17/4/21: Collapsing Labor Force Participation: A Secular Trend

 

For those of you following this blog this would be a familiar sight: I have been worrying about the underlying structure of the U.S. labor markets for some time now. The ongoing recovery appears to be relatively robust in terms of headline figures, e.g. GDP growth rates and declining continued unemployment claims. But in reality, it has been nothing but the return to trends that persisted before the pandemic - trends that are extremely worrying.

I covered the fact that longer term unemployment has now gone through the roof: https://trueeconomics.blogspot.com/2021/04/14421-share-of-those-in-unemployment-27.html. And beyond this, there is a bigger problem of historically low levels of labor force participation. We are witnessing a massive pull-away within the skills distribution in the U.S. economy: there are shortages of skilled labor, including in manufacturing, and there is massive outflow of people from the labor markets in lower skills groups.

Just look at the absolute disaster of the 'recovery' when it comes to people who have left the workforce alltogether:

And consider the gender mix in this: 

1. Women labor force participation is down:

2. Men participation has collapsed:

The above appears to show more benign trend in female labor force participation trend than in male, and... here comes the kicker: women labor force participation currently sits around the levels comparable to 1987; men - at around ... well... never.

The above table puts matters into perspective: the gap between the pandemic period and prior high participation period is almost 5 times larger for men than for women. But... the gap between women and men participation rates in the pandemic period and pre-pandemic period is much smaller: at roughly 48% higher for men than for women. For the latest data point (March 2021) the latter gap is roughly 80%. In other words, the dynamics in terms of labor force participation for women are becoming much less benign, relative to men. than they were during the pre-pandemic period.

To put this into a different perspective: secular pre-pandemic trend for men were woeful. They were less so for women. But pandemic is accelerating longer term pressures on both men and women in pushing them out of the labor force.

If you think this is a 'robust' recovery, you really need to think a bit harder: we are having a secular stagnation in the female labor force and we are having a long term depression in the male labor force. And these trends are not subject to demographics of aging. 

14/4/21: The share of those in unemployment > 27 weeks is rising

 

One way to look at the state of the real (as opposed to financialized and corporate-value focused) economy is to look at unemployment. And one of the strongest indicators of longer term changes in the structure of the real economy is the fate of the longer term unemployed. Here is an interesting snapshot of data: the percentage of those unemployed for 27 week or longer in the total pool of the unemployed. The higher the number, the more structural is the unemployment problem. 

If the above is not clear enough, here is the same data expressed in the form of the range for each 12 months period (rolling) between maximum share of the longer term unemployed in the overall pool of unemployment and the minimum share:

All of the above suggests we are in deep trouble. And this trouble has been persistent since the Great Recession: we are witnessing a dramatic increase in the duration of unemployment spells. Part of this is due to the impact of Covid19 pandemic concentrated in specific sectors. Part of this is down to the generosity of unemployment benefits supplements and direct subsidies during the pandemic. Part of it is also down to the longer term changes in the U.S. labor markets and changes in households' composition and investment/consumption patterns.

Irrespective of the causes, the problem is obvious: the longer the person remains unemployed, the sharper is the depreciation of skills and their employability. If this (post-2008) experience is the 'new normal', America is developing a massive class of disillusioned and human capital poor workers. 

4/10/20: Technological Deepening Is Coming for Our Jobs

 

In my recent article for The Currency (link here: https://trueeconomics.blogspot.com/2020/09/my-recent-article-on-potential-long.html), I argued that COVID19 will act as an accelerator of technological capital deepening in the modern economies, with a resulting faster displacement of workers (including highly skilled ones) by technology. 

McKinsey survey of the developing trends in businesses strategic responses to the pandemic confirms my hypothesis:

Per above, across all sectors, and (peer charts below) across specific sectors, businesses are planning to prioritize deployment of technology in addressing long-term change in response to the current pandemic. 

McKinsey state that "Fifty-five percent of leaders anticipate that at least half of their organization’s workforce will be fully or partially remote postcrisis. While the expectations vary widely by industry—from 69 percent predicting this level of remote work in technology, telecommunications, and media to 43 percent in advanced industries—even in the industries where manufacturing, patient care, and sales transactions often require people at offices, stores, plants, and other company facilities, a significant portion of the workforce may be partially or fully remote." Source: https://www.mckinsey.com/business-functions/organization/our-insights/the-need-for-speed-in-the-post-covid-19-era-and-how-to-achieve-it. And "Our survey results show that executives are focused on three courses of action ... making good decisions more quickly, improving communication and collaboration, and making greater use of technology."

27/9/20: U.S. Labor Force Participation and Employment-Population Ratios

 Yesterday, I posted updates to the America's Scariest Charts series on the U.S. labor markets (see https://trueeconomics.blogspot.com/2020/09/26920-americas-scariest-charts-duration.html). Two commonly over-looked and under-reported labor markets statistics worth covering in any analysis of economic conditions in the country are:

• The labor force participation rate, and
• The employment to population ratio.

Both have been shockingly impacted by the COVID19 crisis, and both are experiencing only partial recovery to-date. 

As the chart above illustrates:

• U.S. Labor Force Participation rate stood at 61.8 at the end of August 2020, a slight deterioration on July 2020 (62.0), but above the COVID19 trough of 60.0 in April 2020. Current level is below 2020 average of 61.9, which is itself the lowest decade average since the 1970s. Excluding CIOVID19 period, latest reading for the participation rate is the absolute lowest since May 1977.
• U.S. Employment to Population ratio has fallen to its all-time lows in April 2020, and has recovered since. At the end of August is stood at 56.5 percent, up on 51.3 percent pandemic period low, and in-line with the 2020 average to-date. Before the start of the pandemic, the ratio stood at 60.9 and the previous decade average was 59.3. In historical comparatives terms, the latest reading for this indicator is the lowest (excluding the pandemic period lows) since early 1983.

In terms of both indicators, current conditions in the U.S. labor markets are worse than those encountered at the worst points of any recession since 1983, including the depths of the Global Financial Crisis. And this assessment comes after 3 months of the ongoing 'recovery'. 

26/9/20: Workers Should Brace Themselves for the post-COVID19 New World

 

My recent article on potential long-term impacts of COVID19 pandemic on corporate development and investment strategies for The Currency: https://www.thecurrency.news/articles/24259/workers-should-brace-themselves-things-will-only-get-worse. 

26/7/19: Stop Equating Low Unemployment Rate to High Employment Rate

There is always a lot of excitement around the unemployment stats these days. Why, with near-historical lows, and the talk about 'full employment', there is much to be celebrated and traded on in the non-farm payrolls stats and Labor Department press releases. But the problem with all the hoopla around these numbers is that it too often mixes together things that should not be mixed together. Like, say, mangos and frogs, or apples and moths.

Take a look at the following data:

Yes, unemployment is low. Civilian unemployment rate is currently at seasonally-adjusted 3.7% (June 2019), and Unemployment rate for: 20 years and over, at 3.3%, seasonally adjusted. On 3mo average basis, last time we have seen comparable levels of Civilian unemployment was in 1969, and 20+ Unemployment rate was in 2000. Kinda cool, but also revealing: historical lows in unemployment require  Civilian unemployment metric to confirm. Which means that factoring in Government employment, things are bit less impressive today. But let us not split hairs.

Here is the problem, however: record lows in unemployment are not the same as record levels in employment. Low unemployment, in fact, does not mean high employment.

To see this, look at the solid red line, plotting Employment rate for 20 years and older population. The measure currently sits at 71.2 percent and the last three months average is at 71.1 percent.  Neither is historically impressive. In fact, both are below all months (ex-recessions) for 1990-2008. Actually, not shown in the graph, you would have to go back to 1987 to see the same levels of employment rate as today. Oops...

But why is unemployment being low does not equate to employment being high? Well, because of a range of factors, the dominant one being labor force participation. It turns out (as the chart above also shows), we are near historical (for the modern economy's period) lows in terms of people willing to work or search for jobs. Or put differently, we are at historical highs in terms of people being disillusioned with the prospect of searching for a job. Darn! The 'best unemployment stats, ever' and the worst 'willingness to look for a job, ever'.

U.S. Labor Force Participation rate is at 62.9 percent (62.8 percent for the last three months average). And it has been steadily falling from the peak in 1Q 2000 (at 67.3 percent).

When we estimate the relationship between the Employment rate and the two potential factors: the Unemployment rate and the Participation rate, historically (since 1970s) and within the modern economy period (since 1990) as well as in more current times (since 2000), and since the end of the Great Recession (since 2010) several things stand out:

1. Unemployment rate is weakly negatively correlated with Employment rate, or put differently, decreases in unemployment rate are associated with small increases in employment; across all periods;
2. Labor force participation rate is strongly positively correlated with Employment rate. In other words, small increases in labor force participation rate are associated with larger increases in employment; across all periods;
3. Labor force participation rate, in magnitude of its effect on Employment rate, is roughly 14-15 times larger, than the effect of Unemployment rate on Employment rate; across all periods; and
4. The relatively more important impact of Labor force participation rate on Employment, compared to the impact of Unemployment rate on Employment has actually increased (albeit not statistically significantly) in the last 9 years.

These points combined mean that one should really start paying more attention to actual jobs additions and employment rate, as well as participation rate, than to the unemployment rate; and this suggestion is more salient for today's economy than it ever was in any other period on record.

But above all, please, stop arguing that low unemployment rate means high employment. Bats are not cactuses, mangos are not moths and CNN & Fox kommentariate are not really analysts.