The Wall Street Journal. Feb 12, 2014.
The declining number of Americans who hold a job or are looking for one has been a hot topic since the end of the recession. What’s more to blame: the weak recovery or unavoidable long-term trends such as the retirement of baby boomers?
Economists agree both factors are at work. It’s harder to find a job nowadays than in the past, but baby boomers are expected to leave the workforce in greater numbers as more hit retirement age. What’s a matter of dispute is how much blame should be placed on one over the other.
A new study by Goldman Sachs doesn’t resolve the issue, but it offers some interesting insights. Among them: The firm found that bull and bear markets show a strong link in when older workers choose to retire. So the 30% surge in the S&P 500 index in 2013 could spur a bigger wave of baby-boomer retirements in the next year.
Does that mean the labor-force participation rate, now hovering near a 35-year low of 63%, will fall again in the coming months? Not necessarily. The Goldman study also suggests younger people are likely to enter the workforce in greater numbers as the labor market continues to mend.
The behavior of the oldest and youngest workers, it turns out, move in opposite directions during and after a recession.
Even as the economy was crashing in 2008 and 2009, for example, the number of Americans 55 and older joining the labor force actually rose sharply. How come? They needed the money, especially with retirement age approaching and their stock portfolios in the toilet.
Younger people, on the other hand, saw dim job prospects and decided to go to college or get a second degree. Consider this: From 1990 to 2006, the number of youths pursuing education beyond high school rose an average of 260,000 every year. Yet the number spiked to 850,000 in 2008 and a whopping 1.3 million in 2009, Goldman economists Jari Stehn and Hui Shan found.
What about the next few years? The Goldman economists believe the roles could reverse. The firm’s research shows a sizable rise in retirements among workers 55 to 64 when the stock market gains 10%. Last year’s 30% advance could spur an even large wave of workforce departures.
Indeed, the shift already appears to be taking place. The percentage of Americans 55 and older in the workplace actually posted the biggest drop in 2013 since 1980. The rate fell to 39.9% from 40.7% last year – and it fell again in January.
The percentage of 16 to 24 year-olds not in the workplace, on the other hand, appears to have stabilized after tumbling from around 60% in early 2007 to just under 55% in 2013.
Many who entered college after the recession have graduated and need to find a job, a process helped in part by a steady pickup in hiring over the past few years. The U.S. has added more than 2 million new jobs for three straight years.
Does that mean good times are just around the corner? Probably not.
The Goldman Sachs study says the surprisingly rapid decline in the U.S. unemployment rate over the past few years still “understates the extent of the slack”, or weakness, in the labor market. The jobless rate dropped to 6.6% in January from 7.9% one year earlier, largely because more workers dropped out of the labor force.