Catastrophic fall in labor force in the U.S.

Labor force in the U.S. experiences unprecedented fall. With total population growing at a healthy pace of ~1% per year, the number of people in labor force has been physically decreasing since 2009. The reason behind this effect is the labor force participation rate, LFP, plummeting down. Figure 1 shows that LFP dropped from 66.4% in 2008 to 63.9% in the first quarter of 2011. This 2.5% is equivalent to 6,000,000 people out of the working force in 2011 relative to 2008.  Event the growth in the total working age population from 235,000,000 to 239,000,000 has failed to compensate the fall in the LFP. Figure 2 shows that the decline in the labor force, LF, is a unique feature since the very beginning of observations in 1948.  Except the current fall, there were only two short intervals with dLF/LFdt<0 after WWII, in 1951 and 1962, as Figure 3 shows.

The negative growth rate of labor force is the cause of a higher rate of unemployment and lower rate of price inflation. It should be noted that we predicted the current decline in the LFP many years ago. 
However, the fall in LFP is not the cause but a consequence of the low rate of real GDP  (per capita) growth after 2008. When the growth rate of real GDP per capita regains its normal pace of 2% per years the LFP will start to increase, with a two-year delay.

Figure 1. Measured LFP in the U.S.

Figure 2. Labor force in the US.

Figure 3. The change rate of labor force, dLF/LFdt

No comments:

Post a Comment