The White House has joined the debate about declining labour force participation with an excellent report from the Council of Economic Advisers. (The fingerprints of Harvard’s James Stock are in evidence in some punctilious time-series econometrics.)
The CEA reaches similar conclusions to a number of other studies. Most of the decline in labour force participation was demographic, due to an aging population; a modest proportion was due to the recession and its unusual severity. Read more
Anyone who has tried to work out the extent of US labour market slack has risked getting lost in a thicket of detailed research.
The most obvious question, and easily the most debated, is whether discouraged workers who have dropped out of the labour force will return in an accelerating recovery — keeping a lid on wage growth and core inflation. James Bullard included a useful summary of the literature on this debate in his speech last week. Read more
It’s a big day for Fed-watchers, with the FOMC minutes to the January meeting just out and Fed speeches by three district presidents (Dennis Lockhart, James Bullard, John Williams).
We’ve referred often to the dueling research papers of recent years debating whether the fall in the labour force participation rate has been mainly secular vs cyclical. Read more
It’s been easy to lose track of the dueling research papers and notes published in the last year that have tried to discern the causes behind the demographic-adjusted fall in the US labour force participation rate.
The resulting confusion, specifically about whether those causes are mainly cyclical or structural, has led to uncertainty about what the Fed will do if the unemployment rate falls to or below the 6.5 per cent threshold (the rate is now at 6.7 per cent). Consequently it has weakened the FOMC’s commitment to keeping rates low for as long as its members have forecast. Read more