Thursday, May 17, 2012

Who Are the People Leaving the Workforce?

There has been a lot of talk about the number of people leaving the workforce. Who are these people?

Julie Hotchkiss at the Atlanta Fed explains:
 Using the latest survey data we have available (November 2011), we find that most nonparticipants are retired (48 percent); the share who are in school, disabled, or taking care of household members are 18 percent, 16 percent, and 15 percent, respectively; and the share in the category termed "Other" comes in at about 2 percent. 
For purposes of better understanding the decline in labor force participation, however, we look at the reasons for absence given by people who leave the labor force. Those who have left the labor force are arguably more likely to return (depending on the reason, of course) than those who have never been in the labor force. A feature of the CPS allows us to track certain individuals from one year to the next, so we are able to identify people who leave the labor force. Chart 1 illustrates how individuals who are not in the labor force—but who were employed or unemployed the previous year—are distributed across the reasons for nonparticipation. The raw data are not seasonally adjusted, of course, so we plot the numbers as a 12-month moving average—this approach does not affect the overall observed trends in the data. In addition, we restrict our analysis here to those between the ages of 25 and 54, since retirement overwhelmingly dominates the nonparticipation decisions of older workers, and schooling dominates the nonparticipation decisions of younger workers.

Chart 1 illustrates what the labor force participation rates have been telling us. For every reason given for absence, except perhaps "Retired," the number of people leaving the labor force has increased during or after the recession of 2008. The most dramatic increases are seen among those people giving "School" and "Other" as a reason.
Hotchkiss takes the optimistic view about those leaving the workforce to go to college:
The implication for the rise in "School" is unmistakable, however. With reasonable expectations, these individuals should re-enter the labor force with enhanced—or at least better-aligned—skills that will be able to make a positive contribution to overall economic growth.
I view the climb in those going to school as part of the education bubble that is a result of government backed student loans. These students aren't learning skills that they can use in the workplace, as is clearly evidenced by the number of students "underemployed" after recent graduation.

So what we have is high unemployment caused by Federal Reserve money manipulation, with the government then guaranteeing school loans for useless education to those trapped by the downturn in the business cycle. They will graduate with thousands upon thousands of dollars of debt with little prospect of getting a job that will help them payoff the debt. It's the vicious central planning cycle. Instead of allowing individuals to find their own way, they are herded off in a direction that will cause even more pain.

In other words, the data showing the number leaving the workforce indicates great future pain thanks to mad government centrally planned policies. First it was housing, now its worthless education.

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