There has been lots of handwringing over the issue of labor force participation and its decline during the Great Recession. The most straight forward comes from Mike Konczal
It’s always a challenge to find new and interesting ways to describe how terrible the labor market it. This is even more true as the unemployment rate is starting to decline though the employment-to-population ratio is roughly staying the same.
. . .
Even though the population is growing, the labor force has been flat for about four years now. Even worse, we don’t have a similar flatline anywhere else in the post-Great Depression to study to get some sense of the consequences of this. The recessions of the early 1960s and 1990s had flatlined labor force growth, but nothing like what we see how. How do we even go about understanding if and when it’ll converge back to trend?
I understand the intuition here, I really do. But, I just can’t get on this train.
We say markets work when every buyer can find a seller and every seller can find a buyer. Now, obviously in the intricate matching and commitment involved in the labor market this becomes complex.
Hiring a worker is a big deal. Why its such a big deal and why everyone doesn’t work for the equivalent of temp or consulting firms is a interesting question in itself. However, we do know that it in this world they do not. And, in this world hiring and firing workers is a process many folks don’t take lightly.
Nonetheless, when we are trying to analyze the distance of the economy from equilibrium, from a market characterized by equalized marginal utility products across resources, then I am really, really stuck to the notion that every seller finds a buyer and every buyer finds a seller.
In the absence of strong evidence our baseline conclusion has to be that something real about the economy is changing. That real thing might be unfortunate, but its not the same as the labor markets failing to clear.