A Favorable Flow?

April 7th, 2014 at 9:08 am

I’ve got a longer piece on job market indicators going up later on the NYT blog, but for now, here’s a factoid that I thought deserved a look.

To my mind, one of the most important labor market questions right now is whether the labor force participation rate will start climbing back out of its recessionary hole.  That matters a lot for both the living standards of the majority who depend on work and paychecks as opposed to asset portfolios, and for the macroeconomy as well, since labor force growth is a key input to GDP growth.

It was thus good to see a little pop in the labor force participation rate in last Friday’s jobs report, and while a one-month result from the noisy household survey doesn’t mean much, the participation rate is up 40 basis points off of its December trough.

Here is an interesting and related trend.  It’s from the labor force flows data which tracks people’s monthly movements in and out of employment, unemployment, and not in-the-labor-force (or NILF; remember, if you’re looking for work, you’re unemployed; if you give up the search, you’re NILF).  This line shows that the share of the population moving from unemployment to NILF, and is thus a driver of the decline in the labor force.

It’s clearly a cyclical variable, as you’d expect, and it shot up in the great recession, as discouraged job seekers left the labor force.  But while it is still elevated, its decline is quite sharp, a signal that fewer unemployed are giving up and leaving the labor force and a positive sign for possibly restoring some labor force growth.


Source: BLS

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9 comments in reply to "A Favorable Flow?"

  1. Larry Signor says:

    We could impute from this graph that the labor market is becoming more attractive to workers (i.e. less slack). We are seeing rising wages and hours worked, which tend to support this view. Now, about those 10.5 million people who want one of the 4 million “available jobs”, (not necessarily “fill-able jobs”)…please don’t get me started on NAIRU, structural unemployment or the business cycle. These conditions cannot be simultaneously true,,,the possibility of unemployment is the most powerful tool business has, the aforementioned conditions merely a smoke screen for this fact. It is a nice graph, though.

  2. Robert Buttons says:

    Denmark increased labor participation rate by adjusting the time course of benefits:

    • Larry Signor says:

      I have made this point on Dean Bakers blog: from the March BLS release: http://www.bls.gov/news.release/empsit.a.htm

      10.5 m jobseekers…4m jobs…total labor force=~155m…now the math… (10.5-4)/155= 0.04129…or 4.1% of the labor force…there is your missing participation rate. One could view it slightly differently and posit: 4/155=0.0258…or 2.6% of the labor force, but not all these jobs are “fill-able”. Either way, the participation rate is being constrained by a lack of “fill-able” jobs rather than available jobs. In this context I do not mean to imply structural problems with labor, but with management. The biggest reason jobs go unfilled is an inadequate compensation package, which is the fault of management. Hysteresis and “structural unemployment” arguments are just mechanisms for shifting the blame, those “Silver Tongued Devils”.

      • Rima Regas says:


        Add to that what we know about ageism and anti-99er discrimination, and you have to ask yourself how far government should go in ensuring people who are highly skilled get back to work before foreign workers are granted visas. There are plenty of ads in my husbands’s disciplines (he has two). He can’t get hired, not even with the intervention of well-placed people. The only conclusion we can reach is that his resume looks too much like that of a 99er.

        Almost everyone we know who was displaced at the start of the recession is in a similar position.


        I don’t think any economist can write about jobs without taking a long hard look at the 99ers. Krugman is right about the lost generation if we continue to do nothing.


        • Larry Signor says:

          Rima…I agree that long term unemployment has us screwed. I went 201 weeks w/o being able to find a job…while searching I aged 3 years to 58, making me even less employable…now I have a part-time seasonal job making 10.65/hr ~ 12 hrs/week…a lot of my friends think I’m lucky…Jared does more than his part to flag long term unemployment as a major hazard…g/l to your husband.

      • Robert Buttons says:

        “The biggest reason jobs go unfilled is an inadequate compensation package,” is a pretty big assumption. Any justification?

        As a small business owner, there is no upward pressure on low skilled salaries because there are plenty of applicants. (keep in mind, my low skilled slots are frequently filled by high education individuals—recent hires were Bachelors holders in religious studies, biology and criminal justice, for example).

        High intelligence individuals are hard to find at any price. The ones I lose are based on geographical factors (I live in a small town) and the ones I keep have strong family ties in the area.

        • Larry Signor says:

          Yup…being a successful business owner does not make one an economist. If a firm has plenty of applicants for employment, how is there upward wage pressure? Education is not a factor, a Phd in economics can’t necessarily cook a better hamburger than a high school drop-out. I am really not sure what your point is. Compensation is the key to filling any job, no matter how onerous.

          • Robert Buttons says:

            Supply and demand. As the price of a competent supervisor goes up and up and up, my desire to hire one goes down. I’ll just increase my hours and do the job myself.

  3. Ruthmarie says:

    The bottom line is what is actually acceptable as far as salaries to us as a society. We have to get back to what is reasonable compensation and not permit employers to hire at wages below that level. We have made decisions like this in the past. Look at the Triangle Shirtwaist Factory fire…after that fire we set new parameters as to what was acceptable for employers to pay and what safety systems needed to be in place. Did this correspond neatly to supply and demand? NO, it didn’t.

    Right now, I’m working on a start-up and its exhausting. I would love to hire someone to help me, but I can’t pay a reasonable salary. So guess what? I’m sucking it up and doing the work myself until I can afford an acceptable salary. I’ve also been on the other side of the coin, looking for a part-time job to help tide me over. So many people tried to hire me claiming this was an “opportunity” for me to “grow with their business”. Free translation – “you will work your a$$ off for almost no money. Sorry, no can do. I live in NY and have to support myself. Working for $10/hour is not an option.

    Bottom line – DO IT YOURSELF unless you are prepared to pay a decent salary. I don’t care if you CAN get the labor for less. I’m asking a different question: Is it ever OK to exploit people? The answer is – no, it is not.

    Will raising minimum wage slow hiring? Perhaps initially – to a certain extent. But this would probably be mostly from employers who are offering jobs that aren’t worth having in the first place. Meanwhile, a higher minimum wage would put more money in the pockets of people who ARE employed and this would feed into the economy forcing further employment at reasonable wages even from the most reluctant employers.