In the blogosphere there’s been a lot of discussion from time to time over the last few years about the problems with the labor force participation rate, and what might be impacting it. I will offer my own take later on, but I wanted to talk about the notion of structural problems that have been part of that discussion that, in my view are not particularly convincing considering what we think we know about the nature of the Great Recession.
This labor force problem is distressing for all kinds of reasons, especially for the more empathetic among us, and for those of who experience the churn directly. In the world today, it is very easy to become pessimistic as a matter of habit, because, frankly, with nearly every graph LF I look at and every economic blog I read, nearly everyone, even if they have their own philosophical approach to economics, understands that something is “broken” but can only offer up small pieces of the puzzle as we all are feeling around the elephant in the dark trying to find at least one theory that can tie all of the evidence up into a nice and tidy package of logic with a bow. So far that one theory has been rather elusive. If we don’t know what is broken, how can we fix it?
I’ve had a recent occasion to have a jumble of half-built, new technology infrastructure that will be an enterprise service that every corporate user will use dumped into my lap. These are technologies that I’ve read about in a general way, but never had any experience with. The very first piece of it that I picked up to build out and harden had been hastily installed and almost nothing of it worked; and it was not very intuitive with almost zero documentation. Faced with a deadline to have all of the many pieces working together by the end of this month, for a few hours I felt quite overwhelmed, like a tadpole in a sea of sharks. I actually needed someone to help center me and start going through the things that could be wrong with it, which is what I normally do within my comfort zone. I am good at what I do. But at that particular moment, I supposed I was just mortified and couldn’t help myself, and I started thinking not very nice thoughts about the so-called experts who put this stuff together (but that is a side story that I won’t get into).
Afterward, I took a moment to catch my breath, and then I started in on the mountain of mess, working through it one blasted piece at a time as if with a fine-toothed comb. By the time I got to the last piece, I had regained my sense superiority in the balance between man and machine and they all are now doing what I want them to.
The point here is that the best any of us can contribute to any problem is what we can. Nobody is expected to have all of the answers. And I have a lot more respect for someone who doesn’t have an answer and has the courage to say, “I don’t know the answer, but I will try to find it” than for someone who really doesn’t and talks as if they do. A more subtle version of the latter I’ve noticed in economics are the graphs that don’t tell the whole story that are accompanied by a set of speculations that really don’t match the picture. The next situation is that the bad information is everywhere, being passed around among people who have not actually read it. “Secular Stagnation? Sounds good to me!”
By then, the whole motivation for wanting to solve the difficult problem is just lost, and becomes difficult for reasonable people who may have something positive to offer to make in roads, and they eventually give up, mumbling , “Secular Stagnation? Umm, well… If you insist,” because what was once a mountain of a problem has become two mountains – the original problem, and the misinformation problem.
I have a different way of giving up. I don’t try to overcome the misinformation. I can’t. But I don’t just roll over and agree with it because I don’t have the time or energy to do battle.
I don’t purposely make things up, and I try to have at least some integrity when it comes to facts. I look stuff over to validate it as best I can before I do anything with it. There is no “Sumner said… so it must be true,” or whoever (sorry for picking on Scott here). I put out there what I feel is worth mentioning only after I have filtered it through the patented Dajeeps Misplaced Facts Filter.
Regarding the LFPR problem, there is nothing in the Secular Stagnation theory that I find useful. It seriously glosses over the how big the problem really is, because if the LFPR concerns working age people only, as workers retire they are no longer counted in the size of the labor force and a reasonable expectation would be that as the total size of the labor force shrinks, even if nothing else changed, the LFPR would increase or flatten – smaller labor force the greater percentage of participation with the people left behind.
But I shake my head, no. That’s not what we see… it just isn’t.
We see a LFPR that has had nothing but negative growth between 2008 and 2015 along with shrinking size of the labor force.
So there really isn’t any easy “out” for me. Or is there?
Just noodle on this FRED graph of percent change yoy in quarterly LFPR for a while with the idea that the Fed became an inflation targeting central bank in 1999 and implicitly explicit in 2006. You might also consider Marcus Nunes’ graphical NGDP story of the 2000’s decade, and this chart posted by Scott Sumner. Sometimes the real answers are the most obvious ones.