Examining the Employment-to-Population Ratio

NEW YORK ( Real Money) -- The issue of falling labor force participation rate has been the subject of attention by economists. When one looks at the long-term trends of the percentage of how many adults are working or looking for work, one can see a very clear long-term trend down, beginning in the mid-1990s. This has persisted -- and even accelerated -- during the recent recession and recovery. What do we make of it? What does this mean for the economy going forward?

The first thing to consider is whether this is perhaps due to retiring baby boomers. And then, are recent college graduates not looking for work? Or, perhaps arguably more troubling, are people of prime earning years simply dropping out? To answer these questions, we can look into detailed analyses of labor market trends by gender and by age, and also look at different periods in history.

Before looking at the data (which were obtained from the New York Fed and the Bureau of Labor Statistics) in detail, a first reaction one might have is that a falling labor force participation rate means that older workers are retiring. However, during the recent recession and recovery, that has not been the case. Instead, the participation rate for those aged 55 and over has actually increased by about 5 percentage points, with participation by women in this age group outpacing that of men, perhaps reflecting the differing occupations by gender. While the participation rate for both men and women increased, more physically demanding work, such as construction, manufacturing, public safety or sanitation jobs may not permit some older workers to extend retirement, and these jobs tend to be more male-dominated.

So, no, the falling labor force participation rate isn't due to retiring workers. Their portfolios likely have been battered by the recent bear market (remember that people might not have been allocated to stocks in the same manner when the market rebounded since March 2009 as they were during the crash) and a low savings rate has compounded shrinking retirement savings. Therefore, retirement may be a luxury for some older Americans.

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