After a recent Bureau of Economic Analysis estimate showed negative gross domestic product (GDP) growth for the second consecutive quarter, a debate has erupted about whether the U.S. economy is in a recession. Although some argue that two successive quarters of declining real GDP constitute a recession, that is neither the official definition, nor how economists assess the business cycle. The National Bureau of Economic Research (NBER)’s Business Cycle Dating Committee defines a recession as a significant and sustained decline in economic activity across the country over a prolonged period.
In June, the Bureau of Labor Statistics reported in its latest employment report the economy added 372,000 jobs. The unemployment rate remained stable at 3.6%, indicating that this recession differs from other recessions. With an addition of 6.1 million new jobs, the economy grew by 5.7% in 2021, the most since the 1980s. But those gains were a bounce-back from unprecedented losses in 2020 caused by the Coronavirus outbreak. Due to the economic contraction and disappearance of some nine million jobs in 2020, averaging the GDP changes between 2020 and 2021 gives a growth rate of just over 2% for these two years. It is similar to the 2.3% growth rate before the pandemic.
As a result of reduced birth rates from the late 1960s through the 1970s, the labor force expanded at a slower pace during the following two decades, by an annual average of 1.8% in the 1980s and 1.3% in the 1990s. A significant factor contributing to slowing economic growth was the sharp decline in the expansion of the labor force at that point. In the subsequent two decades, the workforce expanded by less than half of what it had been in the 1980s and less than a third of what it had been in the 1970s. A major cause of slowing economic growth in the past two decades has been the slow growth of the labor force.
A decline in labor-force participation has also contributed to the challenges of slowing population growth; the percentage of working adults or those actively seeking work increased steadily from 59% in 1965 to 67% in the late 1990s, followed by a steady decline to 62% by 2022. Currently, there are 163 million workers in the labor force, so a 4% decline represents about six million job losses.
The three primary reasons for the slowdown in economic growth along, yet there is still a low unemployment rate are:
An Aging Population – For decades, the Baby Boomer generation- approximately 76 million people born between 1946 and 1964, reshaped American society. In the 1950s and 1960s, the Boomers influenced the nation’s schools, and in the 1970s and 1980s, the labor and housing markets. Additionally, they have altered economic patterns and institutions at every stage of their lives. Moreover, the youngest Boomers are about to turn 60, and on the cusp of retirement. The anticipated mass retirement will create an even larger labor shortage, leaving companies left to fill numerous open positions.
Labor-Force Participation (LFP) Rate – The aging of the U.S. population may have contributed some to the decline in LFP. Given the aging Baby Boomer population, the proportion of individuals over 65 is increasing, resulting in a drop in the number of male employees. During the past 50 years, male labor force participation has declined by over ten percentage points, from 80% in January 1970 to 69% in January 2020. As men represent about 54% of the labor force, in 2022, a decline of 18% would equate to the loss of 9 or 10 million jobs. Despite the low unemployment rate for several months, there is still room for growth in the labor market.
Slowing Down of Labor Force Growth – Over the past few decades, the development of the labor force has slowed down, which has affected the economy’s growth. In the 1960s and 1970s, fertility rates declined, affecting the labor force gradually, but not until the 1980s, when the Baby Boomer generation entered the job market. During this period, rapid growth ceased abruptly. Between 1981 and 1986, the labor force increased only 8.5% compared with almost 18% between 1971 and 1976. By the 1990s, the rate had been reduced by another half, falling to just over 4% between 1991 and 1996. The rate would have been much lower if it weren’t for the comparatively high levels of immigration in recent years.
Although no apparent solutions exist, rising wages are encouraging more workers to enter the labor force, and updated immigration policies are attracting skilled workers from abroad. While the labor market recovery has been strong, employers must continue to promote an equitable and worker-friendly economic agenda. In summary, more younger Americans need to get a job, but it is even more vital for them to get a good, quality job in order to boost the economy.
Source: “Welcome to the Full-Employment Recession”; WSJ, Pierson, James, July 14, 2022
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