In a few years I will be headed to the other side of the demographic story, and I can safely say that the conditions won’t be right to finally slow down. Not with all the catch up I must do – it isn’t anything short of amazing what something like a Great Recession can do to the nest eggs.
Of course it isn’t without notice that there are three age-based demographic categories for LFPR: teens and young adults, 25-54, and over 54, with the assumption I glean from these is that the majority of our prime productivity years is likely the middle one, a span of nearly 30 years. Given that it took 8 years for the headline unemployment rate to recover from the Great Recession, and LFPR has still to recover, I wonder about what that lost decade translates to in real terms in aggregate and on personal level to lose six to ten years of productivity when every one of us has a limited shelf life.
I don’t intend to imply that workers are the only losers here. These people once worked for somebody, and those people are no longer making the kind of money they use to either. I guess one could say the shit rolls uphill too, in bi-directional fashion, and we all have had to figure out how to get by with less during these ultra-lean years.
My intention for this post was to take a look at the labor force participation rate data to see if it bears out the story we’ve often heard about the condition of the labor force over the last few years, that the majority of dropouts are a part of an expected demographic effect. I wanted to take a look at it because it is an important part of the story to get right for a number of reasons, not the least of which is because of the limited shelf life we all have, but also because the story has been connected to estimates of economic potential, labor force slack, and of how inflationary of an environment we may have. There’s a lot riding on the accuracy of these estimates, and the importance of having little room to doubt can’t be understated, at least from my point of view as one of those workers having lost a handful of years from the limited shelf life.
I’m not a statistician, and for lack of precision I did the next best thing and followed the patented Dajeeps Smell Test data crunch process, a simple back-of-the-envelope visual with data from FRED, to see if the possibility of there being any “there” there is detectable. I am amazed that I found that not only does a quick look at the data not support the demographic story but the over 54 category experienced the largest share of participation growth since 2008. The demographic story as an explanation for historically low LFPR sounds plausible on the surface, but the data leave a large enough gap in the area of room for doubt to drive a truck through it (or maybe even a train!).
Now, we have this big low inflation “mystery” afoot at the Fed press conferences. But, at least in my mind, it is no mystery at all. We’ve been told about the big inflation around the corner from reaching full employment and that the Fed must remain vigilant and ahead of the curve with preemptive rate hikes, never mind that the PCE average was 1.2% when Yellen took over the Fed and it has since fallen to 1.1% while the official target is an average of 2%. And what I believe I am seeing is undershooting on top of a labor market that has not fully recovered. It’s a huge estimation error somewhere in the ever-taller bureaucratic ivory tower that likely adds up to a lot of lost wages to a score of millions of people, give or take.
I can speak for myself only, but I think the next time I hear the demographic story I will grab a few rotten tomatoes to assail the purveyor with. They’d deserve it.