Tuesday, October 7, 2014

Labor Force Participation by Age and Gender

Here is the infamous Labor Force Participation chart.  Next, is the chart, broken out by age and gender.  The shape disappears when we disaggregate, except that the one-time increase in the 1970s & 1980s in the female working age categories parallels the one time increase in aggregate LFP.

I estimate that after accounting for age and gender, labor force participation is between 1% and 1 1/2% below cyclically adjusted trend.  There are a few categories that don't have long-term linear behavior.  There are cultural changes in the 55+ category, which had, many years ago, been very high among men, then bottomed in the 1990s but are now increasing again as productive lifespans increase.  These have leveled out after rising, and it is hard to know whether any of this leveling is cyclical.  Most of the issue of Social Security disability benefits plays out in this age group, so my simple analysis here doesn't help to quantify that issue very much.  The 16-19 year old category has declined tremendously, also, for cultural reasons, and it displays significant cyclical movement.  It has been stabilized since 2010, and was likely affected by the minimum wage increases of 2007-2009.

The remaining categories have linear patterns that allow us to estimate their cyclical deviations.

 These are pretty noisy series, so these will be broad estimates.  Here are the high participation male groups.

The 45-54 male category has shown some significant cyclical behavior.  It has recovered and is within about 1/2% of the trendline.  The 35-44 male group had less cyclical behavior and is also near trend.

The 25-34 male group had sharp cyclical behavior and is still about 2-1/2% below trend.

The 45-54 group is probably echoing some of the long term trend among the older group, where more people are able to at least partly disengage from the labor force as we become wealthier in general.  Age 50 is a trigger year for disability benefits, so the long term decline among 45-54 year olds is probably a signal of that issue.  I think this signals that recent increases in disability claims are more a sign of boomers hitting 50+ than they are of age adjusted changes in claims.  So, I think this problem will stop drawing down the LFP trend as the boomers age.

Here is the Male 20-24 category.  Like the male 25-34 category, this group has seen a sharp cyclical decline.  It is still about 3% below trend.

The female groups are a little harder to estimate because the trends are shorter and there seems to be more noise.  I don't see any obvious cyclical drops in the younger groups (including 20-24 year olds, not shown in this graph).  It depends on where you set the trends, but as a whole, there is probably less than a 1% deviation from trend.

Aggregate LFP tends to move about 0.5% above and below trend through business cycles.  In this cycle, it may be about 1 1/4% below trend, even after adjusting for age & gender.  I think we can broadly divide this decline into three roughly equal parts:

1) Cultural changes among 16-19 year olds and 55+ year olds, which may have been affected or amplified by cyclical issues.  These changes are mostly the product of wealth and longevity, and are probably not a concern.

2) Sharp declines among men under 35 years old.  I don't think the data show a surge of college admissions among men, relative to women, so I don't think that is the explanation.  The good scenario is a leveling of gender expectations - more house-dads, etc.  The bad scenario is that there is a budding underclass of unemployable unskilled males.  It is important to keep in mind the scale here.  We are talking about maybe 2% of the males in this age group.  But, I would say that this is the category that does represent a potential structural issue that might need to be addressed or that might represent involuntary or dysfunctional changes in labor force behavior.  There has been a distinct change in young adult male working behavior coincident with this cycle.  Could this be related to the collapse in construction labor?  Cyclically, we tend to think of the lower LFP in these ages as related to returning to school during downturns.  But, over the longer term, education correlates with higher labor force participation.  Could there be a new wave of long term convergence between male & female LFP, beginning in the younger groups, that is related to the very high relative levels of higher education among young women?

3) Fairly normal cyclical behavior among the prime working age males and females.

But, there is one additional issue:

4) The labor force might be overstated by up to 0.4%-0.5% if the VLT unemployed would normally have been categorized as exiting the labor force.

No comments:

Post a Comment