Manufacturing & Productivity and the US Labor Force: US Labor Force

Manufacturing & Productivity and the US Labor Force: US Labor Force GIC Economic Outlook: First Thoughts on the Coming Decade June 2019

Leslie McGranahan The views expressed herein are those of the author and do not necessarily represent the views of the Federal Reserve System or the Federal Reserve Bank of Chicago.

1

Determinants of Economic Output • Output per hour (worker productivity) x number of hours worked • Extensive Margin (How many workers you have = the labor force) • Population • Whether folks are willing/available to work • Intensive Margin (Amount of work per member of the labor force) • How many work among the willing labor to force jobs hours • And manyagehours they� want work Total Hourshow = Working population � � population labor force job Population growth

Labor force participation rate

1-unemployment rate

Determinants of Economic Output • Output per hour (worker productivity) x number of hours worked • Extensive Margin (How many workers you have = the labor force) • Population (Growth is slowing) • Whether folks are willing/available to work (This is slowing too) • Intensive Margin (Amount of work per member of the labor force) • How many work among the willing (improving a bit) labor to force jobs hours • And manyagehours they� want work (Already Total Hourshow = Working population � �high) population labor force job Population growth

Labor force participation rate

1-unemployment rate

Changes in Population (This is Slowing) Population Changes as Share of Prior Year Population

Census Population and Population Projections 2

2.5 1.5

ulation Growth, Annual

1

2

.5

0 1990

1.5

Source: U.S. Bureau of the Census/Haver Analytics

2000 Immigrant Data Birth Data Death Data

2010 year

2020 Immigrant Forecast Birth Forecast Death Forecast

2030

Whether People are Willing to Work -- Labor Force Participation (This is slowing too) • Definition: Civilian labor force ages 16+ as a percent of the civilian noninstitutional population.

• Measure of whether people are willing to work • Differs Across Groups at Point in Time • For example people aged 65 and up have different rates than 25-64

• Within Groups Over Time • For example changes in the participation rates of women, prime aged men and teens

• Across phases of the business cycle • Demographics, structural factors and the cycle combine for a top line number

Overall Labor Force Participation Labor Force Participation 16+

Labor Force Participation 16+

68

66

66

64

percent

percent

65

64

62

63

60

58

62 1950m1

1960m1

1970m1

1980m1 1990m1 Month

Source: Bureau of Labor Statistics/Haver Analytics

2000m1

2010m1

2020m1

2008m1

2010m1

2012m1

2014m1 Month

2016m1

2018m1

2020m1

Participation and Population By Age Group Labor Force Participation 16+

Population by Age Group

90

100000

80 70

thousands

percent

80000

60

60000

50

40000

40

20000

2008m1

2010m1

2012m1

2014m1 Month 16-24 35-44 55+

2016m1

2018m1

2020m1

25-34 45-54

Source: Bureau of Labor Statistics, U.S. Bureau of the Census/Haver Analytics

1990

2000

2010 year 16-24 35-44 55+

2020 25-34 45-54

2030

Labor Force Participation Rate 68 Trend with cyclical component 66

Boomers Age

64

Long Run Trend

Women enter Labor Force

May-2019

62

60

Cycl e

58 2 3 4 5 6 7 9 0 1 2 3 4 6 7 8 9 0 1 3 4 5 6 7 8 0 1 2 3 4 5 7 8 9 0 1 2 4 5 6 7 8 9 '8 '8 '8 '8 '8 '8 '8 '9 '9 '9 '9 '9 '9 '9 '9 '9 '0 '0 '0 '0 '0 '0 '0 '0 '1 '1 '1 '1 '1 '1 '1 '1 '1 '2 '2 '2 '2 '2 '2 '2 '2 '2

Source: Chicago Fed Calculations based on Bureau of Labor Statistics, U.S. Bureau of the Census/Haver Analytics

Participation By Sex x Age Labor Force Participation

Labor Force Participation

100

100

80

percent

percent

95 60

90

40

20

85 1950m1

1960m1

1970m1

1980m1 1990m1 Month

Men 25-54 Women 25-54

2000m1

2010m1

2020m1

Men 55+ Women 55+

Source: Bureau of Labor Statistics, U.S. Bureau of the Census/Haver Analytics

1950m1

1960m1

1970m1

1980m1 1990m1 Month

Men 25-34 Men 45-54

2000m1

Men 35-44

2010m1

2020m1

Composition of the NILF Population (16-64) June 1976

May 2019 21% 9% 16%

39%

15% 17%

6% 6%

13%

17%

29% 11%

45% 16%

Men 16-24 Men 55-64 Women 25-54

Men 25-54 Women 16-24 Women 55-64

Source: Bureau of Labor Statistics, U.S. Bureau of the Census/Haver Analytics

Men 16-24 Men 55-64 Women 25-54

Men 25-54 Women 16-24 Women 55-64

The Employed Share of the Labor Force (improving a bit) • Demographics

CBO Natural Rate of Unemployment Natural Rate of Unemployment [CBO] (%)

5.2

• Sex, age, education groups • Changes

5

• Fewer teens, more older people • More people with higher education

4.8

• Policy • Particularly unemployment insurance

4.6

4.4 2010

2015

2020 year

Source: Congressional Budget Office/Haver Analytics

2025

2030

Hours (Already high) • Average Annual Hours Worked

39

38

37

36

35

34 2008m1

2010m1

2012m1

2014m1 time

Household Survey (NSA)

2016m1

2018m1

Private Employers (SA)

Source: Bureau of Labor Statistics/Haver Analytics, OECD

2020m1

Where Does this Leave us?

• Population growth • Participation • Demographics are a strong headwind • Within group changes • Particularly prime aged men

• What we’ve learned from the cycle

• Natural Rate of Unemployment • Hours • Could increase? Incentives?

Appendix

Labor force participation rate (OECD) 15 year-olds or more, % in same age group, 2017 or latest available

Labor Force Participation by Age Group • 15-64

• 65+

Talk About Quantity: What About Quality?

Education Share of 25+ Population

Education Spending to GDP

.8

6

.6

percent

4 .4

2

.2

0 1940

1960

1980 time

Less than High School Some College

2000 High School Grad College or More

2020

0 1960

1980

time

Households

2000 Government

2020