I have noticed that Bank Economists, and Financial Journalists seem to be very concerned about the labor force participation rate. Moreover, this concern preceded the recent hubbub over benchmarking the labor force.
My question – why?
To a first approximation I just don’t care about the labor force participation rate and I am not sure why anyone should. You could say that it reflects the size of the taxable economy moving forward and that’s important for measures of the burden of the welfare state, but lets be serious. The movements are small, the workers marginal and the general trend towards an aging nation visible for decades now.
Sometimes I think I am detecting a sense that folks are concerned that Labor Force participation will affect the unemployment rate. Eh. Its complicated but there is no lump of growth nor a lump of job creation even in a recession. To put it terms now common place, the number of people who want to work affects the natural rate of interest.
If lots of people are trying to work they will drive up demand for capital and durable goods in the attempt and this will drive up the natural rate. In the face of a constant Fed Funds rate this will mean a faster growing economy.