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Yellen Presents False Reality To Congress

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Message Pendaran Roberts

From Janet Yellen

The propaganda from the Obama Administration is that the decline in the labor force participation rate from a high of about 67 percent to a low of about 63 percent is due to baby boomers retiring en masse. This propaganda is supported by Federal Reserve chairman Janet Yellen. On more than one occasion during Yellen's recent appearance before Congress, she was asked about the decline in the labor force participation rate. Yellen replied that the decline was mainly due to demographic factors.

How can the Fed tell this fairy tale when its own data refutes it? That none of the senators and congressman confronted Yellen's wrong answer shows a lack of courage or a lack of staff competence.

The Fed's data reveals the opposite of Yellen's claim. If Yellen is ignorant of the facts, certainly the Federal Reserve staff are not.

The Fed divides the labor force into four general groups: 16-19 year olds, 20-24 year olds, 25-54 year olds, and 55 and over. How is the decline in the participation rate divided between these groups? Participation among 16-19 year olds has declined about 10 percent over the last eight years. Participation among 20-24 year olds has declined about 5 percent over the last eight years. The participation among 25-54 year olds has declined about 2.5 percent in the last eight years. Contrary to these groups, the participation of people 55 and over has actually increased by about 1.5 percent.

The Fed's own data refutes its chairman's explanation that the decline is explained by the older age group retiring. If it were not for the increased participation rate of those 55 and over, the decline in the labor force participation rate would be worse than it is, because participation of every other group is in decline.

One might think that most of the decline is due to people who are less educated and experienced. It is important to keep in mind that, although the decline is greater in the 16-19 and 20-24 groups than in the 25-54 group, these groups are small in comparison and so have less of an impact on the total participation rate. Moreover, the Fed keeps data on more specific groups. If we look at the Fed's data for those 25 and over who have a bachelor's degree or higher, the decline in the past eight years is worse that that of the 25-54 group at about 4 percent.

So, what explanation of the decline does the data most strongly support? The answer is that the data most strongly supports the view that the decline is due to serious employment problems in the United States and to policies, such as the Fed's low and now negative interest rates, that hurt savers. Low interest rates force those 55 and over to go back to work as they receive no income on their savings.

As high-skill jobs require training and investment by employers, companies will not employ grandpas, with their limited remaining work life, in jobs that require training expense. It is retirees who take the low-skill jobs in Walmart and Home Depot. Those in the 25-54 group are competing for more high-skill jobs than exist. Most of the jobs that have been created since the great recession are low-skill service jobs. Some in this 25-54 group, being unwilling to work a low-skill job as a bartender, drop out of the labor force (we see this in the bachelor degree, or higher, 25 and over data), but many, like the grandpas, are forced to take low-skill jobs. This forces 16-24 year olds to compete with those with more education and experience for low-skill jobs. Unable to compete, they drop out of the labor force.

It is absolutely stunning that the above explanation of the decline in the labor force participation rate, which is what the data clearly reveals, goes unmentioned by the Fed and the financial press. What has happened to the attention of House and Senate members and to their staffs that there is no recognition that Yellen's explanation is inconsistent with the Fed's data?

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Pendaran Roberts is a research fellow in the philosophy department at the University of Warwick. He received his PhD from the University of Nottingham in 2014. He has numerous academic publications. Website: (more...)

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Yellen Presents False Reality To Congress

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