1. John Cochrane presents a chart showing that over the last 25 years, the employment-population ratio tracks the ratio of people aged 25-54 to the total population.
Pointer from Mark Thoma. The chart is from Torsten Slok of Deutsche Bank.
2. John Taylor has a chart showing that the labor force participation rate is several percentage points that which was projected several years ago based on demographics. The chart comes from a paper by Chris Erceg and Andy Levin.
The first chart suggests that most of the decline in the employment/population ratio in recent years is due to demographic changes. The second chart suggests the opposite. How to reconcile the two?
3. And then there is Binyamin Appelbaum:
In February 2008, 87.4 percent of men in that demographic had jobs.
Six years later, only 83.2 percent of men in that bracket are working.
Pointer from Tyler Cowen.
My verdict is that Slok’s chart, referred to by Cochrane, is misleading. Here is the chart:
The way that the two lines are superimposed makes it appear that 2007 was a glorious year of over-employment, and the plunge in the employment-population ratio looks like a reversion to trend. Suppose you were to slide the blue line up vertically so that it just touches the red line at the peak in 2007. That would make the chart look much more like Appelbaum’s, shown below:
Some other issues:
–I suspect that some of the drop-off in employment has occurred among youth, who are outside of the 25-54 bracket that Slok uses.
–Another issue is what you think should have happened outside Slok’s bracket at the other end, namely 55-64 year olds. These are baby boomers, so that their share of the labor market has been soaring. The most likely reconciliation of the two charts is that the baby boomers have been retiring early at rates higher than historical norms.
As far as labor force participation goes, is 55 the new 65? If so, then somebody should trace out what that means for Social Security. Fewer people paying in and more people collecting disability cannot be a good thing for solvency.
Update: Cochrane offers another take, more nuanced.
Oh?……There’s uncertainty about the long term solvency of Social Security? I thought the only real question is WHEN the crater happens.
I’ve looked at this a lot at my blog. In 2007 the BLS forecast coming labor force participation. 2007 was a glorious year of overemployment. (If you think there was an unsustainable housing boom and a loose Fed, you shouldn’t need any convincing on this matter.) Broken out by age, the BLS set their new trends at the high employment levels, and after decades of downward sloping trends, they set forward trends with upward slopes. In hindsight, these were inaccurate assumptions.
So, studies that use the 2007 BLS forecast tend to find that demographics are a small part of the decline. Forecasts that simply use naive long term trends within each age group find that demographics explain most of the decline. If you look at a a chart comparing the trendlines, the BLS trends are clearly in error.
“Work,” that activity which is done to produce goods or provide services, has been, and is being, “restructured” throughout the developed economies and to some extent in the “emerging” economies as well.
The functions of intermediation, and the work required for it at practically all levels, have been drastically reduced at an accelerating rate for the past 60 years. A substantial part of intermediation in the past has been based upon acquired experience. To the extent intermediation continues to be required it is more and more often provided through mechanized or digitized standards for transactions and interactions.
Fly-fishing still requires direct experience and is open to the age group.
The facts are: Millions of US males between 25-54 report A) a desire to work and B) and inability to find full employment.
There is an opportunity cost to the economy in underutilized and unutilized labor. Millions of people who could be making productive contributions to GDP and important economic and social contributions are instead having to rely on contributions of those who are working.
There are wealthy special interests, The Malefactors of Great Wealth, who benefit from cheap labor policy and benefit unfairly from high unemployment and the misery of others. They are only concerned about their share of national wealth and don’t care about the health of the society. They use their wealth to game the economic system and subvert democratic and egalitarian policies.
There is plenty of work that needs to be done.
There is plenty of labor to do that work.
The mechanism whereby society contracts to have the work done and utilizes the labor is broken.
Wealthy special interests are blocking the solutions (which they don’t like) and promoting misinformation to confuse the public. Cochrane contributes nothing but noise to distract the conversation from focusing on solutions.
I would say rather than “broken” which implies an unplanned and unexpected excess stress, it’s been intentionally adjusted and modified to prevent the work needing to be done from being contracted to do it. The reason this has been adjusted and modified is that there’s less profit to private enterprise capital to do that work then in applying that capital to more profitable enterprise. One reason that it’s more profitable is because to do the other less profitable work requires a greater tax burden on capital profits…. hence an even greater drag on profits would result in doing the lower profitability work.
It’s just the simple result of individual profit motive as a driver to the uses of capital.
@ Bakho-
You write:
“The mechanism whereby society contracts to have the work done and utilizes the labor is broken.
“Wealthy special interests are blocking the solutions (which they don’t like) and promoting misinformation to confuse the public. Cochrane contributes nothing but noise to distract the conversation from focusing on solutions”
Suggestion: consider what is actually “broken.”
First off, the control and direction of accumulated extensive wealth (represented principally by beneficial ownership of large-scale business enterprises) is not exercised by the beneficial owners. The actual control and direction of the accumulated surpluses in large business enterprises has become vested in layers of managers (1) representing, in theory, those beneficial interests (investment groups, mutual funds, pension funds, etc.) and (2) managers of the operations and policies of the business enterprises and the determinations for the redeployment of accumulated surpluses.
The principal effects upon the “broken” condition you note stem from the motivations of that managerial class which makes the determinations in each of those two classifications.
These observations are not new. They date back at least to Berle & Means’ articulation of 1932, and of others for almost the 100 preceding years.
We are in an age of Managerial Capitalism. It is not the motivations of the beneficial owners of wealth which have been determinative of the conditions which have developed as surpluses have been “sequestered” rather than redeployed or distributed.
Those effects are beginning to be offset (to a modest degree, to be sure) by the developments of “Private Equity” as well as organizations like Berkshire Hathaway, the “Greenberg” AIG, and the trend toward smaller sized enterprises in which the direct concerns of the beneficial owners and operators have immediate impact.
There may be some resistance to the breaking up of the forms in which accumulated wealth is now held. But, those forms are subject to attrition and replacement, as well as increasing costs of maintenance and protection (e.g., tax vulnerability).
It is in the interest of those beneficial owners of wealth that more working should be going on. The increases in work, productive work, enhance existing wealth and provide for the accumulation of new wealth. It is not the wealthy who are source of resistance to provisions for more work. It is the motivational deficiency of the Managerial Class that continues to create obstacles for innovation and entrepreneurship.
Berkshire Hathaway isn’t known for growing the organizations it buys. Private equity in general is associated with LBO’s, trimming the organization and firing workers rather than venture capital.
The Managerial Class has different interests from the beneficial owners, but failure to employ capital to create productive work doesn’t seem to be one of them.
typical overanalysis without ref to chart basics
look at the x axis scale: the endpoints are not the same
like, duh uh
The implied interpretation of the Slok chart is that the 25 – 54 aged labor supply demographic is created by the boomers moving into the labor supply and then out of it as they retired? If that’s the implication then the chart should start at year 1972 (age at which the first boomers aged to 25). I find it very interesting that the chart begins in 1980 precisely at the point in time when U.S Manufacturing began it’s decline and ignores the prior years from the 60’s when females began entering the workforce in far greater numbers.
Chartism may and is often used to support a specific point of view or intentionally mislead to persuade others to take the same point of view.
They also cherry-picked the years. Between 1948 and 1970 (roughly), the 25-54 age group was a declining share of the population and the employment-population ratio rose considerably.