Cessation of Labor Force Growth since 2008
By Robert Higgs • Tuesday March 6, 2012 3:26 PM PDT • 19 Comments
The United States has a long history of population growth and concomitant labor force growth. As the chart below shows, the number of men in the civilian labor force (men either working in paid employment or actively seeking work) increased fairly steadily over the past half-century—at least, until the onset of the current recession.
For the past five years, however, the number of men in the labor force has fluctuated around a fairly level trend line at approximately 82 million. This cessation of growth came on the heels of a 6-million-man increase during the previous seven years.
In the post-World War II era, the number of women in labor force grew even faster than the number of men, and also tended to grow fairly steadily. When the current recession began, the female labor force continued to grow, increasing by about a million women between the officially designated beginning and end of the recession (December 2007 - June 2009). In the second half of 2009, however, this growth stopped, and a slight reversal occurred, putting the total on a lower, fairly level trend line throughout 2010 and 2011, albeit still at a higher level than the female labor force had reached before the recession began.
Labor economists and others have been puzzling over what has happened. Although labor force growth tended to slow or even to halt momentarily during past recessions of the postwar era, the current cessation of growth has no precedent in that era, and hence analysts have found its explanation to be a challenge.
Whatever the answer(s), one thing is clear: unless the labor force resumes something like its historically normal growth, we cannot expect a resumption of historically normal economic growth. Labor inputs are major contributors to the production of goods and services. Increases in labor productivity are only a partial substitute unless the rate of productivity growth can be made much greater than observed historically over long periods.
One also wonders: how are the millions of people who normally would have been in the labor force occupying themselves? Who is supporting them? What are their expectations and plans? Their extended stay outside the labor force joins a number of other puzzling features of the present recession, during which the patterns of economic changes and policy responses have differed significantly from those observed during previous macroeconomic busts. We are living, as the cliche has it, in interesting times. Unfortunately, many of the developments that make these times interesting also make them worrisome.
Tags: American History, Business, Economics, Employment, Labor, Unemployment 
To be sure, ” We are living, as the cliche has it, in interesting times. Unfortunately, many of the developments that make these times interesting also make them worrisome.”
Linda | Mar 6, 2012 | Reply
Bob,
I would bet that everyone has at least one acquaintance or knows anecdotally of one or more person who was downsized and is now working part-time under the table while collecting her 99 weeks of unemployment. I know I do. Would many of these professionals otherwise have started their own practice or otherwise taken or created new jobs?
I also have dear friends who are heartbreakingly unemployed and expending every energy to getting a job. Firms aren’t hiring. Regime uncertainty?
Best wishes,
Mary
Mary Theroux | Mar 6, 2012 | Reply
When the politicians are in the pockets of big corporations, and they pass laws and trade deals that send labor to some 3rd world country where they have slave labor, and no regulations and no human rights. To the labor economists; its very clear to us out here, why we don’t have jobs!!!
fischer | Mar 7, 2012 | Reply
Could the decrease/leveling-off of the U.S. labor force be at least partially explained by an increase in retirement? I don’t know what the retirement figures are, but I imagine many Baby Boomers are retiring or close to retirement.
Jordan Bullock | Mar 7, 2012 | Reply
Easy, no puzzle here..Obamacare and the anti-business attitudes of the Obama administration as clearly shown by the Dodd-Frnaks bill, over 160 new +$1,000,000 in cost to business regulations, decline in support for domestic energy production, etc., etc.. Not too bright this current crop of economists if they can’t figure out stifling innovation and restricting access to capital while loading up the cost side of doing business and two Quantative Easings which have shrunk the dollars buying power by 20%have stalled the economy....
Rick | Mar 7, 2012 | Reply
Mary,
People who are collecting unemployment insurance benefits or looking for work are supposed to be included in the labor force as the BLS defines it, so increases in the numbers of these sorts of people don’t help us understand why the labor force itself has stopped growing.
Robert Higgs | Mar 7, 2012 | Reply
Wouldn’t it be possible for the growth of labor to fall below what is historically expected given the enormous increases in productivity that are being created via technology?
As another possible theory, has population growth in US declined? Is it possible that despite historically serving as a “land of opportunity” and thus seeing large influx of working-class immigrants, as America loses that status, less people come here to work and this decreases the rate of growth in the labor force?
Robert Fellner | Mar 7, 2012 | Reply
I suspect this is probably a reflection of the beginnings of “Baby Boom” retirement trends. The “Baby Boom” was 1946 through about 1955 – approximately 60 – 70 years ago. And 60-70 years old is a good retirement age, especially for folks who have worked hard, provided for their retirement over the years, and are facing a non-robust economy. Good time to retire.
The basic trend in growth of the labor participation rate seems to to be approximately linear over time, at just under 1,000 men and women per year – as indicated in the graphs. That indicates that the “flattening” of the increase over the last 4 years represents only about 8,000 (combined men and women) workers below the long-term growth trend.
While there are quite a few stories of folks who are in debt and are postponing retirement as a result, I suspect it’s not unreasonable to expect that some 8,000 (who were more prudent) may have selected now (or 2009) as a good time to get out of the economy. It might be interesting to see retirement trends (if such data exists) to see if it confirms this story.
Shayne Cook | Mar 8, 2012 | Reply
Correction:
Should be: “just under 1 Million men and women per year ...”
and
“8 Million (combined men and women) ...”
Apologies for the error.
Shayne Cook | Mar 8, 2012 | Reply
I believe this is simply the result of massive destruction of capital by taxation, monetary inflation and misallocation. But of course blaming slave labour is a politically more popular. That way we don’t have to blame ourselves!
ray | Mar 11, 2012 | Reply
Mary is clearly on to something. People are now working under the table. This must be especially true for minority men who through Minimum Wage and NOW Forced Health Care insurance purchase are finding themselves even less price competitive than in the past.
Bogart | Mar 12, 2012 | Reply
Clearly with the decline in organized labor contracting the gradual destruction of the middle class has accelerated. Most re-entry jobs pay less than previously earned and have small or no benefits including defined pension plans.
Downsizing, regrouping, unwinding of financial positions and a real growth in the underground economy is the future.
A system that depended so much (up to 75%) on “conspicuous consumption” up to 2007-08 and it’s relevant enormous increase in destructive debt cannot be expected to continue.
Until “all financial positions” are unwound, including our government (Fannie/Freddie backing), banks, other financial institutions, the “markets” and those of the common folk, we face a dismal future.
Ergo the growth of the “dark economy”. Many households have enormous piles of useless junk purchased during their salad days that will be out on the sidewalks in the coming years, being sold in order to survive.
Welcome to the new economy!
sierra7 | Mar 13, 2012 | Reply
Shayne forgot to add technology and three zeros, because it’s millions — not thousands. Productivity is increasing and so is output, using new and higher tech, without adding workers. Many of the best are high-tech and innovative, creative sole practitioners that don’t get picked up by formal labor stats.
JIm Peers | Mar 16, 2012 | Reply
Add money printing and the waste of capital by the distortions and misallocation it creates.
Tom of the Missouri | Mar 17, 2012 | Reply