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Labor force participation rates of armed forces veterans

May the force be with you

The FRED Team has been reporting on a lot of dire economic data lately. Today, May the 4th, offers the chance for some light(saber)ness—using a multilayered Star Wars pun to salute our armed forces.

The FRED Blog has shown the labor force participation rates of men and women worldwide—in the U.S. and across the OECD. Today, we look at the labor force participation rate of men and women veterans of the U.S. armed forces.

The men’s rate is the solid orange line, the women’s rate is the solid magenta line, and the average across both genders is the dashed red line. As with the labor force participation rate of the overall civilian population, the rates in this graph are decreasing.

Notice how different the labor force participation rates of veteran men and women are, particularly relative to the average across genders. This is because the proportion of veteran men to veteran women is very high. This is called the composition effect. These past blog posts have additional examples of the composition effect on labor markets and on housing prices.

And yes: May the fourth be with you!

How this graph was created: Search for “Labor Force Participation Rate – Women, Total Veterans, 18 Years and Over.” From the “Edit Graph” panel, use the “Add Line” feature to search for and select the “Labor Force Participation Rate – Total Veterans, 18 Years and Over.” Do the same to add the series “Labor Force Participation Rate – Men, Total Veterans, 18 Years and Over.” From the “Format” tab, select line colors and styles to taste.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: LNU01349526, LNU01349527, LNU01349528

Labor force participation rates across the OECD

Who's working depends on where you look

One critical element for the growth of an economy is an active working-age population: Growth can be hampered when (i) the overall population is aging and a larger share of the population is retired or (ii) a larger share of the working-age population simply isn’t working. The graph above shows, for four countries, the share of the population that’s 25 to 54 years of age—i.e., prime working age—with a job. The remainder of that population is either unemployed or not looking for a job.

This graph reveals some stark contrasts. Japan and the U.K. show steady increases, which helps counter the effects of their aging populations, a condition that’s of particular concern in Japan. Spain shows a very rapid increase, which demonstrates that such a statistic need not move in a sluggish way. The U.S., however, shows no significant movement in the 1990s and a decline since then. We know this isn’t due to an increase in unemployment, which is at its lowest rate in a long time.

To be fair, the increases in other countries are partly due to increases in women’s labor force participation. The U.S. experienced a surge in women’s participation much earlier and has apparently reached its plateau. Much of the decrease in U.S. labor force activity, as it turns out, has to do with men: Even a quick look at the graph below shows the steady decline in their activity. Understanding why this is happening is a topic of much current investigation.

How these graphs were created: For the first, search for “Participation Rate” and then use the sidebar to narrow down the choices. Then select the desired series (annual, in our case) and click on “Add to Graph.” For the second, searching for “United States Participation Rate” gives your the right options. Choose the annual series again, and click on “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: LRAC25FEUSA156N, LRAC25MAUSA156N, LRAC25TTESA156N, LRAC25TTGBA156N, LRAC25TTJPA156N, LRAC25TTUSA156N

The recent evolution of labor force participation

Small movements from a lot of labor market churn

Since the early 2000s, labor force participation has been declining in the U.S. After peaking at 67.3 percent in March of 2000, the labor force participation rate declined consistently to 62.4 percent in September 2015 and has since flattened out. The first graph shows the period of decline in the labor force participation rate, which started in early 2000, flattened out in mid-2005, and then declined again from the onset of the Great Recession to 2015.

Several variables in FRED can illustrate the labor force dynamics at play behind the declining labor force participation rate. The next graph shows the annual change in the labor force (employment plus unemployment). While the labor force has mostly been increasing since 2000, it has not been increasing fast enough to keep up with population growth. Starting in 2014, however, the pace of growth in the labor force picked up, which led to the flattening out of the participation rate.

The last graph shows monthly flows into (red line) and out of (blue line) the labor force. These gross flows are very close to each other, with the net changes (green line) always close to zero. It is the net changes that explain the evolution of aggregate labor force participation. From 2009 to 2016, the positive values are not enough to offset the more negative values and more people flowed out of the labor force. More recently, however, the positive contributions more than offset the negative values, leading to an increase in participation. Despite this recent evolution, the graph does not seem to point to any particular new trend that’s different from the past. This suggests that more research is needed to understand the observed decline in the participation rate.

How these graphs were created:
Graph 1: Search for “Labor Force Participation.” Graph the first result and limit the date range from 2000 to current.
Graph 2: Search for “Unemployment.” Graph the series titled “Unemployment Level.” From the Edit Graph tab, type “Employment Level” in the customize data section search box. Click the series titled “Civilian Employment Level” and then click Add. Finally, type a+b in the formula box and change the units to “Change, Thousands of Persons.”
Graph 3: Search for “Labor Force Flows.” Graph the series titled “Labor Force Flows Employed to Not in Labor Force.” Repeat the process outlined in Graph 2 to modify the line by adding “Labor Force Flows Unemployed to Not in Labor Force” to the graphed series. Now, select the middle menu and search for “Labor Force Flows Not in Labor Force to Unemployed” and add this series as a new line. Repeat the process to modify the line by adding “Labor Force Flows Not in Labor Force to Employed.” Once again, use the middle menu to add “Labor Force Flows Not in Labor Force to Employed” as a new line and then modify the line by adding the remaining three flows as additional series on the new line. Use the letters assigned to each series to calculate the difference of the sum of those flowing into the labor force less those flowing out of the labor force (e.g., consider (a+b)-(c+d)).

Suggested by Maximiliano Dvorkin and Hannah Shell.

View on FRED, series used in this post: CE16OV, CIVPART, LNS17200000, LNS17600000, LNS17800000, LNS17900000, UNEMPLOY

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