WONKFEUD: Why the Wall Street Journal is wrong about labor-force participation

Why should rappers have all the great beefs? Here is the first in a new feature in which we air our disagreements with things we read elsewhere. In today's installment, Jim Tankersley takes issue with the Wall Street Journal's Ben Casselman over his piece today on labor force participation. Look for Casselman's retort at the Journal's Real Time Economics blog. Jay-Z has nothing on J-Tank. (Except millions of dollars and Beyonce.)

Ben Casselman has a fantastically wonky piece in today's Wall Street Journal on labor-force participation. Good news: It’s quite comforting! “Americans are leaving the labor force in unprecedented numbers,” Casselman writes. “But the trend has more to do with retiring baby boomers than frustrated job seekers abandoning their searches.”

Now the bad news: Casselman is wrong. At least, his analysis is.

I suggested this wrongness to Ben in an e-mail today. Graciously, he agreed to debate me in a series of blog posts. Let the wonk-feud begin.

Got 99 problems and demographics ain't one.
Got 99 problems and demographics ain't one.

The big problem with Casselman’s piece is scope. He’s focused mostly on the (steep) drop in labor-force participation during and after the Great Recession and less on the steady decline in participation since the end of the 1990s. That means he’s missing the big change that’s occurred in the American economy in that time: It’s not just that participation rates are down – it’s that they’ve stopped what had been a 50-year march upward.

Casselman does some nifty calculations-- which I’m not disputing-- to find that in the wake of the recession, “the labor force is missing about three million workers who aren't in school or retired.” He goes on to say that’s a problem, but not a huge one; add those numbers back in and you’d have an unemployment rate at about 9.3 percent, which is bad, but not necessarily evidence of something really bad in the economy.

What I’d call really bad, though, is the end of a trend that had propelled America to sustained, strong growth in the decades following World War II. From 1948 to 1997, the labor force participation rate grew by an average of 0.4 percent a year, largely as a function of women entering the workforce. This was a good thing. The more workers you have, the more your economy is poised to grow.

But then, for reasons economists are still struggling to explain, the labor force stopped growing. Women hit a saturation point of sorts in the economy. Male participation fell. In 1997, the participation rate for workers in their primes, age 25-54, was 84.1 percent. Last year, it was down to 81.1 percent.

That’s a big drop, but the complete picture is worse. If the participation rate had kept growing from 1997 to 2012 at the same rate it did in the 50 previous years, participation would be above 90 percent now.

The difference between that rate and reality is about seven million workers, not three million. Seven million lost workers means a lot of lost growth for the economy and a much more alarming implied unemployment rate, and it has nothing to do with baby boomers or demographic shifts.

Update: Here is Casselman's response. The feud continues tomorrow!

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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Brad Plumer | April 29, 2013