In reaction to last week’s employment report and the handwringing about labor force participation that followed, Bill McBride has a post on labor force participation that is worthy of your attention. Here’s the meat of the post:
The employment-population ratio really increased in the ’70s and ’80s for two reasons: 1) favorable demographics as the baby boom generation moved into their prime working years, and 2) a rising participation rate for women. But that trend was about to change even if there hadn’t been a severe recession.
This ties in well with a point that I have made repeatedly here: a lot of the economic growth we’ve seen over the last 60 years has been dependent on demographics. The Baby Boomers started to become prime age workers&148; in 1971; they began to cease being prime age workers in 1999 and will continue to do so for the next several years; they began to retire in numbers in 2011.
That dovetails neatly, too, with the post-war history of real housing prices other than during the bubble. Since WWII real housing prices have increased at a fairly constant and modest rate of 1.5%. To return to that trend at this point requires nearly a 50% decline in prices.
Prior to the war, even prior to the Great Depression, housing prices had been trending down. There was a bump-up contemporaneous with the arrival of the Baby Boomers after the war, another bump-up when the Baby Boomers started to become prime age workers. As Baby Boomers age it shouldn’t be surprising if housing prices decline not merely to the post-war trend but to below the post-war trend.