The Labor Force Participation Rate—Don’t Blame Obama

April 7, 2013 11:41 – 11:41

The labor force participation rate (LFPR) declined from 1956 until 1964, when it began to rise. While there were occasional slight dips, the LFPR saw an upward trend until 2000. Except for minor upticks in 2006 and 2008, the trend has been downward since 2000—or really, since 9/11. All this is shown clearly in the graph below.


Data source: Bureau of Labor Statistics, http://data.bls.gov

All of a sudden, people are saying this is Obama’s fault. That’s nonsense. The trend predates Obama, and if you want to point to a turning point, you could do worse than point to 9/11 as the beginning.

But—whatever the reason—one has to ask: is this a bad thing? Or, does it simply point to longer term socioeconomic shifts where labor force participation is transitioning from being absolutely necessary to optional for many in our society? These things you cannot easily deduce from month-to-month changes in the labor force participation rate, the unemployment rate, or other bits of information published by the Bureau of Labor Statistics or the Current Population Survey.

Why did it start rising in 1964? There are a lot of reasons, both social and economic. But the underlying components suggest that the biggest reason was increasing labor force participation by women, which was being largely fueled by women being able to control their own fertility, making labor force participation an option. More recently, however, another reason had been the erosion of the single earner family’s ability to make ends meet. Increasingly, with housing prices having outstripped inflation year after year, a single income wasn’t enough to maintain a family’s standard of living. Did the availability of two earners effectively bid housing prices up so high? Many analysts think so. Whatever the cause, two earners went from being a luxury to a necessity.

What does the downturn mean? Does this mean that people are dropping out of the labor force because they can’t find work? For some, that’s certainly true. But, the change in social behavior seems larger than that. Might this mean that people are making a choice between work and alternative uses for their time, and are choosing non-work alternatives? Perhaps. Might this mean that a shadow economy—largely sustained through the bartering of goods and services—is filling part of the void, and simply doesn’t register on the GDP and isn’t accurately measured by standard survey questions used by BLS and CPS? Possibly. But, is it enough to explain the drop in labor force participation? Who knows? The only thing that seems certain, however, is that this phenomenon did not begin with Obama, and it’s silly to point to his programs and policies as the source for this long term trend.

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