[Mb-civic] An article for you from an Economist.com reader.

Fri Jul 29 11:22:46 PDT 2005

- AN ARTICLE FOR YOU, FROM ECONOMIST.COM - 

Dear civic,

Michael Butler (michael at intrafi.com) wants you to see this article on Economist.com.

(Note: the sender's e-mail address above has not been verified.)

Subscribe to The Economist print edition, get great savings and FREE full access to Economist.com.  Click here to subscribe:  http://www.economist.com/subscriptions/email.cfm 

Alternatively subscribe to online only version by clicking on the link below and save 25%:

http://www.economist.com/subscriptions/offer.cfm?campaign=168-XLMT

IT'S THE TAKING PART THAT COUNTS
Jul 28th 2005  

Are 5.1m Americans missing from the unemployment figures?

HOW strong is the American labour market? Around this time last year,
few questions fascinated Washington more. Twelve months and one
election later, much of the political heat has gone out of the issue.
In June, unemployment fell to 5%, the lowest rate since September 2001.
In what may be his last report to Congress as chairman of the Federal
Reserve, Alan Greenspan warned legislators that the "slack" in the
labour market was being taken in, and that unit labour costs had
"turned up of late".

A new paper*[1] by Katharine Bradbury of the Federal Reserve Bank of
Boston should keep the question open for a while longer. The
unemployment rate, she suggests, may be a poor measure of slack in the
labour market. By her yardstick, there may be as many as 5.1m Americans
who do not appear in the unemployment rolls, but who might rejoin the
job queue if work were more forthcoming. If so, the "true" unemployment
rate could be over 8%, not 5%; the true number of jobless 12.6m, not
7.5m.

Looking for work is a full-time job. Many job-hunters quit, despairing
of ever landing their quarry. Some of these "discouraged workers", as
economists call them, fall back on the earnings of a partner or spouse,
some go back to school, others discover disabilities that qualify them
for government benefits. Since they have dropped out of the labour
force, they also drop out of the unemployment numbers.

They show up instead as declines in the "labour-force participation
rate". These falls have been quite striking since the 2001 recession.
In March of that year--the month the economy peaked--67.2% of Americans
over 16 years of age either had a job or sought one. For the past 18
months or so, the figure has hovered stubbornly around 66%, refusing to
recover even as output has rebounded. The difference may seem
small--only one percentage-point or so. But that is 1.2 out of every
100 adult Americans, or more than 2.7m people.

In past recoveries, all but the most discouraged workers had taken
heart by now, tempted back into the labour force by rising jobs and
wages. What is different this time around? Ms Bradbury digs deeper
among the discouraged, sifting their numbers by age and by sex. In this
upswing, it seems, the young and middle-aged are uncharacteristically
work-shy, but the elderly are rolling up their sleeves in surprising
numbers. If this recovery had followed the pattern set by the previous
five, she calculates, another 5.1m Americans under 55 years of age
would be in the workforce by now. But 3.4m Americans over that age
would not be. The shortfall in young and middle-aged workers is partly
offset by a windfall of older workers. This raises two critical
questions: will the missing millions under the age of 55 enter the
workforce in due course? And will those over 55 stay?

GOODBYE OR AU REVOIR?
To the second question, Ms Bradbury answers in the affirmative. The
industriousness of the elderly has little to do with a jobs boom and
more to do with the baby boom, she argues. The first of the post-war
baby boomers turned 55 in the past few years. Thus the over-55 age
group is unusually "young" at the moment, containing a bulge of people
at the lower end of the age range. Eventually, of course, the baby
boomers will retire. But there is no reason to think they will drop out
in the next year or two.

The answer to the first question is less certain. The 2001 recession
interrupted the longest expansion in post-war history. In that golden
age, students cut short their studies, the elderly deferred their
retirement, criminals hung up their swag bags--everyone showed up for
work in the new economy. Peaks that high may never be scaled again, Ms
Bradbury points out. If so, some of the 5.1m Americans she thinks are
missing from the labour force may be gone for good.

The other mystery is women. During the four decades from the 1960s,
women have been marching into America's labour force in ever greater
numbers. Their participation rate showed an upwards trend which the
occasional recession would slow or flatten, but not reverse. This meant
that three or four years into a normal recovery, the female
participation rate would not only regain its pre-recession peak, it
would surpass it. 

Women play a large role in Ms Bradbury's calculations. Almost 4.1m of
her 5.1m missing workers are female. But this enormous gap assumes that
the 40-year trend of rising female participation should have continued
apace. In particular, it implies that the female workforce should by
now be almost 2.2m larger than it was even in March 2001.

Ms Bradbury is quick to concede that this assumption may not hold. With
about 60% of women already participating in the job market, their long
march into work may be drawing to a close. From now on, the female
workforce may grow and shrink with the ups and downs of the economy,
much as the male workforce does. Under this scenario, perhaps only 1.3m
of the missing 4.1m women should have been expected to return to the
workforce as the economy picks up. This would leave a less spectacular
shortfall of 2.3m, not 5.1m, workers overall.

If Ms Bradbury is right, then full employment in America is a more
distant goal than it currently appears. Her calculations also imply
that the economy can continue to grow apace for some time before the
Fed needs to worry about labour shortages, wage hikes and inflationary
pressure.

Mr Greenspan himself, of course, is due to drop out of the labour force
in January of next year, a month or so shy of his 80th birthday. It
will fall to his successor to decide whether the labour force's missing
millions need coaxing out of their more premature retirement.

* "Additional slack in the economy: the poor recovery in labour force
participation during this business cycle[2]", Federal Reserve Bank of
Boston.

-----
[1] http://www.economist.com/#footnote1

See this article with graphics and related items at http://www.economist.com/email/confirm.cfm

Go to http://www.economist.com for more global news, views and analysis from the Economist Group.

- ABOUT ECONOMIST.COM -

Economist.com is the online version of The Economist newspaper, an independent weekly international news and business publication offering clear reporting, commentary and analysis on world politics, business, finance, science & technology, culture, society and the arts. 
Economist.com also offers exclusive content online, including additional articles throughout the week in the Global Agenda section.

-	SUBSCRIBE NOW AND 25% -

Click here: http://www.economist.com/subscriptions/offer.cfm?campaign=168-XLMT

Subscribe now with 25% off and receive full access to: 

* all the articles published in The Economist newspaper
* the online archive - allowing you to search and retrieve over 33,000 articles published in The Economist since 1997 
* The World in  - The Economist's outlook on the year
* Business encyclopedia - allows you to find a definition and explanation for any business term 

- ABOUT THIS E-MAIL -

This e-mail was sent to you by the person at the e-mail address listed
above through a link found on Economist.com.  We will not send you any 
future messages as a result of your being the recipient of this e-mail.

- COPYRIGHT -

Economist.com privacy policy: http://www.economist.com/about/privacy.cfm