Annals of the Great Recession IV.

Recession and recovery are supposed to follow a pattern.[1] Recessions lead to higher unemployment; recovery leads to higher employment. Thus, during the 1990 recession, the share of the working-age population with a job or looking for one fell from just under 67 percent to just over 66 percent. Labor force participation then rose to over 67 percent by 2000. However, since 2000 the pattern has changed. Between the recession of 2000 and the recession of 2007-2008, labor force participation trended downward from 67 percent to just over 66 percent. Since that recession began, the labor participation rate has pursued an even more rapid decline. By September 2014, the rate had fallen to 62.7 percent. It hadn’t climbed any by the end of the year. New entrants to the job market get absorbed, but many of the long-term unemployed remain off the labor market.

Where did the missing 3-4 percent of the potential labor force go? Many of them retired permanently. We can see here the leading edge of the “baby boom” taking up the rocker on the front porch. For anyone born between 1950 and 1954, getting laid off in the recession just sent them into a slightly early retirement. It probably doesn’t make sense to these people to try to fight their way back into a job so that they can work for another year or three. Less than 20 percent of those who are over 65 are still in the work force.

In addition, psychological fragility has replaced resilience as an American character trait. At least, that’s the idea you could get from some economists’ explanations. “Labor market scarring” of workers seems to reflect a belief that job-hunting is a traumatic experience. The unemployed would rather adapt by other means. They move in with aged parents to provide care; they file for disability under the currently easy conditions for gaining it; they probably do a bunch of work off-the-books; and they’re not going to leave anything to their kids.

What are the effects of them not working? The Federal Reserve Bank wants to sustain low interest rates until the labor participation rate rises to “normal.” What if the current rate is the “new normal”? It’s an awful lot of productive labor going to waste. It sets a ceiling on the growth of the economy. Fewer workers paying taxes tightens the screws on federal revenue.

The trend toward a lower over-all labor market participation rate masks other changes.[2] The female labor participation rate has fallen from about 74 percent in 1999 to about 70 percent today. One could conjecture that if over-all labor participation was about 67 percent in 2000 and the female rate about 74 percent, then the male participation rate would have been about 60 percent. Similarly, if the over-all rate is about 63 percent today and the female rate is about 70 percent, then the male participation rate would be about 56 percent.

Certainly, the labor participation rate for men has been trending downward since the 1970s.[3] Back in the 1950s and 1960s, only 10 percent of men of working age were not in the labor force. Another trend masked by the over-all data is the shift of better jobs toward women. That trend springs from the shift away from manufacturing (traditionally male work) toward a knowledge and service economy which requires more education. Men are less likely, women more likely, to stick with school. The quality of jobs held by women has steadily improved.

There’s an old joke about a guy in Maine who lost his job. A friend asked him how he was going to get by. The man replied “Well, the t.v. works and the wife works.”

[1] Josh Zumbrun, “Labor-Market Dropouts Stay on the Sidelines,” WSJ, 29 December 2014.

[2] David Leonhardt, “The Distinct Geography of Female Employment,” NYT, 6 January 2015.

[3] In the 1970s the “oil shocks” disorganized the economy and foreign economic competition first became a serious challenge.

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