Failure to Participate

In “Cool Hand Luke” Strother Martin famously tells Paul Newman that his serial escape attempts are due to “failure to communicate.” Now our labor economy seems increasingly beset by a failure to participate.

The monthly Employment Situation Report compiled by the Labor Department is filled with useful analyses. Some of them are less noisy than the headline numbers, and they can capture broad trends in the economy. One of the most interesting is the labor force participation rate. This is compiled from the monthly household survey, and it measures the ratio of the total workforce to the working-age population.

It actually peaked around the year 2000 and has been in decline ever since. The fall has been particularly sharp among college-age workers. It peaked in this group in the late ‘80s, but that didn’t affect the overall number because starting in the early ‘90s workers aged 55 and above dramatically increased their rate of participation. During the recession, however, that increase stalled out, and now the decline in younger workers is visible in the broader statistic.

This decline in younger workers has been in place for almost 25 years. Presumably, it is related to the increased level of education now necessary in order to find suitable employment within the US. If a college degree is now a requirement for most jobs, we shouldn’t expect the broader participation rate to reverse any time soon. This has two significant implications.

First, the increase in productivity that US businesses have enjoyed may not be cyclical, but structural. As we find more and better ways to work, business profits can continue to increase. Second, the unemployment rate may decline more quickly than previously thought, even if payroll employment grows more slowly. This could pressure the Fed to raise rates sooner.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T14:16:01+00:00February 14th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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