Friday, November 16, 2012

Why is the labor force shrinking?

The drop in the employment-population ratio from 63 to 58-59 percent since 2007 is the most striking evidence of the sharp drop in job prospects.  The unemployment rate has recovered from its peak of 10 percent, but the employment-population ratio has not.  Many labor economists, including myself, believe that the employment-population ratio is giving us a much more accurate read on overall labor market conditions than the unemployment rate. 

Today's WP has an article on research by Johns Hopkins professor Robert Moffitt on the causes of shrinkage in the labor force. Moffitt argues that the decline may have started as early as 2000.  He looks at a number of possible causes and finds that declining wages may be part of the explanation; why bother working if the reward is declining?  He mentions rising incarceration rates in previous decades as another possible factor.  Some economists also have mentioned the rising share of the population receiving disability benefits as another key element. 

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