The Stagnating Labor Market, 1: Dropping Out Of The Labor Force

[ProSense]

The Stagnating Labor Market, 1: Dropping Out Of The Labor Force

by Mike Konczal

<...>

Dropping Out of The Labor Force



This is what the labor market loops like. It is normally a dynamic machine where people transition between employed, unemployed, and out of the labor force. But recently sand has been thrown in the gears, and people’s transitioning between these states is slowing, with more and more people ending up in not in the labor force and staying there.

<...>

It’s a little complicated, so let me explain. This is the percent of unemployment who leave unemployment every month and where they go. In normal times, you’ll see 25%+ of unemployed transition to employed. This is robust to several ways of calculating this number. This high number is the result of, and a justification for, our comparatively weak social safety net for the unemployed.

But notice what has happened in this recession: Starting in January 2009 it is more likely an unemployed person will drop out of the labor force instead of finding a job. More people are leaving unemployment by simply leaving the formal labor force rather than ending up with a new job. This has massive implications for how we all should view the unemployment numbers.

And notice that the sudden new normal of unemployed leaving the labor force instead of finding a job has been buffered by a sharp drop in the number of people leaving the labor force; this is no doubt in large part to the extension of unemployment insurance, which has incentivized people to continue looking for a job instead of leaving the formal economy.

To see if this is a new historical development, we use the data constructed by Robert Shimer’s and available on his webpage (with an update from Shimer that goes to Q1 2010). The data from June 1967 and December 1975 were tabulated by Joe Ritter and made available by Hoyt Bleakley on Shimer’s webpage. Here is both the outflows from unemployment and a separate chart that graphs the difference between the two (as with all graphs, click through for larger image):



Going back to 1967 this simply hasn’t happened consistently before. (Certainly not at all before the weak recovery of the Bush years.) This is a brand new feature to this recession, and as such policy and research needs to be mustered to better identify this grouping of individuals and reintegrate them back into the labor force after the recession is over.

more

[Lost4words]

1. ok but wont this number effect those entering the workforce for the first time?

its all connected like old fashioned nylons, one snag effects the whole, its all connected.

Interesting, thanks for posting :hi:

[Vincardog]

2. I love the way the not in the labor force are assumed to be not wanting or looking for work. BS

[ProSense]

3. That is not what that means.

People who no longer get or qualify for unemployment, people out of the labor force, are likely getting by with multiple, part-time and temporary jobs.

"More people are leaving unemployment by simply leaving the formal labor force rather than ending up with a new job."

The point is that they still don't have a full-time permanent job.

[Vincardog]

4. The whole thing is a shell game to keep the unemployment % down. If they don't allow us to receive

benefits we are not unemployed.

They don't look so bad and we have to "TRAIN FOR THE JOBS OF THE FUTURE" that will never exist.

[DrToast]

6. Completely wrong.

Unemployment benefits have nothing to do with whether or not you're considered unemployed.

[Vincardog]

8. Where are the MILLIONS of us who do not receive any more Unemployment Benefits in the official Stats

[DrToast]

9. You don't understand

The unemployment rate is not based on who is receiving unemployment benefits.

It's a common misconception that never seems to go away.

If you are out of work and part of the labor force (basically if you're looking for work), you are counted in the unemployment rate.

http://www.snopes.com/science/stats/unemploy.asp

[Lost4words]

10. Dr, how does anyone know if I am actively looking or not?

you quote, If you are out of work and part of the labor force (basically if you're looking for work), you are counted in the unemployment rate.

that does not make sense to me did I miss something? what about those who worked off the books?

[Vincardog]

11. IF that is true why isn't the Unemployment rate showing the real 20% min out of work?

[seattleblue]

14. You are assuming accuracy in the survey.

The unemployment rate is computed based on a telephone survey of 60,000 households. Is this accurate? Maybe, maybe not. Do people always tell the truth about their employment status to strangers claiming to be from the government? I doubt it.

[ProSense]

7. Well, that's a different point than Konczal was making, and his follow-up

post addresses the demand vs skills claims. Via Krugman

Mike Konczal has another excellent post, this time on the whole question of why employment remains so low. As he points out,

Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.

What he doesn’t say explicitly, although it’s clearly implied, is that these two theories have very different policy implications. If it’s aggregate demand, we should be doing everything we can to raise demand, including fiscal expansion and unconventional monetary policy. If it’s...mismatch, we should do nothing, because any effort to create jobs leaves part of the work of depressions undone.

So how would you decide between these theories? The answer is to look at the evidence — specifically, to ask whether what we see bears the “signature” of one story or the other. The aggregate demand story suggests that we should see depressed employment in all industries, that we should see workers of every skill type facing a poor job market. The mismatch story says that we should see surpluses of labor in some places, but shortages in others.

And Mike shows that the data overwhelmingly fit the demand story, not the mismatch story; Every single major industry has seen a rise in involuntary part-time work; so has every major occupation. There’s no hint that any major kind of labor, in any sector, is in short supply.

<...>

[DrToast]

5. They ARE part of the labor force if they're looking for work.*

*

[Cha]

12. Thanks Pro Sense.

[DemocraticPilgrim]

13. I think the idea of a 3 year mortgage moratorium is the best idea then people can buy things.