Economombo 4: Participation Rate Drops

Back in Economombo 3, I wrote about how the economy with respect to our company had turned out better than expected. It’s true again. [1] Employment in the manufacturing sector is as high as it has ever been, since 2009. During the great drop-off of the Great Recession, manufacturing employment plummeted from over 14 million workers in the US, to its current roughly 12 million.

The “slightly-less-than-great” recovery in manufacturing is a very gently upward trend, amounting to around 10 thousand jobs added in a month. Last month was better than most because about 20 thousand jobs were added. This is good news for my company. And, if you listen to the pundits, good for the country.

The reason this article doesn’t take the experts seriously is because there is other information that screams out exactly the opposite. On the one hand we see that jobs are being added in manufacturing. But on the other hand, well, take a look at this. [2]

This is a graph showing how many people in the USA are participating in the work force. This is a real number. We get it by adding up all the people who are working in the US [3] and dividing it by the total number of people living in the USA [4]. This gives us a percentage.

Of course we can’t have a 100% participation rate, because that would mean everyone is working at an official job. This includes really old people, sick people, babies, and people who flat-out don’t want to work. At the same time, we can’t have 0% either, because someone has to pay taxes to get our government moving.

Best of all, this number shouldn’t move much. During the best of times, when everyone is happy and our society is stable, the number should pretty much stay within a narrow range. During the 1950s and most of the 1960s, the range was firmly in the 57 to 60% area. During the time when many women started exercising their right to enter the workforce, the participation rate grew to a high of 65 to 68% for the 1990s to 2008, almost 20 years. Then came the Great Recession.

Participation dropped, fast. And it’s this number that means something to all of us. It tells us how many people are officially working to support our government and keep our economy rolling along. From a high of 66 in 2008, we now stand at just under 63. In fact, we lost half a percent in the last month alone.

Putting this into perspective means that we have to look at the numbers. If one percent of the USA population is 3 and a half million people, then losing participation of 5 percent means that 5 times 3.5 gives us over 17 million people left the workforce. Seventeen million! In the last month alone, the fact that a half percent left the workforce means that 1 million 700 thousand people are gone.

The government claims that unemployment numbers show this, but they don’t. Look at the fact that unemployment supposedly went up only 0.1% from last month to this. The reason they can claim this is because the unemployment number takes into account people who leave the workforce – they don’t get counted. But that’s my point – we HAVE to count them! They are still people who were working, and now they aren’t!

Now that this rant is almost over, let’s ask a better question. Does it matter that the participation rate is dropping? Perhaps not. It was just over 55% over 50 years ago. So we know that it could drop another 5% without hurting our economy too much. We simply don’t know, because we haven’t been paying attention to the right information all this time.

There is one thing that we can know for sure. The changing participation rate indicates that our society is changing, and that includes the economy. Perhaps all those workers are being replaced by robots or computers. Or perhaps their jobs are being sent overseas. It doesn’t really matter. What matters is that those people had taxable jobs, and now they don’t. Society is changing, and we don’t know enough to know how.

What are your thoughts?

 

[1] Type in bit.ly/MfgEmp, or try the direct link: http://data.bls.gov/timeseries/CES3000000001?data_tool=XGtable

[2] bls participation rate

[3] It’s not good enough to be working, like raising a family or baby-sitting, but you also have to be officially reported to the government through paying taxes and surveys that the company fills out.

[4] This can get complicated, because it may include people who are ‘illegal’ as well as legal. Because the number of illegal people is so small, relative to legal people, we can ignore the number. In fact, to make this easier on ourselves, we can simply assume that the total number of people in the USA has been 350 million for the past 5 years.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s