Labor force participation rate watch

PGL (Angry Bear) and I brought it to you earlier. (UPDATE: I should have also mentioned James Hamilton, General Glut, and Brad DeLong. I've probably missed others.) Now, Paul Krugman chimes in.

Many seemingly authoritative figures, not all of them partisan shills, say that the American economy has fully recovered from the recession that began in 2001. They point to the unemployment rate, which has fallen from a peak of 6.3 percent in 2003 to 5 percent last month. That's not quite as low as the 4.2 percent unemployment rate in February 2001, when the recession began, but it's fairly low by historical standards.

For some reason, however, the public isn't feeling prosperous. Gallup tells us that only 3 percent of Americans describe the economy as "excellent," and only 33 percent describe it as "good."

Maybe people are just ungrateful. Maybe they've been misled by negative media reports. Maybe they're grumpy about their paychecks: adjusted for inflation, average weekly earnings have been flat for the past five years.

Or maybe the figures on unemployment are giving a false signal.

Economists who argue that there's something wrong with the unemployment numbers are buzzing about a new study by Katharine Bradbury, an economist at the Federal Reserve Bank of Boston, which suggests that millions of Americans who should be in the labor force aren't. "The addition of these hypothetical participants," she writes, "would raise the unemployment rate by one to three-plus percentage points."

Allow me to point you to Bradbury's paper. There's a little more worth reading than just what Krugman quotes. Go on... read it! Interesting charts as well.

Some observations after reading it.

1. Women's LFPR has been climbing steadily for many years but appears to have topped out. That makes comparisons with the past difficult and comparisons with men's LFPR more relevant. These comparisons are in the study as well, but not in the charts. The charts for the women could be misleading in light of this.

2. Both men and women 55+ have seen large gains in LFPR lately. They were effectively unscathed in the recent recession. Part of this is, as the study points out, due to a "pig in the python" effect of baby boomers hitting 55 and lowering the average age of the 55+ cohort, but I suspect there's more.

3. Men's LFPR appears to be in a long term decline. If that continues and if women's LFPR levels off, what are the implications?

4. The declines in LFPR across the board seemed to begin before the recession started. According to Bradbury's chart, the women's LFPR looks like it topped out in the late 1990s.

The study raises some interesting questions in addition to the ones that have already been asked. Though I'm less worried than PGL about this, I do agree that it bears watching.