The unemployment rate clicked down last month while a relatively anemic 150,000 jobs were added. What’s going on? As I have been saying for months, the leading edge of Baby Boomer retirement is kicking in and this is a good thing.
But a number of economists are arguing that the recession is distracting people from the real story — long-run demographic trends that have nothing to do with the current economy. Baby boomers are starting to retire en masse, which means that there are fewer eligible American workers.
Demographics have always played a big role in the rise and fall of the labor force. Between 1960 and 2000, the labor force in the United States surged from 59 percent to a peak of 67.3 percent. That was largely due to the fact that more women were entering the labor force while improvements in health and information technology allowed Americans to work more years.
But since 2000, the labor force rate has been steadily declining as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does.
In a March report titled “Dispelling an Urban Legend,” Dean Maki, an economist at Barclays Capital, found that demographics accounted for a majority of the drop in the participation rate since 2002.
Every year, for the foreseeable future, 3.5 million boomers will retire. Thus, the 300,000 people who left the workforce last month is about on track with that figure. Mitt Romney can rattle on about how horrible this is, but he’s just wrong. If you have worked a lifetime and have a decent pension, you will retire when you get a chance.
This brings us to the real unemployment crisis. The private sector has been adding jobs at a rate that brings employment about back to where it was when Obama took office. But because of draconian government budget cuts, public sector employment is dropping radically. Teachers, fireman, police–all are facing continued layoffs. As Floyd Norris points out this morning, (despite Republican rhetoric to the contrary) government share of GDP is falling for the first time in decades.
And of course the rapidly shrinking investment in infrastructure (down 11.6%) by state and local governments will only come back to haunt us in the future as bridges crumble and schools deteriorate.The elections in Europe this weekend will probably signal a revolt against the austerity policies of the right that driven the region back into recession. Already the Conservatives in England suffered huge losses in local elections and by all accounts the French and Greeks will move to the Left on Sunday.
One final thought. In an interesting post this week, the Hedge Fund guru, David Einhorn argues that Bernanke is harming the economy by keeping short term rates so low. The million of boomers retiring are forced to speculate in the stock market rather than invest in CD’s and bonds that could pay a safe 3.5% return. On the other side, this also encourages massive speculation by the 1% who can borrow cheaply.
For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage outsized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly Donut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed’s policies.
I have asked some economist folks to give me some input on Einhorn’s piece. I’m not sure he is right, but if the Boomer retirement is preceding apace, I think it is work considering.