Posted on 05/15/2014 1:08:17 PM PDT by SeekAndFind
Every month when the employment data is released there is an almost immediate debate that erupts over the Labor Force Participation Rate. Like any good boxing match, both sides take to their corners. Defenders argue the decline is primarily due to retiring "baby boomers" and demographic trends while opponents suggest that it is a sign that employment remains far weaker than headlines suggest.
As I discussed previously, recent employment increases, while encouraging have been little more than a function of population growth. As the population grows, incremental demand increases caused by that increase in population will create employment needs in areas most impacted by that population growth. This is why job formation has been primarily focused in retail, service and hospitality areas.
The Census Bureau and Bureau of Labor Statistics provide some fairly comprehensive data about employment that can help us understand the current state of labor force participation. Is it really just an issue of masses of baby boomers retiring? Or is it something potentially more structural in nature.
Let's start with the retirement of the boomer generation. Recent statistics show that the average American is woefully unprepared for retirement. On average, 40% of American families are NOT saving for retirement, and of those who are, it is primarily about one year's worth of income. Furthermore, important to this particular conversation, one-fourth of those at retirement age postponed retirement with only 18% being confident of having enough saved for retirement.
For the purposes of this analysis, I am going to exclude all of the "seasonal adjustments" that tend to be a focal point of many of the arguments and utilize a simple 12-month average to smooth the non-adjusted data.
With 24% of "baby boomers" postponing retirement, due to an inability to retire, it is not surprising that the employment level of individuals OVER the age of 65, as a percent of the working age population 16 and over, has risen sharply in recent years.
This should really come as no surprise as decreases in economic and personal income growth was offset by surges in household debt to sustain the standard of living. Notice that the surge in 65-year and older employment corresponds with the decline of prosperity in the chart below.
So, since we are now fairly certainly that a large number of individuals are working well into their retirement years due to financial reasons, what about employment participation for those of working age years 16-64. The chart below shows the 12-month average of employment as a percentage of those individuals of working age.
As opposed to the Labor Force Participation Rate that is widely discussed following each labor report, this chart shows that the participation rate of 16-64 year olds remained fairly stagnant between 1988 and 2008 ranging from 71-74%. This stagnation is very much due to the structural shift in employment makeup. However, while employment participation for 16-64 year olds declined sharply in 2008 due to the financial crisis, it has only mildly recovered over the last 5 years. It is here that the reality of job formation running at rates of population growth become clearly evident.
When the monthly employment data is released individuals that have given up looking for work are considered to no long be part of the labor force (Not In Labor Force or NILF). From 1977 through the turn of the century the 12-month average of the percentage of 16-64 year olds considered NILF, as a percentage of the total 16-64 aged population, had declined. However, since the bursting of the tech bubble and the financial crisis the number the percentage of individuals that dropped out of the labor force has grown sharply.
What seems to be missed by the majority of employment analysis, in my opinion, is whether the economic viability for the average American has improved? The fact the social benefits as a percentage of real disposable incomes has risen to an all-time record certainly suggests that it has not.
It would seem to me that this would be a much more salient question considering 70% of economic growth in the domestic economy is driven by consumption.
While the debate over the quantity of employment is sure to continue in the months ahead, the real issue should be quality. As I discussed recently in relation to the housing market:
"It is difficult to consider "buying" a home when full-time employment remains elusive. Full-time employment, which pays better wages and provides benefits, leads to increases in household formations and home ownership. A lack of full-time employment remains a major impediment to the recovery story."
The problem is that while the Fed has achieved a 6.3% unemployment rate it is clearly a hollow victory. This fact was not lost on Janet Yellen recently when she pulled Fed policy away from the employment mandate suggesting "much more work needed to be done." She is right. However, the problem is that Fed policy doesn't drive employment - employers drive employment which is only fostered through reduced regulations, taxes, and increased demand.
Bill Dunkelberg, NFIB Chief Economist, summed this up well when he stated recently:
"Small business confidence rising is always a good thing, but it’s tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis. From the small business perspective there continues to be no progress on their top problems: cost of health insurance, uncertainty about economic conditions, energy costs, uncertainty about government actions, unreasonable regulation and red tape, and the tax code.”
Regardless of which side of the low labor force participation rate argument you stand on, it is hard to argue that it is simply a function of retiring "baby boomers." While political arguments are great for debate, it is the economics that ultimately drive employment. While the Fed has inflated asset prices to the satisfaction of Wall Street, as shown in the first table above, it has done little for the middle class. It is ultimately fiscal policy that will help business create employment, the problem is that businesses need less of it while government officials keep piling on more.
In the meantime, stop blaming "baby boomers" for not retiring - they simply can't afford to.
I don’t think America can afford FOR the boomers to retire.
Let's start with the retirement of the boomer generation. Recent statistics show that the average American is woefully unprepared for retirement. On average, 40% of American families are NOT saving for retirement, and of those who are, it is primarily about one year's worth of income. Furthermore, important to this particular conversation, one-fourth of those at retirement age postponed retirement with only 18% being confident of having enough saved for retirement.
PFL
I could retire but the uncertainty of the future of health insurance is a huge factor.
He’s right. I can’t afford to retire. I plan on dying in the office.
De facto increase in the effective retirement age for most of the boomers who not saved up for their retirement with their own savings or investments.
People simply won't be able to afford to retire until they are in their 70s or until they are physically unable to work because inflation will have destroyed the purchasing power of their social security entitlement benefits Same with welfare recipients.
RE: He’s right. I can’t afford to retire. I plan on dying in the office.
Unfortunately I know of many businesses and companies that will LET YOU GO for your age.
They of course won’t give that as a reason ( age discrimination is illegal ), but they have WAYS of doing it.
AGEISM is rampant in America.
RE: I don’t think America can afford FOR the boomers to retire.
Unfortunately I know of many businesses and companies that will LET YOU GO for your age.
They of course won’t give that as a reason ( age discrimination is illegal ), but they have WAYS of doing it.
AGEISM is rampant in America.
RE: People simply won’t be able to afford to retire until they are in their 70s or until they are physically unable to work
Unfortunately, whether you can afford to or not, they WILL RETIRE YOU. Ageism is rampant in America.
Many are supporting two families because of divorce. Others have children and grandchildren living with them, or they are supporting them, because the younger generations are unemployed. That’s what happen in a lousy economy.
I’m 67 and self-employed. I can’t be fired, so I’m free to keep working, as I’m financially compelled to do. But, I wonder when my ability to work will take a hit? I already don’t have the stamina I used to have.
Plus some of them, like Sarah and Todd Palin, are only 50 years old.
“I don’t think America can afford FOR the boomers to retire.”
If that happened, the country would almost immediately collapse, because the kids are definitely not ready for the car keys.
The new phenomenon I expect to become very widespread are unrelated older Baby Boomers, and even Generation-X’ers moving in together as roommates. The logic in this:
One of them owns a house just for themselves; another has enough money that if they had a home they could have a good retirement; yet another is in good health and willing to do housework and take care of the others for room and board. Perhaps another who is still working but wants something at least somewhat like a home life.
Of course there are lots of variations on this, but all capitalize on the division of labor and mutual support and protection.
If their plan still has an empty room, they can even rent it to someone younger still, like a student.
The underlying reason is economy.
I used to think the Baby Boomers should set up communes for seniors. Once popular in the 60s, 70s the time has come to pool resources.
IOW, the participation isn’t dropping because boomers are retiring. It’s dropping because the economy is really that bad.
The inherent problem of communes is that those most attracted to them are least likely to want to work.
Add to that today the government wants to horn in to any kind of endeavor like small farms.
Interesting that, in your opinion, communism becomes our best hope.
I love the nasty contemptuous people on a thread like this. My reality is I will work til I die to feed the federal beast. My worry is when I can’t work any more. Then I simply don’t know. Trust God I guess.
But I love the thread bullies who know it all. If someone is a boomer and retired early, they are selfish scoundrels robbing future generations, but if one is in my boat, we are fools and simpletons for not investing and planning better.
There are some really loathsome people on line.
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