Our story starts during the 1970s.
Forty years ago more women started entering law school, medical school and other professional programs after college. Instead of majoring in education, they became judges, physicians, dentists, architects, veterinarians. They entered professions that required years of their time.
Asked why, some economists say, “oral contraception.” The birth control revolution that started during the early 1970s helped women time marriage and motherhood.They could complete longer educational programs, decide the duration of employment, and have control over professional goals. Able to plan child birth, women entered the labor force.
In a slightly different way, the following Bureau of Labor Statistics graph shows the story of the pill. The ascending line from 1972 to 1998 represents a ratio that compares the size of the labor force to its potential size. A higher ratio means more people who could work are working or looking for a job. And that is where the pill enters the picture. Oral contraception enabled women to enter the labor force in larger numbers than ever before.
The Mystery: Where Has the Labor Force Gone?
Now though, the proportion of the population that could be in the labor force again are not.
It makes sense that during the Great Recession people left the labor force. Many were laid off and new labor force entrants did not even try to find a job. People stayed at home, they considered retiring early, they went to school.
With the recovery, though, wouldn’t you expect the trend to switch? However, look at the line. Historically speaking, we still have a relatively low percent working or looking for a job compared to all of the people who could be. According to the BLS, we are talking about six million or more individuals.
And… No one knows why.
There are theories. Maybe people have remained in the underground economy which means they are not reporting their pay. Maybe more baby boomers are retiring. There could be many individuals who stopped trying to find a match for their skills. Others might have been eligible for the Social Security disability payments that create the incentive not to work.
Our Bottom Line: Participation Rates
There are two kinds of unemployed people.
- People in the labor force
- People who are not in the labor force
Now at 5.6 percent, the unemployment rate counts the unemployed people in the labor force. However, there are millions of people who are aged 16 or older who potentially could work. If we divide the size of the labor force by the potential labor force (which includes everyone who could be and is in the labor force) and then multiply by 100, we get the participation rate. Our graph above displays the labor force participation rate.
The problem with a rock bottom participation rate? We are talking about 6 to 8 million people who could be contributing to the GDP and paying taxes.
Continuing our mystery week, we have a new one tomorrow.