About three quarters of the way down Bloomberg’s backgrounder on the labor force participation rate there’s an interesting graph of the monthly changes in the labor force participation rate you might want to take a look at. What caught my eye was the sharp dip in the third quarter of 2013. What could possibly have caused that?
There’s a point of view that a declining labor force participation rate is a Good Thing. I mean people are just following their bliss, right? From my point of view that neglects two important things. First, not everybody has left the labor force voluntarily. In fact most of those who have left would much rather be working at decent jobs.
The second reason is that fewer people working means less economic activity and the revenues of state and local governments are highly dependent on economic activity. If state and local governments were adjusting their budgets downwards in line with the decrease it would be one thing but they aren’t and it isn’t.
So they’re raising their sales tax rates and property tax rates and excise and franchise tax rates which further reduces economic activity. And so on and so on.
All one needs to look at is the participation rate by age cohort. I’m not sure how the decline in participation rate in the 25-54 cohort can be caused by boomer retirements, particularly since the 55+ cohorts have seen increasing participation rates. Then there is the under-25 cohort, where participation rates plummeted and remain low thanks to lack of opportunity and people chasing the dream promoted by the education-industrial complex.
Andy, it gets even worse when you look at full time job rates by age cohort.