Posted by: Josh Lehner | January 21, 2014

Not in Labor Force

Do you ever wonder what individuals who do not work or are unemployed do instead? Why aren’t they actively participating in the labor market? Wonder no more as late last week Ellyn Terry at the Federal Reserve Bank of Atlanta published some fascinating visuals and work on reasons people are not in the labor force (i.e. do not have a job or are not unemployed and looking for work.) She breaks down the Current Population Survey by age to figure out what accounts for the declining labor force participation rate. While I have a quick summary table of her work below, and our office will publish some more thoughts on the topic in our upcoming quarterly forecast, I was absolutely struck by the great visual Ms Terry had at the top of her report. Over the weekend I pulled together Oregon data to provide a similar graph for the state.

Oregon_NILF

Younger Oregonians are not in the labor force mainly because they are in school, as one would expect. It is important to keep in mind that about 80 percent of Oregonians between 25 and 54 are working or looking for work, however the other 20 percent not in the labor force are mostly taking care of home/family or are disabled/ill. Oregonians in their late 50s or older, if they’re not in the labor force, are generally retired. Now, Oregon’s composition in these categories is very similar to the U.S. and given sample size concerns, I would not make much of any such differences, however it still makes for an interesting and informative visual to see it in such a way.

Ms Terry’s original research intent was to figure out which of these age groups and categories is increasing the most, driving down the labor force participation rate. I have provided a quick summary table I put together based on her work. The percentages in parenthesis show what share of that age group’s increase can be accounted for by that category.

AtlFed_NILF

Overall these increases are probably about what one would expect to drive the increases in those not in the labor force but prior to Ms Terry’s work, I had not seen such a clear and concise decomposition. While not all of the increases are good news from an economic and productivity point of view the silver lining is the increased school enrollment. Longer-term this should be a good thing for the economy as it should raise the skills and productivity of workers.

Data: I used both the 2012 and 2013 March supplement to the Current Population Survey to get a large enough sample size. Given the already small sample size for Oregon in the CPS, once you start slicing and dicing the data too much, one really runs into sample size concerns, however the recommendation is to use a 2 year average at the state level.


Responses

  1. Love that little slice of 20-24 year olds who are retired.

  2. Great work! Definitely stealing this!

    EBRI does a survey on retirement. They find that almost half of all “early retirees” – looking at the surge in the 60 – 64 category – cite “negative” reasons for early retirement. Typically health or the economy. So, the declining workforce participation does have some real economic pain behind it.

    First paragraph after the chart : http://www.ebri.org/pdf/FF.247.Post-Ret.19Sept13.pdf

    Christian

    • Thanks Christian. That, unfortunately, makes sense. A little surprised it is that high but given the labor market and economy in recent years, maybe so.

  3. Christian, and yet, the labor force participation rate for the 65+ crowd has been rising, likely for both positive (why retire when I like my job and I’m perfectly healthy) and the negative (pension, what pension?).

  4. Josh, it would also be interesting to see the relative size of each age group in the NILF.

    • Good point. When I backed out the NILF I found about 1.1 million or so across the 16+ population. However for the working age population it was about 200,000-250,000 statewide. So we really are talking mostly about school age and near retirement age individuals, by and large.


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