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Friday, April 04, 2003

US 'Participation' Rates Fall



An interesting point from Morgan Stanley's Dick Berner: US labour force participation rates are falling. Aside from the explanations he offers two additional points occur to me. Firstly the drop in 'teen' particiaption is consistent with an enhanced value placed on education and training among young people in the context of the rising 'human capital' values of the information age. Secondly, in an aging society, there may be more pressure on middle aged women to stay home to care for an elderly relative. Downward wage pressure and rising care costs would only enhance this tendency.

A significant drop in labor force participation has restrained the rise in the jobless rate. Over the past year, the overall participation rate-the ratio of the labor force, or the number of people employed plus those looking for a job relative to the civilian population, declined by 40 basis points. Had the participation rate stayed at February 2002 levels, that the unemployment rate could be as high as 6.4%.

That reduction in labor supply may seem normal; after all, in a tough labor market, "discouraged workers" may well stop looking for a job and go back to school or raise a family. But the participation rate actually rose slightly in the first year of the 1991-92 recovery, and the unemployment rate rose by 0.7 percentage points. The recent decline in labor supply has been most pronounced among teenagers and adult men between the ages of 25 and 54, with their participation rates dropping by 200 and 80 basis points, respectively, over the past year. Teen job seeking has been dropping for a quarter century, as extracurricular activities and summer school have taken the place of entry-level jobs (see "Will the Real Job Tally Please Stand Up?" Global Economic Forum, October 29, 2002). But both teens and prime-age adult men who have had trouble finding jobs may well be dropping out of the pool of available labor.
Source: Morgan Stanley Global Economic Forum
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