Wednesday, April 23, 2014

Falling U.S. labor force

Falling U.S. labor force participation reflects a weak economic recovery rather than more intractable structural factors such as skill mismatches and demographic shifts, argue Danny Blanchflower, now a professor at Dartmouth University, and Adam Posen, president of the Peterson Institute for International Economics, in a draft paper.
U.S. labor force participation, the share of adults holding or actively seeking jobs, has fallen from a high of 67.3% in early 2000, with the decline accelerating after the 2008 financial crisis. At 63.2% in March, it was near its lowest level since the late 1970s.
"A substantial portion of those American workers who became inactive should not be treated as gone forever, but should be expected to spring back into the labor market if demand rises to create jobs. Labor market slack in the U.S. economy remains substantial, and subject to partial control by monetary stimulus," Messrs. Blanchflower and Posen write. Translation: There are a lot of Americans who would work if there were more jobs available, and the Fed can help spur hiring through easy credit policies.
The research adds to the debate about how much of the recent softness in U.S. economic activity can be remedied by interest rate policy at a time when borrowing costs are already close to record lows.