America’s labour market: The economy doesn’t matter

Posted: April 22, 2015 in economy
Tags: , ,

AMERICA’S labour-force participation rate—the proportion of the population available to work—has been falling for years. The figure is now just 62.7%, the lowest level since 1977. The decline really sped up during the Great Recession, falling much faster than government wonks had predicted before the financial crisis hit (see first chart). How you interpret this trend has big implications for where American wages are going. So what is going on?

The obvious culprit for lower participation, of course, is the recession. As people lost their jobs and then struggled to find new ones, the argument goes, they decided to drop out of the labour force entirely. In other words, they no longer registered themselves as unemployed, or took early retirement, rather than find a new job.If you believe this argument, then you are likely to be pessimistic about the future path of American wages. If people left the labour market for economic reasons, then as the economy improves you would expect those same people to move back in. In recent months wage growth has picked up a bit; that may entice those out of the labour force to compete for jobs, thus pushing down wages again.

But if people outside of the labour force are very unlikely to rejoin it—then the outlook for wages is better. A new paper from the IMF assesses what is most likely to happen. …<div class="og_rss_groups"></div>

via Economic Crisis


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