A couple of days ago, the Sandwichman characterized the employment-as-a-lagging-indicator meme as a prescription for doing nothing. Yesterday, over on Macroblog, David Altig contemplated, "Economists got it wrong, but why?" concluding, "I've yet to see the evidence that progress requires moving beyond the intellectual boundaries in which most economists already live." That comment sent the S-man down memory lane to a WSJ debate on job market slack Max Sawicky and Sandwichman had with David Altig back in the boom times of August, 2005.
Max and I were of the opinion that the job market was then slack in spite of a nominal 5% unemployment rate. David Altig leaned toward the interpretation that changes in labor force participation were being driven by demographic trends and the informed choice of participants and non-participants. In hindsight, I wish we had followed up on the demographic clue. Decomposing the employment-population ratio by age groups produces the following arresting picture:
While the drop-off since September 2008 has been steep, the decline began in December 2006, three months before unemployment bottomed out for 16-24 year olds. Perhaps more auspicious, the "peak" employment-population ratio for 16-24 year olds during the last recovery barely climbed above it's trough following the 2001 recession. As they say, the youth of today is the future -- or the canary in the coal mine. The above chart is "evidence that progress requires moving beyond the intellectual boundaries in which most economists already live" whether David Altig sees it that way or not.
5 comments:
He says he does not see the evidence - which, unfortunately, is not quite the same as saying there is none.
Shall I use this same excuse the next time I am pulled over for causing a multiple car pileup after jumping a red light.
"But officer, I see no evidence that my blowing through that light lead to all this bloodshed!"
The arrogance is just unbelievable.
Sandwichman:
"David Altig leaned toward the interpretation that changes in labor force participation were being driven by demographic trends and the informed choice of participants and non-participants. In hindsight, I wish we had followed up on the demographic clue."
Thanks dude . . . like we were all getting out of the market place because we wanted to. It was time to retire and take the fruits of our labors while we could! Yea right . . . we were still hanging on expecting the market to recoup. It didn't.
You had it right and those who sougt to explain Participation Rate as voluntary leaving the market place had it wrong.
Following up on the "demographic trends and informed choice" angle, I dug deeper into employment-population rations for 16-24 year olds. For 20-24 year olds the ratio has fallen from 72.9 in October 2000 to 62 in August 2009. For 16-19 year olds the ratio has fallen from a peak of 46.3 percent in April 2000 to 28.1 percent in August 2009.
It looks to me like it is not so much a question of people getting out of the market as it is younger people never getting into it. What is it with kids nowadays?
This is truly one of those time where "fresh" economic ideas have a chance of making their way through to the general population. I mean "fresh" as in ideas from the time when economists could still hold a coherent logical thought.
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