For Trucker

Hi Trucker,

Thought you might enjoy this, you have very little trouble calling me
an idiot, I do not think you can accuse of me of intellectual
dishonesty.

I think this article will show you the importance of data in economics.
Please do not reprint this article on your web site unless you get
permission from 'The Economist'.
_______________________________________________________________________________

Are 5.1m Americans missing from the unemployment figures?

HOW strong is the American labour market? Around this time last year,
few questions fascinated Washington more. Twelve months and one
election later, much of the political heat has gone out of the issue.
In June, unemployment fell to 5%, the lowest rate since September 2001.
In what may be his last report to Congress as chairman of the Federal
Reserve, Alan Greenspan warned legislators that the "slack" in the
labour market was being taken in, and that unit labour costs had
"turned up of late".

A new paper* by Katharine Bradbury of the Federal Reserve Bank of
Boston should keep the question open for a while longer. The
unemployment rate, she suggests, may be a poor measure of slack in the
labour market. By her yardstick, there may be as many as 5.1m Americans
who do not appear in the unemployment rolls, but who might rejoin the
job queue if work were more forthcoming. If so, the "true"
unemployment rate could be over 8%, not 5%; the true number of jobless
12.6m, not 7.5m.

Looking for work is a full-time job. Many job-hunters quit, despairing
of ever landing their quarry. Some of these "discouraged workers",
as economists call them, fall back on the earnings of a partner or
spouse, some go back to school, others discover disabilities that
qualify them for government benefits. Since they have dropped out of
the labour force, they also drop out of the unemployment numbers.

They show up instead as declines in the "labour-force participation
rate". These falls have been quite striking since the 2001 recession.
In March of that year-the month the economy peaked-67.2% of
Americans over 16 years of age either had a job or sought one. For the
past 18 months or so, the figure has hovered stubbornly around 66%,
refusing to recover even as output has rebounded. The difference may
seem small-only one percentage-point or so. But that is 1.2 out of
every 100 adult Americans, or more than 2.7m people.

In past recoveries, all but the most discouraged workers had taken
heart by now, tempted back into the labour force by rising jobs and
wages. What is different this time around? Ms Bradbury digs deeper
among the discouraged, sifting their numbers by age and by sex. In this
upswing, it seems, the young and middle-aged are uncharacteristically
work-shy, but the elderly are rolling up their sleeves in surprising
numbers. If this recovery had followed the pattern set by the previous
five, she calculates, another 5.1m Americans under 55 years of age
would be in the workforce by now. But 3.4m Americans over that age
would not be. The shortfall in young and middle-aged workers is partly
offset by a windfall of older workers. This raises two critical
questions: will the missing millions under the age of 55 enter the
workforce in due course? And will those over 55 stay?

Goodbye or au revoir?

To the second question, Ms Bradbury answers in the affirmative. The
industriousness of the elderly has little to do with a jobs boom and
more to do with the baby boom, she argues. The first of the post-war
baby boomers turned 55 in the past few years. Thus the over-55 age
group is unusually "young" at the moment, containing a bulge of
people at the lower end of the age range. Eventually, of course, the
baby boomers will retire. But there is no reason to think they will
drop out in the next year or two.

The answer to the first question is less certain. The 2001 recession
interrupted the longest expansion in post-war history. In that golden
age, students cut short their studies, the elderly deferred their
retirement, criminals hung up their swag bags-everyone showed up for
work in the new economy. Peaks that high may never be scaled again, Ms
Bradbury points out. If so, some of the 5.1m Americans she thinks are
missing from the labour force may be gone for good.

The other mystery is women. During the four decades from the 1960s,
women have been marching into America's labour force in ever greater
numbers. Their participation rate showed an upwards trend which the
occasional recession would slow or flatten, but not reverse. This meant
that three or four years into a normal recovery, the female
participation rate would not only regain its pre-recession peak, it
would surpass it.

Women play a large role in Ms Bradbury's calculations. Almost 4.1m of
her 5.1m missing workers are female. But this enormous gap assumes that
the 40-year trend of rising female participation should have continued
apace. In particular, it implies that the female workforce should by
now be almost 2.2m larger than it was even in March 2001.

Ms Bradbury is quick to concede that this assumption may not hold. With
about 60% of women already participating in the job market, their long
march into work may be drawing to a close. From now on, the female
workforce may grow and shrink with the ups and downs of the economy,
much as the male workforce does. Under this scenario, perhaps only 1.3m
of the missing 4.1m women should have been expected to return to the
workforce as the economy picks up. This would leave a less spectacular
shortfall of 2.3m, not 5.1m, workers overall.

If Ms Bradbury is right, then full employment in America is a more
distant goal than it currently appears. Her calculations also imply
that the economy can continue to grow apace for some time before the
Fed needs to worry about labour shortages, wage hikes and inflationary
pressure.

Mr Greenspan himself, of course, is due to drop out of the labour force
in January of next year, a month or so shy of his 80th birthday. It
will fall to his successor to decide whether the labour force's missing
millions need coaxing out of their more premature retirement.

* "
Additional slack in the economy: the poor recovery in labour force
participation during this business cycle", Federal Reserve Bank of
Boston.

http://www.bos.frb.org/economic/ppb/2005/ppb052.htm

.

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