Why Aging Baby Boomers Don’t Explain the Jobs Numbers

(Originally published here.)

Today’s U.S. jobs report is an unpleasant reminder that the recovery has yet to gain much traction. There are some bullish indicators buried in the details, such as the plunging unemployment rate for young men and the upward revisions to the reports from January and February. The general picture, however, remains broadly unchanged: Sluggish job creation has been insufficient to undo the effects of the crisis.

Some argue that the raw number of people working is misleading. Aging and retirement, they say, can explain some of the most depressing numbers, such as the share of the total population that has a job. We shouldn’t automatically dismiss this view — demographics affect the economy in all sorts of ways that most people fail to appreciate until much later. As Conor Sen points out, the aging of the Baby Boom generation can be clearly seen in the employment data.

This explanation only goes so far, however. In addition to the traditional employment-to-population ratio, the U.S. Bureau of Labor Statistics also calculates this ratio for the subset of people aged 16 to 64 who aren’t disabled. These data shouldn’t be affected by aging. Even though the BLS didn’t begin measuring this ratio until the summer of 2008, the picture is still quite clear: The jobs created since the end of the recession have been insufficient to make much of a dent in the number of people who want a job but don’t have one.

Other data also support the gloomier view. The headline unemployment rate for people in their prime (those aged 25 through 54) has dropped to 6.4 percent from just over 9 percent at the end of 2009. However, this seemingly good news has coincided with a disturbing decline in the number of people in that age cohort who are considered to be actively looking for work. The BLS gives us enough information to reconstruct what the unemployment rate would have looked like if the “labor force participation rate” hadn’t dropped by nearly 2.5 percentage points.

Instead of peaking around 9 percent, the unemployment rate for 25- to 54-year-olds would have reached 10 percent at the end of 2009. This broader measure of unemployment has since dropped to 8.5 percent. That’s an improvement, to be sure, but a significantly smaller one than appears in the headlines. I struggle to see how aging could explain these numbers.

The labor market is certainly in better shape than it was during the teeth of the recession. The aging of the Baby Boomers has also been making certain unemployment statistics look worse than they really are. There is still a very long way to go, however, before the pain of the crisis is behind us.

(Matthew C. Klein is a contributor to the Ticker. Follow him on Twitter.)


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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