000 households. Over time, with more information, the numbers can be crunched to be more accurate..you have a baseline figure and each month you can estimate the changes and add those to the baseline. But if the baseline is off (and there's a real margin of error) then the subsequent numbers will be more and more off. So periodically, the numbers are adjusted to match better estimates of previous times. The 2010 census will help that a lot.

[westerebus]

16. That works for me.

Some times I ask a fractured question in pursuit of a whole answer.

Actually more often than not.

Thank you for your patience and that understandable explanation.

[Warpy]

8. The oldest boomers and disabled workers have been shaken out first

and are now collecting early Social Security or SSD. More will be shaken out the day they turn 62 and are eligible for benefits. Most will have to work at least part time until they drop, as soon as part time work is available. They're going through their retirement savings now.

The big drop has happened. There will be a slow decline for a while.