Why Trump’s Focus on Labor-Participation Drop Is a Losing Battle

  • Aging U.S. population has been pushing gauge steadily downward
  • Trump’s team says he will bring workers back into labor force

On the day the U.S. government reported that unemployment dropped to a nine-year low, Donald Trump’s team turned the spotlight on a depressed participation rate to highlight weakness that the president-elect’s policies can turn around. 

That will be a tough, if not insurmountable, challenge.

“A decline in the labor force participation rate further demonstrates an urgent need for President-elect Trump’s America First economic plan,” economic adviser Peter Navarro said in a statement issued by the transition team Dec. 2 after the jobless rate fell to 4.6 percent in November and payrolls rose. “We have not seen levels this low since 1978.”

Trump has said he wants to get people back to work again. But finding fault with current economic policies by zeroing in on the participation rate -- the share of working-age people who are employed or actively looking for work -- sidesteps a stark reality: The metric is being steadily pushed downward by America’s aging population. Counting on reversing this demographic trend is a losing battle.

“It’s a tide going in the other direction,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ‘‘Demographics will drive down the participation rate over the long haul. That makes things much harder.”

The participation rate fell to 62.7 percent in November from 62.8 percent in October. Its slide has been in train for more than a decade as floods of retiring baby boomers exit the labor force. Even with a strong economy or job market, over time, this downward pressure is bound to dominate.

Digging into the labor flows data shows how things are playing out. Some 4.52 million new entrants into the labor force were successful in finding work in November, up 575,000 from October and the biggest monthly gain in records going back to 1990. At the same time, people going from employed to being out of the workforce rose by 296,000 to 4.68 million, reflecting retirees. Overall, the labor force shrank by 226,000 to 159.5 million.

While the participation rate receded in November from the prior month, the current readings have stayed near the levels of the previous two years. Meanwhile, payroll growth averaged about 250,000 a month in 2014 and 230,000 last year, showing a tightening job market.

To be sure, 95.1 million working-age Americans are not in the labor force, including retirees and students. And employment prospects that improve further may, on the margin, draw some people back in or keep unemployed people from giving up the job search and dropping out. 

Most economists agree, though, that such a boost to participation would be roughly matched by the downward push from the aging workforce for the next few years. That signals a flat participation rate at best.

“We don’t think a high-pressure economy can pull up participation rates,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York. Given the demographic pressure, it will be difficult to “induce further increases.”

The Demographics

Longer-run demographic and other trends indicate about a 0.2 percentage point decline each year in the participation rate over the next decade, according to Morgan Stanley economist Ted Wieseman. The Congressional Budget Office estimates participation will be 62.6 percent by mid-2017 before decreasing to about 60 percent by 2026.

“The falling labor participation force rate during the Obama years has been a stark proxy for the millions of discouraged American workers who have dropped out of the labor force because of a lack of good jobs at decent wages,” Trump’s transition team said in an e-mail. “A faster growing economy stimulated by the president-elect’s tax, trade, regulatory, and energy policy reforms will help bring those discouraged workers back into the labor force, which is why this is a key indirect indicator.”

Navarro isn’t granting interviews, according to the transition team.

To a certain extent, there’s room for improvement. “If you have a coherent set of economic policies that are aimed to boost demand in the economy, and they’re effective, then presumably, you can make a difference to the participation rate,” Shapiro said. “Whether that can be done or not, who knows.”

One way to fight the influence of a graying America on the labor force is to have a “big change in immigration” and allow lots of young people into the U.S., Shapiro said. But whether the incoming president will consider such a policy isn’t yet clear, since Trump’s signature campaign pledges included deporting unauthorized immigrants and building a wall between the U.S. and Mexico.

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