Friday, April 7, 2017

The Most Stubborn American Labor Force Issue

There is one stubborn issue in the American labor force that the Federal Reserve has been powerless to fix with their monetary alchemy; the disappearance of prime working age men from the workforce.  What is particularly interesting is that this disappearance has continued, unabated during both economic expansions and economic contractions, crossing the boundaries that separate generations of workers.

Here is a graph from FRED showing the labor force participation rate for men between the ages of 25 and 54 going back to 1948:

At 69.3 percent, the current male labor force participation rate is 18.1 percentage points below its peak of 87.4 percent seen back in October 1949 and 3.9 percentage points below its level of 73.1 percent experienced in December 2007, just as the Great Recession began.  You can also see that, since the Great Recession, the contraction in the prime-age male labor force participation rate accelerated substantially, particularly during the period from 2009 to 2011.

Here is a graph showing the same data with the year-over-year percent difference since 2000:

As you can see, the participation rate of prime-age males dropped by as much as 2 percent on a year-over-year basis after the Great Recession, a rather remarkable contraction.  

Here is a graphic showing the dropping employment rate for prime-age males between 1955 and 2014:

At the most recent rate of 83.6 percent, the employment rate for prime-age males has fallen by 11.1 percentage points from its 1967 peak of 94.7 percent.  During the period immediately after the Great Recession, it fell further to a 55 year low of 80.9 percent.

Here is a graphic showing the percent of prime-age men who are currently not in the labor force who did not work at all in the past year:

Here is a graphic showing how the United States is an outlier when it comes to the dropping labor force participation rate for prime-age men when compared to its OECD peers:

The United States had the second largest decrease in prime-age male participation among OECD peers and now ranks in third last place out of 34 when it comes to prime-age male labor force participation.

And, last of all, here is a graphic showing how the prime-age male labor force participation rate varies with race and ethnicity:

According to a 2016 study by the Executive Office of the President of the United States, the drop in male prime-age labor force participation is linked to educational attainment.  In 1964, 98 percent of prime-age men with a college degree or more were part of the labor force compared to 97 percent of men with a high school diploma or less.  By 2015, the rate for college-educated men had fallen slightly to 94 percent while the rate for men with a high school education or less had plunged to 83 percent as shown here:  

As I noted at the opening of this posting, this evolving phenomenon has developed through at least three generations and will have a significant impact on the American economy on a going-forward basis.  This issue is a grave concern for America of the future since these out-of-work men will not be contributing to the social safety net that has been promised by Washington, nor will they be saving for their own futures.  While it appears that at least some of the problem was created by the gutting of America's manufacturing sector, traditionally the haunt of prime-age men with less formal education, it is unlikely that manufacturing jobs will return to the United States any time soon.  From the data in this posting, it seems that the monetary alchemy practiced by the Federal Reserve will continue to have no impact whatsoever on the unemployment crisis facing millions of prime-age male American workers, perhaps one of the greatest economic issues of the new millennium. 

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