Afternoon Must-Read: Nick Bunker: Labor Market Slack

About half of the decline in labor force participation since 2007 is due to well-identified demographic trends plus extrapolated age and gender specific trends. About one-sixth of the decrease comes from the well-established fact that when the unemployment rate is elevated labor force participation declines. But how much comes from the fact that the downturn and jobless recovery were not only deep but long? We do not know, because we have never seen anything nearly as deep and long before. The cyclicalists say that there is a strong presumption that a deep and long employment downturn casts a strong shadow on participation, and are agnostic about whether and how rapidly participation would pick up in a high-pressure economy. The structuralists say that the decline would not be reversed in a high-pressure economy, but do not claim to have any insight into why the excess decline in participation occurred.

Nick Bunker: Labor Market Slack: “There are two major reasons behind the decline in participation…

…the Great Recession… the aging of the Baby Boomer generation…. Obama’s Council of Economic Advisers… found that aging accounts for about half of the decrease since the last quarter of 2007… one-sixth of the decline… from [normal] cyclical factors… one-third of the decline comes from ‘other factors’…. Janet Yellen is keening aware of the lack of stark divide between cyclical and structural labor market factors…. Policymakers, while not sailing blind, are still in a considerable amount of fog.

September 26, 2014

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