[lbo-talk] has female labor force participation peaked?

[Doug Henwood]

>DAILY FINANCIAL MARKET COMMENT 12/13/04 Goldman Sachs Economics
>
>*The female labor force participation rate had increased for a
>half-century before leveling off in the late 1990s.  It
>reached its peak in March 2001, coinciding with the peak of
>the economic cycle, before declining over the last several
>years. While most other demographic groups have experienced an
>increase in their participation rates in 2004 with the
>improvement in the labor market, women have not. This suggests
>that the female labor force participation rate may have
>peaked.
>
>*If this is indeed the case, it means there is not as much
>slack in the labor market as some have thought.  Job gains
>that continue at 175,000-200,000 a month would cause the labor
>market to tighten and force the Fed to keep hiking rates.
>
>Has the Female (and Overall) Labor Force Participation Rate
>Peaked?
>        
>In our 3/10/04 US Daily Financial Market Comment ('Weak Labor
>Force Participation -- Young People Playing Hooky'), we analyzed
>the labor force participation rates for various demographic
>groups.  With nine additional months of data, we have run a
>similar exercise and come to the conclusion that the female labor
>force participation rate may have peaked.  If this is the case,
>then the labor market maybe tighter than many think.
>
>We had found that between March 2001 and February 2004 (roughly
>the peak and trough of the labor force participation rate) the
>labor force participation rate, defined as the share of adult
>civilian noninstitutional population either employed or actively
>looking for work, fell 1.2 percentage points, and it fell for
>most demographic groups, especially teenagers and minority
>workers.  Tables 1 and 2 help illustrate what has happened since
>then:
>
>1. A slight uptick, of 0.2 percentage points, has occurred in the
>overall participation rate.
>
>2. Large gains have occurred among youth and minority groups. For
>example, for those in the 16-19 age group, the participation rate
>has recovered 0.4 point, the African-American participation rate
>has increased 0.5 point, and the Hispanic rate has improved 1.1
>point. While the monthly numbers are sometimes volatile, the
>three-month averages show a similar trend for these demographic
>groups.
>
>3. Participation rates have increased for men but have been flat
>for women.  This suggests that much of the decline in male
>participation was due to cyclical reasons, as the most vulnerable
>groups -- teenage males, African-American males, and Hispanic
>males -- have seen significant rises in their participation
>rates, ranging from 0.8 to 1.9 points. White male participation,
>on the other hand, has risen by only 0.1 point since February. 
>
>4. For females, participation for the demographic subgroups has
>stayed about the same. For example, the participation rate
>increased 0.1 point for white females, and the three-month
>African-American female participation rate dropped 0.1 point from
>64.2% to 64.1% (September and October were 64.4% with November at
>63.6%).
>
>Table 1: Labor Participation Rates Increase for Most Demographic
>Groups, but Not Women.
>
>Period           Overall    Men      Women      Youth     African-   Hispanic
>                                                           American
>March 2001       67.1%     74.6%      60.2%      50.9%      65.9%      70.2%
>February 2004    65.9       73.1      59.2       43.6       63.3       67.5
>November 2004    66.1       73.5      59.1       44.0       63.8       68.6
>
>Source: Bureau of Labor Statistics.
>
>In our earlier work, we had hypothesized that the drop in
>participation rates, with the exception of women, were due to
>cyclical factors.  With the rebound in participation rates for
>most demographic groups corresponding with an improvement in the
>labor market, it appears this hypothesis was correct.  For female
>workers we suggested that it might not be cyclical, as there
>could be noneconomic factors, such as a natural leveling off or a
>desire to raise families, at play.
>
>There were signs even before the downturn in the labor market
>that the labor force participation rate for females was peaking,
>as the growth in the participation rate had started to slow in
>the years before the downturn. Since 1948, when the Bureau of
>Labor Statistics started to keep track of participation, the
>female rate has nearly doubled, going from 32% in January of 1948
>to a peak of 60.2% (in both November 1999 and March 2001).
>However, the growth had leveled off by the late 1990s, as the
>female participation rate remained stable during one of the best
>labor markets in decades.  The lack of a pickup in the
>participation rate for women during this year's improvement in
>the labor market provides further evidence that the female labor
>force participation rate has peaked.  We doubt that women somehow
>take longer to return to the labor force after a recession.  For
>example, as the 1990-1991 downturn demonstrates, the female
>participation rate decreased 0.5 percentage point from its peak
>to trough and was back to its peak level within five months of
>the trough.  
>
>If the female participation rate has peaked, then the improving
>labor market will not bring rapid increases in the labor force
>participation rate. Thus, it is extremely unlikely that the
>aggregate labor participation rate will to return to the peak
>levels of early 2001.  This implies that there is not as much
>slack in the labor market as previously thought.  An improving
>labor market will generate only a modest increase in labor
>participation rates.  As a result, if the economy continues to
>generate 175,000 to 200,000 jobs per month, job gains will
>outstrip labor force growth.  The labor market will tighten and
>the unemployment rate will fall, putting pressure on the Fed to
>continue to tighten monetary policy. 
>

                                                   Avinash Kaza