US jobs data confirms long-term decline in participation rate

Consumer demand


US jobs Nov14Many people, including former US Federal Reserve Chairman Paul Volcker, have questioned whether it is really possible for the US Federal Reserve to use monetary policy to boost employment.

What can the Fed do to ensure people get the high school diplomas they need for employment today?  What can it do to provide more jobs for Blacks and Hispanics, whose unemployment rates are far higher than for Whites and Asians? (Click here to see the official Bureau of Labor Statistics data).

These are primarily political issues, not monetary ones.

So is it really a surprise that today’s employment level of 139.75m is only just above the November 2007 peak of 139.44m?  Should we blame the Fed for this?  It is hard to see why.

But equally, it is hard to see why current Fed Chair Janet Yellen claims credit for the declining US jobless rate.  Certainly the headline jobless rate has reduced to 5.7%.  But since November 2007, the working population has increased by 15.5m from 232.94m to 248.5m.  Thus as the chart shows:

  • US labor force participation peaked in 1997 at 68% and is now back at the 1978 level of 62.8% (black line)
  • Male rates have fallen continuously from 88% in 1948 (when records began) to 69% today (blue)
  • Female rates peaked at 60% in 1999 and are now back at 1988’s level of 56.9% (red)

If this is a success, then what would failure look like?

The analysis also highlights the key role of Boomer women in boosting participation rates during the SuperCycle years.

As noted last year, this created the phenomenon of dual-income households for the first time in history, and turbocharged economic growth.  Women were no longer “perceived as secondary earners within the family” as a Study for the National Bureau of Economic Research noted in 2005.

But since 2004, female earnings have plateaued at $715/week (in $2014), and are down 2% in real terms since their peak in 2008.  And median family income in June 2014 was down 3.1% in June at $53,891 versus $55,589 in June 2009 when the economic recovery officially began.  Yet as also noted last year:

Women represent half of the US population, and if these major shifts in employment patterns continue policy makers will need to look beyond the 6.5% target.”

This argument has since been supported by Pew Institute research, which confirms that women’s personal choices drive their participation rate, not monetary policy:

  • This showed 29% of all mothers with children age under 18 stayed at home in 2012, up from 23% in 1999
  • 85% of married stay-at-home mothers say they are doing so by choice
  • Yet only 21% of college-educated mothers are at home, almost identical to the 20% level in 2000

Clearly more women are now chosing to stay at home.  The fact that college-educated mothers ae more likely to be working could reflect a number of different factors.  They might have more interesting jobs, and be more able to afford quality childcare: or perhaps they may need to work to repay tuition fee debt?

The data confirms the common sense conclusion that printing money has had very little influence on the US job market.  Interestingly, this seems to be the conclusion of the new Republican majority in Congress, as the Wall Street Journal noted yesterday:

Many Republican lawmakers want the Fed to shift its focus more directly to inflation rather than inflation together with unemployment”

The data also carries an important conclusion for companies and investors.  It confirms the Boomer-led economic SuperCycle ended some time ago in the US.  Consumer spending power is now on a long-term downward trend.  As US food giant Kraft has warned:

Consumer demand has remained persistently weak since 2012, and more people are falling into low-income status.”





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