By Dr. Vance Ginn and William Wang
Since peaking at 10 percent in October 2009, the Bureau of Labor Statistics’ latest report shows that the unemployment rate has declined to 5.3 percent in June—a level some economists consider “full employment.” But this doesn’t tell the whole story.
A recent Forbes article by TPPF’s Vice President of National Initiatives Chuck DeVore provides Figure 1 indicating that the U.S. labor market is far weaker than it appears. The share of the civilian population in the labor force has declined by 2.4 percentage points since October 2009 when the unemployment rate fell by 4.7 percentage points, undermining a strong labor market argument.
Figure 1: Tracking labor force participation and the official unemployment rate shows a disturbing disconnect
Some analysts attribute the participation decline to demographic factors such as the baby boomers retiring. As Figure 2 demonstrates, the labor force participation rate for baby boomers that are 55 and over didn’t decrease while the share for other age groups and all ages did.
Figure 2: Drop in multiple age group labor participation rates lead to participation rate decline contributing to a lower unemployment rate since October 2009
Figure 3 illustrates the labor force participation rate changes among different age groups whereby the only group without a declining participation is for those 55 and over. Among the other groups, recent study suggests that the decrease for those 16 to 19 and 20 to 24 years old can be explained by the 41 percent increase in the minimum wage from $5.15 to $7.25 during the 2007 to 2009 period. This federally mandated minimum wage increase raises the cost of employing these age groups the most because they are typically the least educated and lowest skilled, reducing their employment opportunities. The steep decline in the participation rate of the 25 to 54 prime-working age group is noteworthy.
Figure 3: Percentage point drops in labor force participation rates for multiple age groups show that only the 55-plus age group didn’t decline since October 2009
While Figure 3 presents data for the changes in the share of each age group’s population in the labor force since October 2009, Figure 4 shows each age group’s share of the total civilian non-institutional population and changes to the share during the period. The largest in this case is again for the prime-working age group. And the only increase is for the 55 and over group reducing the validity of the baby boomers primarily reducing the participation rate argument.
Figure 4: As a share of the overall civilian non-institutional population, the largest decline in the labor force has been the prime-working age group since October 2009
The decline of the prime-working age group’s participation is troubling because they raise children, take care of elders, and make productive investments. Fewer job opportunities force many of them on government assistance making it difficult for them to improve their lot in life.
By implementing pro-growth policies that have been championed in Texas relative to the liberal policies by the Obama Administration, the future can be much more prosperous for Americans.