(Corrects dateline to today.)
Unemployment in the U.S. may fall faster than expected as baby boomers enter retirement, reducing the portion of people in the workforce, according to Drew Matus, senior U.S. economist at UBS Securities LLC.
Labor force participation has fallen to the lowest level since 1984, largely because older people are leaving the worker ranks, Matus said today in a radio interview on “Bloomberg Surveillance” with Tom Keene. If participation remains this low, employers need to create fewer jobs to reduce the unemployment rate, currently at 9 percent.
“There’s a cyclical downturn in the labor force participation rate, but there’s also a structural one related to the baby boomers that a lot of Wall Street economists are missing,” Matus said. “When you add the two up, you’re seeing this very dramatic drop in the participation rate. It might not bounce this time around.”
The participation rate shows the amount of people working or looking for work as a share of the population. With the oldest baby boomers turning 65 this year, Matus said the labor force participation rate won’t rebound to peak levels, so the jobless rate might fall faster than expected.
The participation rate declined 0.1 percentage point in January to 64.2 percent, the lowest since March 1984, the Labor Department reported last week. The number peaked at 67.3 percent in 2000. Employers added 36,000 workers, short of the 146,000 median gain projected in a Bloomberg News surveyed of economists, as winter storms deterred hiring.
Following last week’s employment report, UBS economists, including Matus, lowered their year-end jobless rate forecasts for 2011 and 2012 by 0.2 percentage point to 8.8 percent and 8.6 percent, respectively.
“Continued healthy gains in household employment coupled with our expectation that the labor force participation rate is unlikely to move sharply higher suggests a lower unemployment rate path,” they wrote in a Feb. 4 research note.
Unemployment will fall to 9.3 percent by the end of this year and 8.5 percent in 2012, according to the median estimate of economists surveyed by Bloomberg News.
People born between 1946 and 1964 make up 25.8 percent of the population, or 79.2 million people, according to data from the U.S. Census Bureau. Nearing retirement, that generation’s “attachment to the workforce becomes less and less,” Matus said.
“When you take a giant percentage of the population and you move them from one bucket where there’s a very high participation rate into a lower participation rate bucket, the population shifting is causing movements in the participation rate,” Matus said.
While some people believe workforce participation should rise because baby boomers must keep working into old age after the recession from 2007 to 2009 wiped out their retirement, Matus said boomers have saved enough.
“The net worth of this generation approaching the age of 65 is higher than the generation previous, their parents, and that tells me life expectancy has increased a little bit and there’s probably some desire to keep working more, but is there a need?” Matus said. “I can’t find evidence.”
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.org