The New York Times carried an article today wondering how it was possible for wages to stagnate while the unemployment rate fell. This Bureau of Labor Statistics chart shows that the percentage of American adults who work has fallen from roughly 66 percent of the population (2005-2008) to just 63 percent today. Wouldn’t the BLS chart alone be able to explain a falling unemployment rate while wages remain about the same? With fewer people in the workforce, if there are the same number of jobs at the same pay rate, the unemployment rate falls and generates excited newspaper headlines and dramatic claims by politicians despite the fact that the same number of people go to work every day and get paid roughly the same.
What do readers think? Do all of these American adults on the sidelines have an effect on wage growth? Or are they not significant compared to the available workers worldwide?
Is it fewer total people, or has the adult population growth outpaced that fall?
Could this be people retiring rather than people out of work? 2008 – 1945 (The beginning of the Boomers) = 63 years.
The labor market is very complex. The unemployment rate is just one way to summarize it. The supply of people who can work washing cars is probably very large, the supply of good engineers is limited. The observation that labor participation rate is often left out of the discussion is a correct one. However, it could be that the labor participation rate has decline mostly because the US population is aging and workers are simply retiring.
My impression is that the job market for people with valuable skills is heating up and there is real wage inflation in that segment of the labor market. The supply of unskilled labor seems to be substantially unlimited.
Too often complex issues are presented in “generic/aggregated views” Immigration is a good example; it is obvious that not all “immigrants” are similar.
Why would wages grow when millions of low-skilled immigrants are illegally working for below the wages of legal citizens? A decade ago industries like construction and meat packing paid $20/hr to blue collar citizens, today those jobs are paying $10 to illegal aliens.
You’ve got a good point there, Kyle. The standard employment population ratio published by the BLS includes every American over the age of 16. So it’s not very useful. However, they also have a statistic that just covers people in the age range 25 – 54. It shows a similar decline, from 80% to 77%.
http://2.bp.blogspot.com/–U9jzv7owX8/VPm4teUz3hI/AAAAAAAAiko/vbbzTdEm7HI/s1600/EmployPop2554Feb2015.PNG
I think that the answer to Philip’s question has to do with what has happened to those roughly three percent of the working age population. If they’ve been sitting on their sofas for a few years, most employers may consider them to be unemployable, so they’d effectively be out of the labor market, having no effect on wage levels. On the other hand, if the economy were to return to the very strong growth of the last few years of Bill Clinton, a lot of those people would be able to find work. As Anonymous says, it’s complicated.