December 12, 2006

Women’s Workforce Participation in 7-Year Drop: The Economic Impact

Filed under: Economy,Taxes & Government — Tom @ 3:38 pm

Besides illegal immigration, this decline in workforce participation by women goes a long way towards explaining why the total employment figures haven’t jumped since 2000 as they did during most of the 1990s. Partially it’s because total workforce participation is down, but I also believe it’s partially because many women returning to the workforce for a different kind of work are not being counted.

The National Center for Policy Analysis digested a subscription-only column by Sue Schellenbarger at The Wall Street Journal, whose factual lead was this:

The first national demographic analysis of the trend toward new mothers dropping out of the work force sheds new light on women’s motives for staying at home. New data from the Bureau of Labor Statistics shows that the seven-year trend has been broader than previously believed, with women at all income levels taking job breaks, not just the highly educated, prosperous moms examined in many recent studies.

The NCPA picked out these three nuggets:

  • The dropping-out trend was most pronounced among mothers of children under age 1, whose labor force participation fell about 8 percentage points from 1997 to 2004, to 51 percent.
  • The decline for mothers of 3- to 5-year-old children was less than half as large, down 3.4 percentage points to 63.6 percent.
  • And for mothers of older children up to age 17, the decline was just 1.6 percentage points.

Overall, that’s a very big drop, amounting to probably several million, in the number of people in the workforce at any given time compared to what that number would be if participation rates had stayed where they were until the late 1990s (there was a slight decline from 1997-1999, followed by the steep decline Schellenbarger cites above).

Addtionally, I also believe that when women are returning to the workforce, they are more likely to be working at places (e.g., in their homes or at very small businesses) that are NOT being picked up in the BLS’s Establishment Survey, the one used every month to report how many jobs were added to the economy. Since January 2002 (numbers that follow are in the second section of the linked text), the trough of the job market, the Establishment Survey tells us that 5,410,000 jobs have been added in the economy. But the BLS’s Household Survey, which is used to determine the unemployment rate, shows an increase in the workforce of 9,866,000 during that same time period, including almost a million in September, October, and November alone.

If you insist (if you don’t, I will :–>), there are a few potential public-policy points to be made about all of this:

  • In light of the documented decline in workforce participation by women, the better measurement for comparing one economic era to another has to be the unemployment rate and not the total number of jobs.
  • As the American Shareholders Association has opined (see last item at link), the Household Survey is probably a better benchmark to use than the Establishment Survey. I would add that it is especially important to do that if you are going to do any kind of total employment comparisons between eras.
  • Comparing economic growth rates between eras gets tricky too. It’s relatively easy to grow the economy by 3% or more when the number of people in the workforce is going up at that rate, because you can get away with zero productivity growth. When the workforce isn’t growing a great deal because of voluntary decisions by potential workers not to participate for a while, it’s a lot tougher. There had better be significant productivity improvements, or it’s just not going to happen. In that context (ignoring other inhibiting factors like Sarbanes-Oxley that I’ll save for another time), the fact that GDP has grown by about 3.8% annualized during the past 3-1/2 years (table at link reads 3.89%, but lower GDP growth in the third quarter will bring the figure down to about 3.8%), a rate that is very close to the 3.9% achieved in the last seven years of the Clinton Administration, is truly remarkable.
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