Big Red Car here on a wonderful Friday in the ATX, y’all. It is going to be a nice warm, sunny day.
Only a few days until Longhorn football. Going to be playing the Fighting Irish under the eyes of Touchdown Jesus in South Bend.
“So, Big Red Car, what is up with the labor force participation rate?” asks a reader.
Labor Force Participation Rate Defined
The labor force participation rate is the ratio of:
1. The number of people currently employed plus those seriously looking for work; and,
2. The total number of people in the US population who “could” be able to work.
Another way to say the same thing is — the total employed and unemployed divided by the total work force in the US.
What does it mean, Big Red Car?
Like everything else in economics, the answer is dependent upon who you ask. Some folks think it is a “canary in the mineshaft” omen which signals that the economy is not really as rosy as unemployment numbers would suggest.
Other folks think it is more of a demographic indicator suggesting a shift in the work patterns of America.
An example of how that might have worked in the past is the addition of women to the work force which increased the work force participation rate as these women took jobs while they had previously had been in the work force but not actively working. The labor force participation rate went up rather dramatically.
Look at this graph to see the impact since 1990.
Please note that this graph is for the demographic slice of 25-54 as it is intended to signal the most active slice of workers. It could go farther in both directions.
For a longer term view, take a look at this link.
Note how the rate increases steadily from the mid-1960s until about 2000 and how it has declined steadily since then with a more precipitous slide since the Great Recession of 2007.
Bottom line it, Big Red Car
In the view of the Big Red Car — who is an admitted “omen — canary in the mineshaft” advocate — it indicates that the recent gains in unemployment are a head fake and that the economy continues to drift. The Big Red Car would also note that the recent Q2 GDP growth numbers at 3.7% are a good thing but still much too low for a truly recovering economy.
If you cannot get enough of the Labor Force Participation Rate, read this article.
You will get a very good treatise on what the Labor Force Participation Rate is and is not. It is a twelve page treatise by the St Louis FED Chairman. It is a very fair discussion of the subject and the most useful one I have ever stumbled on. Read it.
Also, remember when we spoke of the same subject before? Oh, yeah, here it is.
So, now you know.