Everyone who has been looking at labor markets over the last five years has been asking, "What is going to happen to labor force participation (LFPR)?" We know unemployment is down to near normal levels, but LFPR remains at its lowest point in almost 40 years. The question is important because it cuts to the heart of the issue of whether we are at or near full employment. The unemployment numbers say yes; the LFPR numbers say no. So what are the odds that those who have left the labor force will actually return?
Today a WSJ blog reported one relevant item of evidence, based on a sector of the economy that I have researched heavily in the past -- the construction industry. We all know what happened to construction in 2007-08; it tanked. That means there are a lot of former construction industry workers out there who have the skills to return.
But are they coming back? So far the evidence is that they have found other things to do and that this has put construction contractors in a bidding war for scarce talent. Employment is still well below 2007 levels, yet builders are having a hard time finding qualified help. This would imply that we should take the unemployment numbers more seriously as an indicator of aggregate labor market conditions.
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