Believe those who are seeking the truth. Doubt those who find it. Andre Gide

Monday, December 18, 2017

The Great American Slump (update)

I detect some chatter out there concerning the recent "unexpected" rise in the U.S. labor force participation rate. The discussion is related mainly to the question of whether the labor market has fully recovered from the effects of the Great Recession. I suggested back in 2010 (here) that American recovery dynamic might be a prolonged one, at least, taking the Great Canadian Slump as a model. I updated that analysis here in 2016. In light of the recent discussion, I thought I'd see where we stand today.

Here is EPOP (employment-to-population ratio) for Canada (beginning in 1990) and the United States (beginning in 2008).

The two series bear a striking resemblance 40 quarters (10 years) out. Here is what the picture looks like when we restrict attention to the prime-age (25-54) population:


 The Great Recession appears to have a significantly larger impact on the prime-age labor market in the United States, relative to the 1990 recession in Canada. Look how it took about 34 quarters for prime-age EPOP to recover in Canada. We are now 38 quarters out since the Great Recession began with prime-age EPOP in the U.S. still almost two points below its initial value. I interpret this to mean that the labor market has not yet fully recovered. And no, I do not think this has very much to do with "aggregate demand deficiency." (See here, here and here if you want some elaboration.)

Here is what the picture look like for the participation rate:
The relative decline in the U.S. participation rate here might have something to do with demographics. When we restrict attention to prime-age, we do see evidence of a recovery that is not yet complete:

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