A couple months back I drew a graph of the employment rate, workforce participation rate, and employment-to-population ratio and argued that the unemployment rate was going down not because people were going back to work in huge numbers, but instead because they were dropping out of the labor force. I said:
The simplest and, I believe, best explanation for what’s going on here is that the US economy is adding just enough jobs each month to keep up with population growth. This explains why the red line is flat. But since we’re not adding jobs any faster than that, the principal reason the employment rate appears to be going up is, unfortunately, that the workforce participation rate is going down.
Here’s the same graph updated with data through April. I read it as telling exactly the same story.
As Binyamin Applebaum wrote about the latest numbers in the NYT:
The American economy continues to add jobs in proportion to population growth. Nothing less, nothing more…
the decline of labor force participation – the technical term for the share of adults working or searching – is primarily the result of a bad economy.
Baby boomers are aging into retirement. Even before the recession, the government projected in 2007 that participation would decline to 65.5 percent by 2016, from 66 percent. But the April rate of 63.3 percent means the labor force has lost roughly five million additional workers.
Furthermore, the projections were wrong. Participation has actually risen among people older than 55. The decline is entirely driven by younger dropouts.
The federal government counts 11.7 million Americans as unemployed. The real number, it follows, is more like 17 million.
Meanwhile post-tax corporate profits are at all all-time high, and the Dow just passed 15,000 for the first time. I point these stats out not to rail against capitalism — I really, really like capitalism — but simply to reiterate that I think technological unemployment is finally upon us.
Any ideas on how to address it without wrecking the things — innovation, productivity growth, price decreases, etc. — that are working pretty well?