This article, from last week’s issue of the economist, looks
at the output gap in the United States. An output gap is an economic measure of
the difference between the actual output of an economy and the output it could
achieve when it is most efficient, or at full capacity. The United States has a
negative output gap, which occurs when actual output is less than full-capacity
output. The authors argue that even though the unemployment rate has come down
to 6.6 percent, signaling an improving economy, only about 59 percent of people
have jobs (down from 63 percent pre-recession). These seemingly contrasting
statistics are evidence of the decline in the labor force participation rate,
which is down to 63 percent from 66 percent in 2007. The authors suggest that
the aging population has a lot to do with the declining labor force
participation rate and is the reason that the Congressional Budget Office (CBO)
has reduced its estimate of America’s potential output. The reduction of the potential
output estimate has reduced the output gap, which the CBO now estimates to be
4% of GDP.
It is to be expected to our country's output to decline due to baby boomer now reaching their retiring age. I think the labor force as more and more baby boomer retires, the labor force participation rate should decrease even more. I think our government should put more effort improving our education system now because today youth will be leader of our economy tomorrow.
ReplyDeleteWhile the public school system here in the States does need fixing, that will more than likely not bring the labor force participation rate back up. The US seems to be moving towards a more service based economy, of which more jobs require a college degree rather than simply a high school diploma. Also, there is more than likely a problem with the fact that many people have been out of work for so long that they could be discouraged or much less appealing to employers. Some may have been unable to find a job due to not having the required skills with the said shift in the economy. Others may have been laid off at the beginning of the recent recession and have been unable to find some form of work since. While there are more people receiving a college education than before, if we can get even more people go to college, for example, those who can't afford it, through scholarships, then we can get more people into the workforce, have new and current workers be better off with higher wages and such, and have a possibility of decreasing the very high income gap that our country is experiencing today.
ReplyDeleteThe article addresses a bit of what has been discussed above. The Congressional Budget Office has concluded just a third of the people that have dropped out of the labor force are discouraged workers who have temporarily stopped looking for jobs. The remainder, it ascribes to “demographics, as ageing baby boomers retire early, or to people who have gone jobless for so long they have permanently given up looking for work.”
ReplyDeleteWelfare and unemployment insurance are also contributing to the decrease in the labor participation rate. People are becoming too comfortable with their living circumstances after being laid off during the recent recession. Unemployment benefits allow for these people to take their time finding a new job. These people are not counted in the labor force if they don't actively search for a job within the past month.
ReplyDeleteThe aging of the baby boomers definitely plays a large role here. They made up alot of the work force and really boosted the participation rate. Now that they are reaching retirement age the rate will surely drop. So some decrease is inevitable. However to combat the rate from dropping further I think there needs to be pushes in education and also job creation. Education is crucial so more people can become certified to fill the gaps in more critical thinking jobs. Job creation even in its simplest form of manufacturing work is also important to give those who need work now the opportunity.
ReplyDeleteI agree with Jake that it is important that we emphasize policies that promote education for our current workforce. In order to be more productive, we need to encourage workers to obtain more technical skills that will allow them to get higher paying jobs. Furthermore, we need to encourage policies that increase our population rate. Currently, a lot of developed nations are experiencing a notable population decline. This is also true for China. If our population starts to decline as our population also gets older, than we will have a less productive workforce with more revenue being directed towards the services for older people. As of now, one of the main factors that is keeping our population at a increasing rate (although small) is immigration. This includes both legal and illegal immigration. If we want to increase our productivity, then we will need a bigger labor force. To achieve that, it will be important that we encourage policies that promote immigration to the United States.
ReplyDelete