Sunday, September 8, 2013

Labor is not Euvoluntary: LFP Edition

Kevin E. at Idiosyncratic Whisk picks up on an ongoing row folks are having over labor force participation. Tyler linked to a WaPo article that makes some curious claims about the causes of LFP malaise. He says (in the comments): "I am (mostly) not blaming cycle, rather seeing the trend, most of your points do not overturn my view." That was my reading too. The up-edging of elderly workers still in the labor force provokes consideration of what Richard Epstein was talking about in this video (please ignore the socks and unicorn flatus to the best of your ability):

Epstein's point, the one that Skidelsky adamantly rejects, is that it is labor market barriers that is keeping folks out of work. Things like uncertainty over off-balance sheet liabilities, minimum wage requirements, threats of forthcoming legislation, even mandatory health coverage provision (and I don't want to dwell too closely on that one, given some of the shady comments I've read lately) all contribute to an edifice of business uncertainty. Add to that the rank regime uncertainty we've seen since the start of the Bush II administration, and it should be no great surprise that employment is wobbly.

A brief technical digression:

For the uninitiated, LFP is another metric for analyzing employment. If you're so inclined, you can check out reports, data, statistics, whatever so you fancy at the BLS page for employment here. The typical "unemployment" figure that gets reported in the press is U-3. Here's a list of the different measures used by BLS:

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Clear as mud, huh? Well, a "discouraged worker" is someone who can't find a job and who has more or less given up. The stereotype is the 20-some-odd college grad who has moved back in with her parents and spends her days instagramming on Pinterest or whatever it is the kids are doing these days.

But as Erdmann notes, we're actually seeing two things going on. Yes, we have some noise, but there are longer, larger trends at play. And if you'll note in the WaPo piece, the pie is increasingly sliced onto grandpa's plate. The 75-79 y.o. LFP rates are up. Considerably.

What do I make of this? Well, maybe 2008 exposed some of the malaise Washington DC and the several states have been legislating into the labor markets over the course of the past few administrations. We've been seeing at least a little more executive discretion when it comes to enforcing the rule of law. We've also seen generally more pugnacious law enforcement, and we're seeing new graduates caught in a peacock-plume dilemma, so perhaps it's understandable that employers are slightly more reluctant to hire on Johnny BA with no experience in lieu of Gregory Grandpappy who may be a little long in the tooth and grey in the eye, but who still knows how to work the system and crank out the goods.

It's a hypothesis anyway. A few charts here and there won't resolve the issue. But the disaggregated LFP rates seem to at least point to the suggestion that Epstein and Roberts aren't blowing hot air across the stage (and I see no horns atop their foreheads in any case) when they talk of structural uncertainty.

Which then makes me wonder: what's worse, legislatively "correcting" what may be phantom errors in the labor market, or using tools that end up ensuring very few young people get their foot in the door? Is it more euvoluntary to have a 25% chance of landing a legislatively protected job or a 90% chance of landing a caveat operarius gig with relatively free entry and exit? How much of that question hinges on positive analysis, how much on normative judgement? Is it right to force workers to pick only one option?

As for the DI argument, I'm not convinced it's an especially important margin. If there is malingering, then it's probably low productivity workers doing it anyway, so it's no great loss, all things considered.

1 comment:

  1. I came into this expecting to find a lot of the conclusions you mention. But the data turned me back from them. If you start with core LFP of working age males, they have a very linear trend going back 50 years, with a decline of about 1.4% a decade. There is very small cyclical variation around this trend. In addition, there is a variation of about 2%, due to aging cycles, and then there is a permanent, one-time hike of about 8% from the addition of women in the work force.

    Here is another post I did that pulls out the gender effect, and makes the long term normal trend even more obvious:

    So you can basically construct the whole LFP curve if all you know are (1) the shape of the population pyramid, (2) the amount of new labor from the change in women's work habits, and (3) the long term male working trends. We have had this information for 20 to 50 years.

    I just don't see how we can pin this to public policy.

    There has been a rise in LFP among the very old, but, as with the other changes, the LFP for 65+ workers has followed very smooth long term trends, which suggests cultural and economic changes over policy changes.

    There have been anomalous changes in the 24 & under group, also, and I do think policy has some effect there, but LFP changes in this group have very little effect on the long term aggregated LFP.


Do you have suggestions on where we could find more examples of this phenomenon?