Lately, we presented a graph with the rate of participation in labor force, LFP, in the USA. Our task was to show that the change in LFP between 1965 and 2000 induced much bigger variations in labor force than the biggest historical change in unemployment. At the same time, nobody considers the change in LFP as related to real economic growth. Unemployment always takes the front pages and represents a major responsibility of the economic authority. Briefly, when unemployment rate is high the economy likely underperforms.
Today we would like to discuss a different aspect of Figure 1 which depicts the measured LFP and that predicted from real GDP per capita. (Both variables are borrowed from the Total Economy Database provided by the Conference Board.) Since 1960, the LFP curve has been steadily increasing from 58% to 67% in 2000. After 2001, the curve is characterized by a secular decrease which will likely extend deep into the 2010s. Our quantitative explanation satisfies our understanding of scientific approach. If the reader does not believe in science we would like to ask:
Do you really believe that the secular oscillation in the measured LFP curve displayed in Figure 1 is somehow controlled by the US economic (and/or political) authority?
Do you believe that the rate of unemployment can be managed by the same authority?
Figure 1. Measured and predicted LFP in the U.S.